Delivering digital financial inclusion in Southeast Asia

31 May 2022

The six largest economies of Southeast Asia – Indonesia, Thailand, the Philippines, Vietnam, Singapore and Malaysia – took a hit from the COVID-19 pandemic, with detrimental impacts on economic growth, unemployment, inequality and poverty levels.1

Up until 2020, the six countries – the ASEAN-6 as they’re termed – were collectively growing by between 5 and 6 per cent a year,2 but economic growth contracted in 2020, before partially recovering in 2021; a return to pre-pandemic levels is expected this year.3

Though challenges remain – not least in the traditional industries of tourism and hospitality – and the re-emergence of global macroeconomic factors looms large, the region’s fast-growing digital economy is helping power its post-pandemic recovery.4

The inaccessibility of banking system in Southeast Asia is now disrupted by digital financial services post-COVID-19

Despite a GDP of close to $US3 trillion5 and a population heading towards 600 million6, the region is oft overshadowed by its powerhouse neighbours China and India, and remains one of the least understood.

A mix of developed and emerging economies, urbanisation and digitisation have been fuelling economic growth at a level consistently exceeding historical global averages, and income growth has been significantly increasing since the turn of the millennium. Around 15 per cent of its population live in one of six megacities, which together account for almost a third (30 per cent) of the region’s GDP.7

Until the pandemic, urbanisation and strong economic growth were reducing poverty – the proportion fell below 10 per cent for the first time in the past decade8 – and giving rise to a burgeoning middle class and a consumption-driven boom.

Yet half the population remain unbanked with no access to financial products, and a further fifth (18 per cent) are underbanked – lacking access to anything other than a bank account.9 The inaccessibility of the established banking system for many has provided the ideal backdrop for providers of digital financial services to step in and supplement its services.


Southeast Asia adult population and banking penetration (2018)

Source: Euromonitor, World Bank, Bain and Temasek


Eager to trial their services is a young – half are under 30 years old – and digitally native population that spends around 8 hours a day online. Smartphone penetration is on the verge of crossing 70 per cent10 of the population and each year tens of millions of its people became first time internet users.11

The COVID-19 pandemic acted as a further catalyst when technology emerged as a critical means of reaching a population with health advice and allowing financial and commerce transactions to continue against a backdrop of lockdowns and mobility constraints. This saw an additional 60 million people in the region become online consumers throughout its duration.12

However, unlike in markets where banking access is more universal, the opportunity for fintech companies is not purely focused on converting consumers to digital alternatives but is often about addressing the challenge of providing a broader suite of financial services products. Those such as lending and wealth management services which have traditionally been once out of reach to consumers who have no previous experience with them and lack the credit histories required to obtain them.


Digital consumer finance

So, whilst providers in the region started out with a focus on providing e-wallets to facilitate online and offline payments, they have broadened their functionality and in some cases are now replacing bank accounts and offer access to a broader suite of financial products, including savings and investment products, lending and insurance.

An example of one such product is Singapore-based Grab, which allows consumers to invest as little as $SG1 ($A1) at a time in fixed income funds through its app and offers users the convenience of being able to make cash deposits into their digital accounts whilst in its rideshare cars. They hand over their money to drivers who themselves are insured through fractionalised premiums paid only to cover the time that they are working for the company.

This has helped some – including Grab, but also GoTo (formed by the merger of Indonesian internet leaders Gojek and Tokopedia), MoMo, amongst others – increase user numbers over time. As has their metamorphosis into ‘superapps’ and a broader digital ecosystem of services that users would typically pay cash for – such as e-commerce, ride hailing, food delivery and mobile top ups.

