Digital payments in Southeast Asia tops $600 Bn: What about India?

Singapore, Oct 28 : The digital payments in Southeast Asia is expected to exceed USD 600 billion this year and will continue to grow exponentially to reach USD 1 trillion by 2025. This would thereby mfest that the adoption of digital payments and usage levels are soaring just as the other Internet economy sectors such as ride-hailing and e-commerce.

This was one of the findings contained in a study published this month titled "e-Conomy SEA 2019" which is a multi-year research programme launched by Google and Temasek in 2016 that examines the Internet economies of Southeast Asia.

This year, the programme welcomed a new lead research partner, business consultancy Bain and Company. The 2019 research leverages Bain analysis, Google Trends, Temasek research, industry sources, and expert interviews to shed light on the internet economy in Southeast Asia.

Temasek is an investment company owned by the government of Singapore. The study says that digital payments have reached an inflection point and by 2025, will account for almost one in every two dollars spent in the region. Digital payments are defined as cashless transactions that include cards, account-to-account transfers, and e-wallets. Among these payment types, the use of e-wallets is the fastest growing. Accounting for just over USD22 billion in 2019, it is expected to surge fivefold to more than USD 114 billion by 2025.

The majority of people in Southeast Asia have insufficient access to many of the basic financial services that people in developed economies take for granted. While new financial services business models enabled by technology appear well-positioned to solve this challenge, adoption and usage are still limited in the region.

The report further added: "Of the nearly 400 million adults in Southeast Asia, only 104 million are fully "Banked" and enjoy full access to Financial Services. Another 98 million are "Underbanked", with a bank account but insufficient access to credit, investment and insurance, while 198 million remain "Unbanked" and do not own a bank account. Millions of small and medium enterprises also face large funding gaps."

The main reason for this is cost. The region is expansive, and infrastructure required to sustain physical operations of financial institutions especially in outlying cities is not easily available. For banks, investment firms and insurance compes, it does not make economic sense to have physical branches serving all locations. The other reasons are the lack of public registers, identification systems and reliable credit information - all fundamental requirements for financial institutions. Besides, because banking is tightly regulated in many Southeast Asian nations, competition and innovation are suppressed.

The emergence of digital financial services could finally offer answers to this dilemma. Using data and enabled by technology, it promises to slash cost, increase access, improve convenience and deliver more inclusive financial services for all Southeast Asians.

Five financial services were identified in the report as being ripe for transformation in the digital era: payments, remittance, lending, investment and insurance.The report also added: "Although other Financial Services are still in a nascent digital stage, we expect their penetration rate to increase two-to threefold over the next five years. Digital Lending, on track for a USD110 billion loan book by 2025, will be the largest volume contributor, spearheaded by innovations in consumer and SMB (small-medium business) lending."

How does India compare?

In India, adults with at least one digital banking account have more than doubled since 2011 to 80 per cent due to the government's mass financial-inclusion programme. Furthermore, according to Gartner, India's banking and securities sector continues to increase its investments in digital business, with IT spend estimated to increase by 9.1 per cent from 2019 to USD 11 billion in 2020.

However, digital payment usage appears to be lagging in Southeast Asia.

Based on data published by the German online statistics portal, Statista, the total value in digital payment transactions in India stands at USD64.8 billion in 2019. A similar number was reported in an Assocham- PWC India study. This is expected to grow at a CAGR of about 20 per cent reaching USD134.6 billion by 2023 and a similar growth rate for another two years will see the usage of digital payment methods by Indians reach USD194.1 billion by 2025. This is just around 20 per cent of the total value of transactions projected for Southeast Asia countries in 2025.

For comparison, Southeast Asia's population is about 650 million and aggregate GDP is USD2.9 trillion versus India's 1.33 billion (population) and USD2.7 trillion (GDP) respectively.

What reportedly has been working in India's favour as far as the usage of digital payments is concerned are demonetisation, discounts and promotions on mobile wallet transactions, and the interoperability between different payment facilitators.

On the other hand, challenges remain and have to be overcome to encourage further and faster growth. These issues include low margins for service providers, charges imposed on consumers for making digital payments, KYC (Know Your Customer) processes and cybersecurity.

( With inputs from ANI )