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The access to Unbanked and Underbanked of Southeast Asian fintechs

The financial services hold an extraordinary potential that could be released if essential underlying challenges are focused on:

The six largest Southeast Asian countries are one of the world’s largest and fastest-growing regions, with a population of 668 million and a thriving GDP of US$4.7 trillion by 2025. Within all industries in the region, the financial sector has an exceptional potential that could be released if essential underlying challenges are focused on.

With only 18 percent of its adult population using a bank account for receiving wages and only 11 percent borrowing from financial resources, the region’s 70 percent of the adult population is either unbanked or underbanked. Additionally, millions of Southeast Asia’s small and medium enterprises (SMEs) lack capital funding.

Remittance and mobile payments are the turning points. Everyone is looking at digital financial services as a means of controlling these challenges. The high numbers of smartphone usage in the region– even higher than the use of financial services– make customer adoption of services such as e-commerce and ride-hailing easier, which provides opportunities to offer embedded financial services.

Of all financial services, these turning points will highly occur in the next five years. Currently, fintech services, mobile payments, and remittances are at or approaching the turning points.

The most state-os-the-art services, digital payments, will exceed US$1 trillion in transaction value by 2025. Other financial services such as lending, investment, and insurance are still emerging, but each is booming by more than 20 percent annually through 2025.

Banking based on a technology platform

Taking advantage of technology to offer the unbanked and underbanked financial services could urge the gross domestic product (GDP) in markets such as Indonesia and the Philippines by two to three percent, and in Cambodia by six percent.

Leveraging of this opportunity could shape the future of the financial industry, specifically in smaller markets like Cambodia and Myanmar. Only a small percentage of the current demands for financial services of these markets are satisfied by formal providers.

“Businesses can not compete on a global scale and citizens can not explore the possibilities of working remotely for international companies due to an inadequate cross-border payment system. Financial exclusion creates many limitations,” says Philip Lim, Founder, and CEO of Skybit, a company that uses blockchain technology to provide a modern financial bridge between Myanmar and the rest of the world.

By offering digital financial services to individuals and businesses through advanced technologies, financial inclusion can generate limitless capacities for growth not just for the country’s economy but also to empower the population to approach financial services that were used to be limited.

“Blockchain enables monetary value to flow freely across the world over the internet, making it easier for it to enter countries like Myanmar. When blockchain is used in tandem with local mobile money platforms for domestic distribution of the country’s fiat currency, even people in rural areas without bank accounts could participate in international trade and finance,” Lim added.

How fintech can affect financial inclusion

Fintech and blockchain solutions will have the most critical effect on financial inclusions. For example, these innovative technologies can allow fast, low-cost and customer identification and verification processes such as know-your-customer (KYC) schemes.

These services can alter the economics of the supply chain by addressing last-mile distribution and servicing issues through digitally-enabled physical access points such as smartphones or point-of-sale devices.

Fintech services can become popular in the payments ecosystem. Government-to-person payments such as employee payments, both wages and pensions, and remittance flows can create the initial push for electronic payments so that supporting the development of possible supply-side business situations.

Integrating blockchain in financial services can remarkably improve access to credit by using alternative sourcing data such as payment transactions. This will improve customer profiling, fraud detection and credit risk assessment.

About savings, it can be mobilized digitally thanks to alternative distribution channels, such as mobile wallets connected to savings accounts and automatic goal-based savings products. A secure KYC will also help in providing access to savings accounts for the unbanked and the underbanked.

“Blockchain and fintech would go a long way in empowering businesses and Myanmar citizens to participate and compete on a global scale. Aid organizations can benefit immensely by being able to receive donation payments from around the world. Financial inclusion will empower locals to create online businesses, look for remote work opportunities and conduct cross-border trading,” Lim explained.

Supportive regulations and the future of fintech services

Fintech services are expected to bring at least US$38 billion by 2025 and makeup 11 percent of the entire financial industry. Several factors are required to come up such as continued investment and incentives to stimulate mass adoption to gain the full revenue potential of US$60 billion. But the most crucial challenge will be supportive regulations and government policies.

This means that there is a need for a coordinated push in digitization and financial inclusion, licensing, and electronic KYC to enable virtual banks and other financial services. Moreover, there should be an established infrastructure such as digitized national ID systems, real-time payment systems, and efficient credit departments.

These infrastructures will help Southeast Asia’s financial inclusion reach its full potential through the digital financial services industry.