The convenience and offering of these ‘superapps’ have led to their growing popularity amongst the population and a proliferation of providers that’s seeing digital payments fast becoming the norm for many of Southeast Asia’s consumers. It’s also helped propel the region to becoming one of the fastest-growing fintech markets in the world.13

Should they successfully convert a population with high smartphone penetration rates but traditionally dependent on cash to one that conducts and manages its spending online, they stand to capitalise on a digital economy that could be worth at least $US300 billion by 202514 (though post-pandemic estimates are that this could now be $US350 billion15) and a financial services opportunity of $US38 billion.16


Southeast Asian digital financial services represent a $US38 billion revenue opportunity by 2025

Source: Euromonitor, GlobalData, Bain and Temasek

Note: Combined revenue across six markets: Singapore, Malaysia, Thailand, Philippines, Indonesia and Vietnam

"Southeast Asia is a vast region with a large, urbanising, digitally savvy, yet underbanked population. Cash has been – and in many ways, remains – a dominant feature of everyday life, but digital finance providers are steadily bringing the under and unbanked in from the financial cold.
"However, unlike in other markets with more universal banking access, the opportunity for FinTechs doesn’t stop at e-wallets and online payments. Major payment platforms with captive user bases are increasingly monetising by providing a broad range of financial services to a significant segment of the population who have never had access to them until now.
"This is increasing financial inclusion and access to economic opportunity in the region, whilst also presenting an opportunity for companies and investors alike. As an investor, we are increasingly looking downstream past platforms to startups using technology to delivery financial products, from wealth management to insurance to credit, including alternative credit solutions such as buy now pay later."

Colin Wu,
Head of Technology Capital (Asia),
Macquarie Capital Principal Finance

Democratising commerce

The engine of the Southeast Asia economy is the 70 million micro, small and medium enterprises. Also underbanked17 and in the majority accepting only cash payments18 and paying their employees and suppliers in cash, they underlie the reason 60 per cent of the region’s Gross Transaction Value is cash based.19

Such dominance of physical currency is both the largest competitor to digital payment platforms and offers its greatest potential. These businesses face an online future and a requirement to develop the capabilities to accommodate the browsing and purchasing habits of young and digitally savvy consumers.


Cash usage is still dominant in Thailand, the Philippines, and Indonesia with a >50% contribution

Source: Worldplay from FIS 2021, Macquarie Research, April 2021


Digital financial providers are – perhaps unsurprisingly – playing a key role in helping them make the transition. In addition to facilitating online payment, players like GoTo and Grab are increasingly key for small merchants, from simple initiatives such as introducing QR codes to accept digital infrastructure with minimal payments to providing access to new customers hundreds of miles away to fulfilment and logistics.

Accordingly, estimates are that the volume of funds flowing through digital wallets in Southeast Asia will more than treble from its current $US39 billion, to $US138 billion in 202520, as they increasingly encroach on the territory of cash transactions.

And as merchants digitise, it creates opportunities for the providers to facilitate financial services to these customers who have traditionally struggled to obtain financing or insurance, whether it is drivers for ride-hailing companies or restaurant partners for food delivery platforms.

Financial inclusion

Nimble fintech companies are particularly well-placed to innovate – especially in the lending space. Traditional banks are focused on providing credit, through loans and credit cards, but only to those with sufficient credit history. Fintech companies are able to develop their own credit scoring techniques and offer innovative products, such as ‘buy now pay later’ style offerings.

Where before it was impossible to lend to unbanked consumers and businesses as they had no or limited credit history, the use of digital alternatives to mainstream financial products allows providers to build up data on users’ financial management and spending patterns over time and use this to make future product and lending decisions.

Bringing such financial inclusion to a new generation is helping close the equality gap between those who have instant access to the broader digital economy and rapidly expanding world of ecommerce.

Access to savings, micro-loans and insurance products, for example, can also help people climb out of poverty by providing access to funding for education and training and stop them falling back into it by cushioning them when they experience income fluctuations or suffer from temporary or prolonged unemployment.

For businesses, digital payments themselves can help them manage cash flows, prove credit worthiness and attract new customers, whilst acting as a gateway to credit products that can fund growth and insurance that helps them mitigate risk.


