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The Changing Role of Fintech in Asia’s Economic Environment

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December 12, 2022 | Jonathan Pryer

Economic uncertainty has made its way across the globe – slowdowns have become largely inescapable as inflation has taken hold. Despite the setbacks, the Asia Pacific (APAC) region will continue to grow, partly thanks to its booming fintech sector. Read on to see how APAC is responding to economic challenges and why we think the region will come out on top.

Consumers and lenders are in conservation mode

The Asian Development Bank (ADB) has noted that the economies of APAC are slowing down due to a combination of global challenges including inflation, supply chain issues, the war in Ukraine, and government fiscal policies. According to the ADB, inflation rates have risen from 3.7 to 5.2 percent between April and  September in Southeast Asia, while in South Asia, it rose from 3.7 to 5.2 percent during the same period. Similarly, East Asia saw a rise from 2.4 to 2.5 percent, between April to September.  

As a result, consumers are cutting back on discretionary spending and lenders are becoming more cautious and shoring up capital.  Start-ups and other businesses dependent on capital markets to sustain operations face considerable uncertainty. Reflecting this cautious outlook, the ADB lowered its GDP growth rate forecasts in South and East Asia to 6.5 percent (from 7 percent) and 3.2 percent (from 4.7 percent), respectively.

We can expect businesses to consolidate in the succeeding months. Those who have emphasized sustainability through product development and optimized customer experience will emerge in a stronger position after this period. 

Greater consumer spending to sustain Asian economic growth

Despite this, Asian economies are still expected to grow, albeit at a slower rate. In fact, the ADB pegged their forecast for Southeast Asia’s GDP growth to 5.1 percent from their previous forecast of 4.9 percent. The ADB expects this to be driven by several factors including continued demand for manufacturing in other parts of the world and the increase in upwardly mobile consumers in this region. This segment’s greater willingness to utilize credit to sustain their new lifestyles will drive consumption and more importantly, demand for fintech services. 

A study by McKinsey found several micro-segments within this general segment which will drive growth, consumption, and demand:

  • Digital natives, who account for 40 to 50 percent of all consumption in the region, are more likely to utilize credit, but are less willing to engage in conventional banking products 
  • Women are forecasted to raise consumption by 30 percent on the back of better employment opportunities, income, financial inclusion, and participation in purchasing decisions
  • Senior citizen population to increase by 40 percent in the next decade, while their consumption growth rates are 1.5 to 2 times higher than those of average consumers
  • Eco-conscious consumers to make up more than 80 percent of consumers in emerging Asian economies, with environmentally conscious purchasing decisions set to become a feature

The first micro-segment is significant because it indicates untapped potential for fintech services. While 70 percent of consumers in the region are open to making digital purchases, only 20 to 30 percent have done so. As such, there is room for growth and development.

The fintech sector as a driver of Asian growth

Aside from increasing the discretionary spending of the “consuming class” through easier access to credit, fintech will also sustain economic growth in Asia by enabling a larger percentage of the population to: 

  • Access credit for personal use such as in housing, education, auto, and healthcare
  • Raise capital for Small and Medium Enterprises (SMEs)
  • Open savings accounts
  • Invest in various financial instruments

Despite China and India leading the world in fintech penetration at rates between 80 to 90 percent (according to a study by EY), significant portions of other Asian countries’ populations are still under served by either traditional institutions or fintech services. For example, a PWC study found that while SMEs account for around 80 percent of the Indonesian workforce, only 20 percent of these businesses have access to bank accounts.

The potential growth that will result in covering these segments has not been measured yet but will certainly be significant.

How fintech can optimize its role in sustaining growth

According to another study by EY, 81 percent of Gen Z customers see personalized products and interactions with financial institutions as a major factor in choosing with whom they do business, as opposed to only 47 percent, for consumers over the age of 65. 

Fintech companies are already known for utilizing digital solutions to innovate and reach segments under-served by traditional institutions. They can take this a step further by leveraging Artificial Intelligence and data analytics to hyper-personalize their products to reach the so-called “segment of one.”

Outlook in Asia: cautiously optimistic

Economic growth in Asia is under-realized and will continue to be so in the near future as economies worldwide face economic uncertainty. The banking and fintech sectors in the region, however, are expected to grow, regardless of the global economic climate, especially with large population segments still being under-served.

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