SEA fintechs to shift focus on profits as adoption gains pace: Fitch

The region’s large unbanked population underpins its market potential.

Southeast Asian fintech firms will shift their focus on profits as the industry gains scale amidst a rapid rise in fintech adoption and broadening internet connectivity further boosted by the social-distancing measures to contain the COVID-19 pandemic, according to a report by Fitch Ratings.

The region’s internet users continue to grow, with the top six economies, namely Singapore, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam, increasing by about 40 million in 2020, with close to 70% of the population now online, up from around 46% in 2016, according to sector reports by Google, Temasek, and Bain.

“Digital financial services are benefiting from this trend. Electronic wallets, in particular, have gained rapid share, accounting for 15% to 20% of point-of-sale and e-commerce transactions within the top six economies in 2020 (2019: 5% to 10%), according to the payment technology provider, Worldpay. This serves as a launchpad for other financial products to be distributed on the same platforms,” Fitch explained.

Meanwhile, the region’s large unbanked population underpins its market potential with Southeast Asia’s top-six economies comprised a population of over 580 million at the end-2020, of which more than half were unbanked.

Fitch said that local regulators are generally supportive of the fintech industry, drawn by the potential to broaden financial inclusion and drive product innovation. Nonetheless, aggressive business practices are likely to attract a strong regulatory response, and we expect stiffer sector regulation as the industry expands.

“Many fintech business models remain developmental, with unproven paths to profitability, despite the growth opportunity. Large financial-sector incumbents will remain formidable competitors, with the resources to outspend new entrants in technology investment. Sector competition is likely to remain intense, and we expect economies of scale and tighter regulation to drive industry consolidation in the medium term,” Fitch added.

Despite these growth markers for the industry, however, Fitch still considers the sector to be in a stage of infancy, with substantial room for growth.