Good for the economy

Digital financial inclusion is associated with higher GDP growth Impact of digital financial inclusion on growth (in percentage of annual GDP growth)

Source: IMF


Note: Annual GDP growth rates for countries with low (25th percentile), median, and high (75th percentile) levels of digital financial inclusion are shown, holding other explanatory factors of growth at their median levels.

At the national level, financial inclusion creates jobs, opens up new commercial opportunities, increases the standard of living, and can significantly reduce poverty rates21 and income inequality in developing countries,22 and is associated with higher GDP growth.23

Indeed, the World Bank cites access to mobile and digitally enabled payments as a necessary component, if a country’s population is to have financial inclusion, which itself the IMF describes as the bridge between economic opportunity and outcomes.24

  1. Asian Development Bank, COVID-19 Pushed 4.7 Million More People in Southeast Asia Into Extreme Poverty in 2021 But Countries are Well Positioned to Bounce Back, 16 March 2022,
  2. Organisation for Economic Co-operation and Development (OECD), Economic Outlook for Southeast Asia, China and India 2020, OECD, 2019,
  3. Asian Development Bank, Southeast Asia Rising from the Pandemic, March 2022,
  4. DBS Bank, ASEAN-6 2022 Outlook: Emerging green shoots, 10 December 2021,
  5. Organisation for Economic Co-operation and Development (OECD), Economic Outlook for Southeast Asia, China and India 2020, OECD, 2019,
  6. Azaz Zaman, How digitalization is making South and Southeast Asia engines of growth, World Economic Forum, 10 February 2022,
  7. The World Bank,
  8. U.N.U.-WIDER, A snapshot of poverty and inequality in Asia: Experience over the last fifty years, WIDER Research Brief 2020/2, April 2020,
  9. Fitch Ratings, Digital Banks in South-East Asia, 19 August 2020,
  10. Kentaro Iwamoto, Southeast Asia eclipses China as world's mobile economy hot spot, Nikkei Asia, 12 February 2019,
  11. Google, Temasek, Bain & Company, e-Conomy SEA 2020 (5th edition), 10 November 2020, 
  12. Azaz Zaman, How digitalization is making South and Southeast Asia engines of growth, World Economic Forum, 10 February 2022,
  13. Julie Muhn, Southeast Asia’s Fintech Boom: All You Need to Know, Finovate, 25 December 2020,
  14. Google, Temasek, Bain & Company, e-Conomy SEA 2020 (5th edition), 10 November 2020, 
  15. Asian Development Bank, Southeast Asia Rising from the Pandemic, March 2022,
  16. Bain & Company, Google and Temasek, The Future of Southeast Asia’s Digital Financial Services, 30 October 2019,
  17. Bain & Company, Google and Temasek, The Future of Southeast Asia’s Digital Financial Services, 30 October 2019,
  18. Google, Temasek, Bain & Company, e-Conomy SEA 2020 (5th edition), 10 November 2020,
  19. Google, Temasek, Bain & Company, e-Conomy SEA 2020 (5th edition), 10 November 2020,
  20. Grab Holdings Ltd, Grab Investor Presentation 2021, 13 April 2021,
  21. M.A. Omar and K. Inaba, Does financial inclusion reduce poverty and income inequality in developing countries? A panel data analysis. Economic Structures 9, 37, 28 April 2020,
  22. Asli Demirguc-Kunt, Leora Klapper, Dorothe Singer, Financial Inclusion and Inclusive Growth – A Review of Recent Empirical Evidence, World Bank Group, April 2017,
  23. Ratna Sahay et al., The Promise of Fintech : Financial Inclusion in the Post COVID-19 Era, International Monetary Fund (IMF), 1 July 2020,
  24. Mitsuhiro Furusawa, Financial Inclusion: Bridging Economic Opportunities and Outcomes, Conference on Financial Inclusion in West Africa, 20 September 2016,

Macquarie Capital has or manages investments in some of the companies named in this article.