Southeast Asia’s booming digital payment market is expected to hit USD 2 trillion by transaction value in 2030, ballooning threefold over a decade earlier, as more fintech and digital banks emerge from the best-funded segment in the region, according to a new Google-led study.
The annual report, which was released Thursday by Google, Singapore state investor Temasek Holdings, and U.S. consultancy Bain & Co., forecast digital economy trends in six regional markets: Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.
The growth in digital payments parallels the continued growth of internet users in Southeast Asia, who are expected to number 460 million this year. After years of acceleration, however, the report said digital adoption is “normalizing,” with new users expected to total 20 million this year, about half as many as were added in 2020 and 2021.
Following a spurt in digital takeup during the COVID-19 pandemic, the report said the softening growth reflects the fact that most tech companies are shifting from acquiring new customers to deepening their engagement, aiming for more frequent and valuable orders or subscriptions, and cross-selling.
“This is again a normal phase and an expected phase of the digital economy. It has just arrived in Southeast Asia,” said Stephanie Davis, vice president of Google Southeast Asia, at a briefing on the report.
Another way in which companies are deepening engagement is through financial services. Despite slower demand growth in the internet economy overall, the report expects payments to lead the development of digital financial services, with subsectors such as remittances, lending, investments, and insurance all rising by double digits.
“We’ve seen lots of adoption during the pandemic and we do not see it go[ing] away,” said Florian Hoppe, partner and head of digital practice for the Asia-Pacific at Bain, at the Thursday briefing.
Southeast Asia has become a battleground for digital payment companies, with Western players like Amsterdam-based Adyen and San Francisco- and Dublin-headquartered Stripe becoming bigger players in the region. Stripe began service in Thailand this week, having entered Singapore and Malaysia in recent years.
In digital banking, tech companies are competing for the mass market and underserved users, hoping to leverage their large customer bases. Ride-hailing and food delivery specialist Grab opened a virtual bank in September, together with Singapore Telecommunications, targeting gig economy workers and younger people. The virtual bank aims to enter Malaysia and Indonesia next year.
“[Digital banks] are operating at a much lower cost base—leveraging lessons from other markets and digital banks—than the traditional banking peers they would have to compete with,” said Hoppe.
Ant Group, the fintech affiliate of China’s Alibaba Group Holding, launched a wholesale digital bank in Singapore this year. Incumbents like Standard Chartered, together with Singaporean retailer FairPrice Group, also launched a virtual bank in the city-state, picking up 100,000 customers within 10 days.
However, Hoppe said that new digital banks “will have a much harder [time] fighting for some of the high-net worth, mass-affluent segments,” with which established banks tend to have stronger relationships.
The report predicted that online spending in the region—consisting of segments such as e-commerce, food delivery, transportation, online travel, and media—will rise 20% to USD 194 billion this year. Although the figure has nearly doubled over the last three years, growth in 2022 is expected to slow from a 38% expansion last year.
The region’s internet economy is projected to reach USD 330 billion in 2025, down from last year’s forecast of USD 363 billion. This was the first time the report cut the forecast, said Davis of Google, pointing to the impact of global supply chain disruptions last year.
By country, Indonesia continued to lead as the largest digital economy in Southeast Asia. There, online spending is forecast to rise to USD 130 billion by 2025, followed by Thailand, Vietnam, the Philippines, Malaysia, and Singapore.
Startup funding in the region maintained strong momentum in the first half of this year, with deal value rising 13% over the same period a year earlier. While growth-stage investments hit an all-time high, there was a divergence in investor appetite, with late-stage startups impacted by dimmer prospects for public share listings.
By sector, digital financial services overtook e-commerce, raising a record USD 4 billion in funding in the first half of this year. Investors were most bullish on the payment and consumer lending sectors.
“However, competition is intensifying, and we expect consolidation in the coming months,” said Fock Wai Hoong, deputy head of technology & consumer and Southeast Asia at Temasek.