An article on “The future of ASEAN financial services” on the ASEAN Post on September 19 highlighted economic achievements of the Association of Southeast Asian Nations (ASEAN) over the past 20 years.
After the financial crisis of 1997 swept across Asia devastating many, including the Southeast Asian community, the ASEAN has strived to pull itself back together and has since flourished as an economy, the article said. The bloc now has a combined GDP of US$2.4 trillion and is collectively the third fastest growing Asian economy after China and India.
The financial crisis that damaged the region has proven to be a blessing in disguise, it reads, with most countries going on to build strong foundations for economic growth.
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| Photo for illustration. Source: seasia |
One such driver of growth is the region’s rising financial services sector, which has grown rapidly since 2005. Within 10 years, the sector has contributed more than US$20 billion to the economies of the Philippines, Thailand, Singapore, and Indonesia. In 2016, Indonesia leapfrogged Singapore to become the largest financial services market in ASEAN in terms of financial gross value added (GVA), it said.
According to PwC, one of the world’s leading audit firms, the growth of the financial services sector is driven by three key factors – the increase in the utilisation of banking services, the advancement of fintech, and continued ASEAN integration.
Currently, there are 87 million middle class households in Southeast Asia, with the number expected to reach 116 million by 2020 as the regional economy continues to grow. The rising disposable income for this demographic will increase the demand for financial instruments that can facilitate the purchase of services and higher-value products.
Foreseeing the demand for financial services, many fintech firms have begun setting up shop in the region. This, combined with the region’s ever-growing smartphone usage and internet penetration rate, digital banking services will experience exponential growth, the article added.
The future may look bright for the region’s financial services sector, but there are still some hurdles to be overcome. One major problem is the lack of access to banking, insurance, and asset management services. Indonesia, the Philippines, Vietnam, and Cambodia are lagging behind in terms of banking penetration compared to Thailand, Malaysia, and Singapore.
The expansion of digital wallets and digital services may help the unbanked populations of these countries, but such services can only do so much. Without proper banking and financial infrastructure in place, access to financial services for citizens will remain low.
The lack of financial access will create other problems as well for the sector. The financial services industry relies largely on non-cash transactions, which can either be digital or made via debit and credit. Since many in the region do not have financial access, this has created a society that still prefers cash as their main mode of payment. The PwC report highlighted that three key challenges to transitioning from cash to debit or credit card – the lack of point of sale (POS) penetration, low interoperability, and low payment volumes.
Right now, the region’s financial services sector has the all the right ingredients for it to flourish, but there are still major gaps that need to be plugged. However, it is not the responsibility of any one particular entity – such as the Government or banks – but for each component in the ecosystem to play their roles effectively to ensure continued growth, it noted.
