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How Did Southeast Asia Outpace the West in Digital Economy Growth?
28.11.2022
3 min
As economies across the globe go digital, Southeast Asia (SEA) is surpassing the US, China, and Europe and taking the lead. Over the past few years, SEA’s digital economy has achieved astounding success and reached $143 billion in 2021. What’s more, this number is forecast to increase by more than 17% and hit $314 billion by 20261.
But what are the factors that contribute to such rapid evolution, and what makes Southeast Asia the engine of global digital economy growth? Keep reading to find out!
Which Parties Contribute to SEA’s Success?
SEA is a geographical region that consists of eleven countries, namely:
- Brunei
- Burma (Myanmar)
- Cambodia
- Timor-Leste
- Indonesia
- Laos
- Malaysia
- The Philippines
- Singapore
- Thailand
- Vietnam
While these territories are highly diverse in history and culture, they all gladly embrace the new economy. As a result, digital payments accounted for 80% of the region’s gross merchandise value (GMV) in 2020 and are projected to reach 92% by 20262.
Such impressive figures are the result of the combined efforts of two major parties:
1. Private Sector
In Southeast Asia’s private sector, there are three key services promoting digital economy growth:
- Mobile wallets. Over 70% of the population in SEA is either unbanked or underbanked. Fortunately, the versatility and accessibility offered by mobile wallets allow to tackle this issue. This made them hit 199 million users in 2021, and the number is expected to increase to 426 million by 20263.
- BNPL. Buy Now, Pay Later services have experienced a surge in popularity across SEA, achieving a transaction value of $2.8 billion in 2021, and are projected to increase this figure up to $12.6 billion by 2026.
- Cross-border payment solutions. Alipay+ and other services that enable smooth international transactions are in high demand in Southeast Asia, as they enable merchants and businesses to accept payments through local wallets.
2. Governments
Governments of Southeast Asian countries also play a fundamental part in the active development of the region’s digital economy.
One example of a great government-level initiative is the Singapore Quick Response Code (SGQR), which was developed to unite all digital payment services under one centralized QR code.
In addition, SEA countries are expected to boost their digital economies even more by linking their real-time payment systems, starting with Thailand, Malaysia, the Philippines, Indonesia, and Singapore. As other territories follow suit, the Southeast Asia region will reap the benefits of instant, frictionless, and secure payments across borders.
SEA governments are also looking into central bank digital currencies (CBDCs), as they promote a freer flow of funds and decrease associated costs. Currently, more than 50% of Southeast Asia’s governments are involved in CBDC-related research.
Main Business Challenges Across the Southeast Asia Region
While SEA is a new leader in digital economy growth, there are still some difficulties that businesses tend to encounter in this region, such as:
- Highly diverse and fragmented environment. Southeast Asia consists of countries with contrasting payment landscapes. For instance, while in Singapore the predominant payment method is bank cards, Indonesia favors mobile transactions.
- Increasing level of fraud. In 2021, 23% of SEA’s internet users were victims of fraudulent activity, with Malaysia, Indonesia, and Vietnam reporting the highest number of incidents. Some of the main issues include phishing, farming, and whaling attacks, as well as fraud migration when dishonest players move their operations to a different country based on regulatory and security conditions.
With that said, SEA countries’ joint efforts toward achieving interoperability and implementing unified payment standards are likely to effectively address and resolve these challenges in the foreseeable future.
What Does the Future of SEA’s Digital Economy Look Like?
Despite the global economic headwinds, Southeast Asia is demonstrating admirable adaptability and resilience. The region’s digital economy is expected to grow twice as fast as the GDP in most countries and can hit $1 trillion already by 2030 if it manages to scale sustainably and unlock its full potential through improved interoperability and innovation4.
All in all, SEA offers plenty of potential to digital businesses. However, companies that wish to enter this market need to be fully aware of its peculiarities, challenges, and trends to be able to achieve long-term success.
1, 2, 3 - 2C2P - How Southeast Asia Buys and Pays 2022
4 - Google - Creating sustainable growth for Southeast Asia’s digital economy