DigiconAsia takes a peek at a Filipino group’s crystal ball to catch a glimpse of South-east Asia’s financial inclusion trends.

According to a telco firm in the Philippines — Globe, while connectivity in the region has increased by as much as three times since 2015 in some rural areas, consumers outside of the metro cities are facing a widening digital economic divide.

It appears that increased digital connectivity does not necessarily lead to better financial inclusion. What other factors need to be considered to narrow the divide despite increasing connectivity? The group’s President and CEO, Ernest Cu, has some definite ideas about the way forward, and he shares his views here.

DigiconAsia: Why are many SEA countries still facing a widening digital economic divide?

Ernest Cu (EC): Due to its sheer diversity, the South-east Asian region (SEA) poses a unique set of challenges. SEA is characterized by countries at different stages of economic development, multi-faceted political systems, and a broad range of social norms and cultures. These disparities create a complex matrix in which digital maturity varies significantly. Therefore, the digital divide becomes even more pronounced here because of this diversity. Specifically:

    • Those countries without adequate digital resources can be disadvantaged, with limited opportunities to fully participate in the digital economy.
    • Connectivity issues due to geographical challenges, including the Philippines’ archipelagic nature, play a part. Firms in the country grapple with the challenge of accelerating 5G adoption to fully leverage the technology’s potential. Indeed, this sentiment is echoed by UN Secretary-General António Guterres, who recently underscored the vital role of governments and organizations in addressing the digital divide. He emphasized the need to close not just the connectivity gap but also the digital governance gap.

Moreover, the lack of comprehensive laws on data privacy and cybersecurity also impedes the establishment of trust among consumers in the region’s digital space.

DigiconAsia: What factors can reverse or mitigate these trends?

EC: Digital access and literacy play a significant role, particularly in SEA. As more people acquire the necessary skills to navigate the digital landscape, they can tap into the myriad of services offered by tech innovators (fintech firms), and this can reduce financial exclusion (and thereby the digital divide) as well.

Traditional financial institutions primarily serve the upper class, but our own studies show a shifting of demographics of financial inclusion. Most users of our own mobile payments business now come from NRS C2DE, belong to the younger generation, and reside outside Metro Manila. 

Hopefully, our digital platform has played a vital role in leveling the playing field. 

Ernest L. Cu, Executive Director, President and CEO, Globe Group

DigiconAsia: What are the fintech trends you see for the region, particularly in the coming year?

EC: Here are my predictions:

    1. The digital payments revolution will continue. According to one Bangko Sentral ng Pilipinas report, the fraction of digital payments in the total number of retail transactions rose sharply to 42.1% or approximately 2.04bn in 2022. This marks a significant increase from the 30.3% (1.43bn) in 2021. Notably, regulatory policies are also propelling this digital revolution.
    2. Consumer and business lending will increase. Already, digital lending has emerged as the leading driver of the US$30bn digital financial services revenue, largely due to high lending rates and an uptick in consumer demand. This surge is primarily a result of traditionally underbanked consumers and small businesses beginning to participate in the digital economy.
    3. AI will be at an inflection point in the financial services industry. Studies indicate that the top AI applications in financial services in the Philippines will align perfectly with businesses’ focus on enhancing customer experience, fortifying security, and driving data analysis.

DigiconAsia: How will the Southeast Asian digital economy landscape look in 2024?

EC: The digital economy landscape for the region is ripe with opportunities, particularly in the Philippines, which in some circles is projected to continue on a double-digit climb, largely fueled by our e-commerce sector. 

As digital payments continue to gain traction, we anticipate a swift growth in e-wallet and Account-to-Account (A2A) payment rails, primarily due to their lower costs to merchants. This increase in acceptance and adoption is a positive indicator of the evolving digital landscape in the region. Also, we foresee a significant upsurge in merchants’ use of informal A2A payments. This growth will likely stem from their desire to sidestep the often cumbersome process of formally registering business accounts with digital payment providers. Their choice to embrace A2A payment methods indicates a shift in traditional transaction methods and highlights the rising influence of digital payment solutions in the region’s economic framework.

DigiconAsia thanks Ernest Cu for sharing his insights with readers.