Unlocking the Next Chapter of Growth in Southeast Asia’s Financial Services

Geopolitical tensions are causing uncertainty and driving a wedge between economies sending rippling effects across the region. Many companies across the United States and Europe have been reshoring, with manufacturing hubs and operations diversifying to the Southeast Asia (SEA) region. As a result, shifting trade flows in countries like Cambodia and Vietnam have helped to boost players who are entrenched in these emerging countries. 

These shifting dynamics bring about increased challenges but also competition from bank and non-bank players seeking a piece of the pie. One such area is Micro, Small and Medium Enterprises (MSME) who are already experiencing exponential growth and play a vital role in the economy. Among ASEAN member states for example, 85% of the workforce is employed by MSMEs and account for 44.8% of GDP. It is a segment that is a must-win. Coupled with the fact that 60% of MSMEs are underbanked in Asia, this represents a huge untapped opportunity for banks and non-banks looking to grow in the region. Moreover, the ASEAN trading bloc is the third largest economy in Asia and the fifth largest in th

So, how can banks and non-banks win in this dynamic environment?  

We have identified three emerging trends across the experience frontend and the operational and foundational back end to give players in the region a competitive edge. 

1. BaaS and Open Banking: Unleashing Collaborative Innovation 

Embrace Banking-as-a-Service (BaaS) and open banking principles to fuel collaborative innovation, specifically targeting MSMEs. Banks can use BaaS to “rent” out their core banking infrastructure through APIs, providing MSMEs with services they might not be able to develop themselves. Open banking complements this by enabling secure data sharing, allowing MSMEs to connect their accounts with these new services and gain a richer financial experience. 

Imagine third-party providers leveraging core infrastructure to develop financial solutions specifically designed for MSMEs. This could include tools for cash flow management, inventory financing, simplified loan applications and e-commerce integration. Banks and FinTechs can charge fees for its APIs, subscriptions based on volumes and share revenue with partners in both Open Banking and BaaS models. Furthermore, data insights and platform usage from these partnerships can help banks and FinTechs better understand MSME needs and develop innovative products. Many banks have started leveraging these collaborative strategies to drive further growth. Examples where this is already happening include: 

• Standard Chartered Singapore’s SC API platform opened its data to developers, enabling partnerships with FinTechs that specialize in personal financial management for MSMEs. Customers can connect their accounts to receive insights, budgeting and tracking goals, leading to a 15% improvement in customer well-being scores. This demonstrates the potential of BaaS in empowering MSMEs and improving their financial health. 
• Axis Bank in India implements a BaaS model that offers over 250 APIs through their portal. This allows startups and MSMEs to integrate banking services into their applications for seamless payment management and reconciliation. Their partnership with OPEN, a neo-banking FinTech company, specifically targets the micro-segment by launching a digital current account for freelancers and small micro-enterprises. 

These examples showcase how BaaS and open banking can be leveraged to create a thriving ecosystem of financial solutions specifically designed to address the needs of MSMEs by fostering collaboration and innovation. 

2. Ecosystem Platforms: Bridging the Gap Between Finance and Everyday Life 

Unlike BaaS and open banking which provide the building blocks for other businesses to create solutions, ecosystem platforms (also known as Super Apps) go beyond providing access to core services. They actively curate and integrate non-financial offerings, creating a unique value proposition. This translates into significant benefits, including increased efficiency and reduced costs for businesses of all sizes, especially MSMEs. By eliminating the need for customized integrations, Super Apps can provide MSMEs with access to a wider range of financial and non-financial services in a convenient and cost-effective way. 

Southeast Asia’s unique landscape, with a high smartphone penetration rate and a large unbanked population, has fostered the emergence of Super Apps since 2010. These platforms cater to the specific needs of the region, including those of MSMEs. Some recent examples include: 

• Grab, a Singaporean powerhouse, initially a taxi-hailing service, has transformed into a ubiquitous platform offering ride-hailing, food delivery and other services – all crucial functionalities for MSMEs in the region. GrabPay, its mobile wallet has over 80 million monthly active users (2023), facilitates cashless transactions, money transfers and bill payments, simplifying financial management for MSMEs. 
• SeaMoney integrated within the Shopee e-commerce platform, it allows users to make payments and access financial services directly within the app. This fosters financial inclusion for individuals and benefits MSMEs by providing them with a wider customer base and easier payment solutions. SeaMoney leverages Shopee’s vast user base and merchant network, which facilitated their rapid growth, scaling their financial services across SEA. This is also particularly attractive for MSMEs seeking wider reach. 

These examples highlight how Super Apps in SEA are strategically targeting MSMEs by offering a comprehensive suite of financial and non-financial services within a single platform. This integrated approach can significantly improve efficiency and reduce costs.  

3. DeFi and Blockchain: Taking efficiency, transparency and security to a new level 

Despite being the least mature concept among the three, the global DeFi (decentralized finance) market has already exceeded $200 billion, and the surging interest in blockchain among Asian consumers present exciting opportunities for banks and FinTechs in the region. Tokenization of both data and assets (into unique digital tokens on the blockchain) has provided the industry with endless opportunities with heightened security, transparency and speed. 

Imagine streamlined cross-border payments for migrant workers through secure blockchain platforms, replacing slow and expensive traditional methods. Trade finance can also be revolutionized by blockchain’s transparency and efficiency, fostering trust and reducing red tape. Furthermore, fractionalized investments in real estate and other assets, enabled by blockchain, can democratize access and increase liquidity, catering to the growing demand (from $4.8 to $22 trillion AUM over the past 20 years) for alternative investments among Asian investors (CAIA, 2024). While the use of blockchain technology for MSMEs in SEA is still in its early stages, many institutions are starting to experiment in this lucrative segment. Some recent examples include: 

• In Singapore, Monetary Authority of Singapore (MAS) launched Project Ubin, a multi-year initiative in collaboration with leading banks like DBS Bank, UOB, OCBC Bank to explore the potential applications of blockchain technology within the financial sector, specifically focusing on its ability to improve efficiency, transparency and security. 
• Bank of Ayudhya, a Thai bank, partnered with Contour, a prominent blockchain platform, to streamline trade finance for MSMEs. This collaboration leverages the power of blockchain technology to address specific pain points for MSMEs in trade finance. By creating a secure, shared ledger accessible to all parties involved, blockchain eliminates the need for paper-based trails and intermediaries, streamlines communication, reduces errors, and expedites the entire trade process. This translates to potentially lower costs and faster transaction times for MSMEs.