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Digital lending on an upward trend in Southeast Asia: Report

In 2018 only 47% of adults in Southeast Asia had a bank account.

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India and Vietnam outpaced their Asian peers when it came to applying for online credit despite their lower per capita income in this region, per a survey by a Lativia-based fintech company Robocash aimed at finding out the digital lending trend in Southeast Asian countries including India, Indonesia, Vietnam, and the Philippines.

While the use of digital tools to avail financing was relatively even in the aforementioned four countries, India and Vietnam with 63% and 64% usage were the top two markets where users applied for credit on a digital platform at least once in 2019. Robocash talked to 750 people in the four countries in the second half of January.

“In general, an urgent, unexpected need remains to be the main reason to apply for fintech financing,” the Robocash report said. On average 61% of respondents applied for online credit at least once in 2019.

Lending platforms in Southeast Asia have cropped up at a large scale in the past couple of years owing to the increase in demand for such services as a large number of people still remain unbanked. A CB Insights report says in 2018 only 47% of adults in Southeast Asia had a bank account, leaving more than half the adults in the region unbanked who have to lean on to unorganized credit facilities.

Technology startups working in the fintech space have taken cognizance of this and are trying to provide lending and credit to these users. Institutional investors have also backed up these fintech companies as they see the untapped opportunity this space promises. VC funding in Southeast Asia based fintech companies in 2018 grew 143% year-on-year hitting a record of USD 485M invested across 68 deals, according to the CB Insights report.

While fintech companies are working on creating credit score for the unbanked users by spending in technology, other tech startups such as Indonesian ride-hailing giants GoJek and Grab, Indian mobility services unicorn Ola, and e-commerce giant Flipkart are also using their reach to get into lending. To offer tailored and flexible lending solutions, Walmart-owned Flipkart has applied for a non-banking financial company (NBFC) license as well.

As there has been an unprecedented growth in lending services in India, the fintech startups are trying to differentiate from others by offering an array of services right from bite-sized microloans, payday loans, to small working capital tailored for small and medium businesses. India has also seen a growth in peer-to-peer (P2P) lending platform mushrooming in the country, space which is expected to grow in usage as Reserve Bank of India increased the lending limit for P2P startups.

One of the main reasons major tech companies want to ride the lending bandwagon is because there is very little to no revenue generation opportunity in digital payment services. Thus, they are turning towards offering credit to consumers as well as businesses. Indian fintech startups raised USD 2.6 billion in 2019—the highest ever—double the amount of investment it raised in the previous year.