While US and UK interest rates may have peaked, it has undoubtedly been a challenging 2023 for the FinTech sector amid concerns of an economic slowdown. However, some robust trends are still emerging in the APAC region, which bode well for the long-term future of financial technology. So, what are these emerging trends?
Buy now, pay later
While Indonesia has been put forward as a top five global economy in the medium term, in the short-term, it seems there is significant demand for buy now pay later services. In 2022, the sector was worth $4.5 billion, an increase of 70% from the previous year. While growth is forecast to slow to around 32.5% per annum, this equates to a market size of roughly $25 billion by 2028. What is fuelling this growth?
The buy now pay later phenomenon fills a gap caused by financial exclusion in banking and credit cards ownership. While initially focused towards the higher end of the retail market, buy now pay later is now being used for everyday transactions.
Digital banking
It appears that 2023 could be a bumper year for the digital banking sector in Malaysia, with the Malaysian central bank awarding five digital banking licences in 2022. As with other countries starting to enjoy the benefits of digital banking, this renewed high-tech threat to the traditional banking system is cutting costs to the bone and introducing new innovative services.
FinTech is being used to create all-encompassing high-tech platforms, negate the risk of fraud and control other issues such as money laundering. This will help to create a solid base from which the Asian digital banking sector can grow, reaching out to those who were previously excluded from the traditional banking system.
Embedded finance
It will come as no surprise to those who follow the APAC market that Singapore is leading in high-tech areas such as embedded finance. There is particular interest in areas such as:-
· Instant payments
· Cross-border transactions
· Micro-lending
Cutting-edge, embedded finance technology allows non-financial service companies to reach out to their clients without going through various layers of administration. This will encourage the creation of personalised financial products which give individuals and businesses precisely what they need within a highly competitive cost structure.
SME lending
Small and medium-sized enterprises are the lifeblood of countries such as the Philippines, generating just under 36% of GDP and employing 63% of the workforce. Despite the considerable influence they have on the economy, SMEs are underfinanced – the perfect challenge for the FinTech industry.
Digital loans are becoming more prevalent in the Philippines, with FinTech companies creating alternative credit rating systems to those already used. While many of these SMEs have strong business models, impressive cash flow and constant growth, they don't always have the documentation required for the traditional credit rating systems. Using Big Data analysis, FinTech companies can now use customer reviews, income flows and other business factors when reviewing requests for finance. This is a potentially massive change for SMEs across the Philippines!
Summary
The above information highlights the game-changing contribution of the FinTech sector across different parts of the APAC region. Above all, it can make finance an option for more people, reducing financial exclusion and encouraging long-term business growth and increased consumer spending.