COVID-19 has thrust the world into recession, which as a result akin to a domino effect, has led to rapid and accelerated change. Most notably, industries have pivoted online as we hurtle headlong into an increasingly digitalized society. In response to extended lockdowns, society has become more reliant on technology than it has ever been. Fortuitously, this post haste shift to digital has provided Fintech with an impetus for growth in alternative lending, payments, banking, capital markets, SME solutions, wealth management, real estate and insurance sectors. Embedded Fintech is increasingly prolific with non-financial companies such as telecom operators, retailers, e-commerce integrating technology enabled financial services in their product offerings here in South East Asia in order to enhance customer loyalty and monetize customer relationships and data.

The next generation of banking service providers and financial technology enablers who continue to facilitate the growth of open banking around the globe are probing markets across ASEAN given the large ‘underbanked’ and ‘unbanked’ population that legacy banks have failed to serve. Impediments to deployment of digital financial services within ASEAN are fourfold; reluctance to abandon cash, unreliable digitized national identification systems, regulatory prioritization of consumer protection over innovation and the palpable absence of robust credit bureaus.

Fintech within Southeast Asia represents a multi-billion-dollar opportunity with alternative lending as the largest revenue pool. However, the overarching ramifications of COVID-19 make the following trends immediately apparent:

1. The Rise of Digital Banks

The age of digital banking is upon us. The Monetary Authority of Singapore (“MAS”) has led the way by originally articulating eligibility and assessment criteria for 2 digital full bank (“DFB”) and 3 digital wholesale bank (“DWB”) licenses for which applications were allowed until 31 December, 2019 (in addition to the existing internet banking framework that was announced twenty years ago).  On 4 December, 2020, MAS awarded licenses to 4 applicants who had successfully cleared all prudential requirements and pre-conditions from a pool of 14 eligible applicants who were assessed on their proposed business models and incorporation of innovative use of technology to serve customer needs together with their ability to manage a sustainable digital banking business. MAS also took into consideration the eligible applicants’ business plans and assumptions in context of the impact of the COVID-19 pandemic. Grab Holding Inc. and Singapore Telecommunications Ltd. consortium and a Sea Ltd. wholly owned entity had successfully qualified DFB licenses. DWB licenses were granted to the Greenland Financial Holdings Group Co. Ltd, Linklogis Hong Kong Ltd, and Beijing Co-operative Equity Investment Fund Management Co. Ltd., consortium and an entity wholly-owned by Ant Group Co. Ltd.

The new digital banks are expected to commence operations from early 2022.

2. Regulation for New Financial Services Technology

Regulation in the ASEAN Fintech space is also one of the key drivers for growth as this in turn affects the requirements for licensing and ease of doing business. Consumer protection has historically always taken precedence over innovation. In context of the recent Wirecard scandal in Germany, the case for consumer protection has been entrenched even further. However, the technology itself is not at fault; rather the gaps to be addressed are to be found in prevalent accounting practices – an old acorn in the trick bag of scam and fraud. Nevertheless, if Fintech is to realize its fullest potential, consistent regulatory and government policies are the need of the hour. Regulations must consistently articulate and give effect to digitization and financial inclusion, such as electronic KYC and licensing to further allow establishment of virtual banks. This would also entail establishing critical digital infrastructure being national identification systems, real-time payment systems, standardized QR codes and effective credit bureaus with regulatory foresight as the foundation for this digital infrastructure.

3. Infrastructure Redundancy

Exploiting an opportunity can be issue in itself. Both startups and established Fintech companies face an increased demand for their services during the global lockdown. People have become very reliant on Fintech and companies must be prepared to accommodate this increased demand which involves developing and improving their enterprise IT infrastructure. For startups this has been easier, as they are newer to the scene and their flexibility allows them to develop more modern and innovative solutions. On the other hand, established banks and financial institutions have found this difficult and have been slow to adopt new technologies due to the nature of their legacy IT infrastructure and services. The unprecedented year of COVID-19 has underscored the need for new IT foundations with modern technologies for established companies, especially since the world is moving into a more digitalized, cashless society with embedded Fintech.    

4. Selective Funding

Deal funding of Fintech start-ups in Asia has pivoted. An anti-pattern has emerged; investors that have traditionally prioritized growth, customer acquisition and competing for market share in Fintech start-ups are now visibly more conservative and appear to be training their focus on companies that are profitable. Consequently, Fintech businesses have adjusted to working with less liquidity, since many are heavily dependent on investment to fund operational costs. Nonetheless, this trend varies contingent on the sector serviced by the Fintech startup – companies linked to industries such as tourism or entertainment are likely take the brunt of the recession to a greater extent compared to e-commerce businesses which may succeed during these times.

5. Startups vs. Established Enterprises

The ongoing recession has not only highlighted the vulnerability of startups, but also of larger financial institutions looking to adapt their business. Despite the glaring risk of failure, especially during an economic crisis like this, a key advantage that startups have which established enterprises lack, is flexibility. The ability to execute rapid change in response to fluctuations of economic activity is precisely the key to survival during a crisis like COVID-19. Start-ups are able to easily pivot, shut down projects, reorient themselves towards real profit opportunities and even launch new products or solutions in response to the current environment. Certain Fintech verticals like payments and lending are quickly reaching that point of inflection across South East Asia.


The fact that Southeast Asia’s consumers have less access to financial services than their peers in developed markets on one hand and yet continue to maintain high levels of smart phone penetration on the other hand, represents a world of paradoxical opportunity. Across the region, much of the growth in Fintech will come from Southeast Asia’s developing markets. Vietnam, Indonesia and Philippines digital payments gross transaction value is still expected have double digit growth as opposed to a more conservative growth path for mature markets such as Singapore. Similarly, digital lending in these three countries is still expected to demonstrate meteoric growth given the amount of room left for development. Indonesia and Vietnam will dominate in terms of pure revenue potential.

While the pandemic has led to historically unprecedented economic impact in terms of scale and severity, it has also highlighted the power of digital technology which has enabled many industries and businesses to continue working during these unprecedented times. As an industry however, Fintech is unlikely to become highly concentrated despite current efforts at consolidation by regional aggregators like Grab and Gojek. The diverse business environment, divergent regulatory interpretations and high levels of competition make Fintech particularly susceptible to fragmentation.  Established banking and financial institutions may retain greater capital access and arbitrage for now but Fintech itself is also being institutionalized such that both are no longer mutually opposed to each other but rather collaborators in the evolution of the financial industry.

Over the next several weeks, we will present a series of short articles reporting on the current state of fintech within the ASEAN region from a legislative and policy perspective with a country-based overview of the current and future fintech landscape. COVID-19 has thrust the world into recession and its related domino effects have led to rapid and accelerated change. Most notably, industries have moved online as we collectively begin to embrace and advance headlong into an increasingly digitalized society. In response to extended lockdowns, society has become more reliant on technology than it has ever historically been. Bangladesh, Cambodia, Indonesia, the Lao PDR, Myanmar, the Philippines, Singapore, Thailand and Vietnam: this series will serve as an essential reference tool for fintech professionals seeking to navigate the various challenges and pitfalls in the realm of fintech.


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