Southeast Asia's Fintech Industry is set to Cross $1 Trillion by 2025 A joint study spearheaded by Google says digital financial services are at an inflection point in Southeast Asia

A recent survey showed that of the 400 million adults in Southeast Asia, only 104 million are fully "banked", and have full access to financial services, while 198 million do not even own a bank account.

And while the region houses some of the biggest financial companies in the world, very basic problems – like infrastructure costs, absence of public registers and reliable credit information, along with stringent financial regulations – have made it difficult for institutional banks and insurers to penetrate the region in a meaningful way.

But that is changing now, thanks to financial technology companies.

The growth of fintech firms of various shapes and sizes across Asia over the last five years has been fuelled not only by advancement in technology and rate of internet penetration in the region, but also because of more and more people becoming financially savvy, and therefore demanding better financial services.

Digital payments in Asia, which includes account-to-account transfers, and e-wallets, has reached an inflection point in Asia, a joint study by Google, Temasek and Bain & Co shows.

Growing in the double-digit range, digital payments are expected to cross $1 trillion by 2025, and account for nearly one in two dollars spent in the region. The market for e-wallets is expected to grow even faster, from $22 billion in 2019, to $114 billion, a more than fivefold jump, by 2025.

Interest in Asia's fintech sphere is pouring in from sources beyond those that typically play in the field – such as banks, insurance companies, and remittance companies – from ride hailing, "super-app' companies, pure-play fintech companies, e-commerce, and social media platforms.

Independent players that only provide financial services online – such as Vietnam's Momo, a payments app, Stashaway, a digital wealth management service, and Akulaku, an Indonesian digital lender – navigate specific pain points such as access, convenience and transparency, to provide services to people who normally would not have had that kind of access.

"However, they face high customer acquisition costs, and it remains to be seen whether they can generate an even higher lifetime value to be financially sustainable," the study says.

Companies like Lazada, Gojek, Grab, and Sea Group have a leg-up on pure-play fintechs because they already have an established customer base, and therefore, have fewer and less costly barriers to entry. They often partner with traditional financial companies to offer services such as insurance and loans, along with digital payments.

With a huge underbanked population yet to be brought into folds of formal financial services, the growth potential for fintech companies remains abundant in Southeast Asia. Companies that have already established themselves in the fintech market in the region have made a significant dent in the underbanked population, and those entering now are still finding it comfortable enough to hold their own.