Why is now the time for Open Finance

With over 400 million and counting internet users in Southeast Asia, there are countless reasons for digital services to offer embedded financial services.

3 months ago   •   4 min read

By Tun Yong Yap

More than seven in 10 adults within Southeast Asia are either underbanked - have no access to banking services such as long-term savings accounts - or unbanked - without access to a bank account. This puts the regional unbanked population at 290 million, with Indonesia contributing 139 million.

Furthermore, only 18 per cent of the region’s population have access to credit. This low percentage stems from the fragmented nature of the region, coupled with financial data being held in silos.

Consequently, it is a challenge for financial companies to ascertain the profile of their customers. With an inaccurate and incomplete digital financial footprint of their users, these companies are unable to confidently offer credit lines or loans.

This has created a financial divide within the society as those residing in the lower-income groups are unable to utilise financial products such as loans and insurance, handicapping them in efforts to carve out a better living for themselves and their loved ones.

Opportunity for change

Open Finance holds the key to unlocking equal access to financial services.

By consensually allowing the secured exchange of a user’s financial data, Open Finance enables companies to aggregate information from multiple financial platforms to create a more accurate digital financial footprint.

With that, financial companies can offer products tailored according to the specific needs of their customers. For example, a gig worker would be able to apply for a loan to further his/her child’s education as the lending platform has access to his income history.

Besides offering consumers a wider range of financial products to choose from, Open Finance helps accelerate financial inclusion by empowering the lower-income groups to make use of these products to improve their financial wellbeing.

Thereby closing the financial gap that has long existed in the region.

Now is the time

There has not been a better time for both fintech companies and consumers to embrace Open Finance.

According to the e-Conomy SEA report 2020, Southeast Asia saw a spike in the usage of digital services such as e-commerce, food delivery and online payments due to the coronavirus pandemic.

Over 40 million people came online for the first time in 2020, pushing the total number of internet users within the region to 400 million - nearly 70% of the population.

With the majority of first-time users hailing from small and medium enterprises (SMEs) and the middle-class, it has provided opportunities for digital services to offer embedded financial services.

Besides providing a better user experience as the entire transaction (from onboarding to payments) can take place on a single platform, embedded finance has provided companies with the ability to increase their customer’s lifetime value through increased upselling opportunities.

We have seen ride-hailing giants Grab and GoJek offer financial services such as insurance and digital payments to its customers, opening up a lucrative alternative revenue stream.

Therefore, it should come as no surprise that fintech services formed the largest group of venture capital investments within the region.

In a sign that the region represents the future of digital financial services, investors poured US$1.6 billion into fintech in 2019 alone, up from just US$0.2 billion five years ago.

Using my American Express creditcard with Apple Pay
Digital financial services including payments have been increasingly embedded within consumer apps

Exciting future

While reports have sized the revenue stemming from regional digital financial services sector at US$11 billion today, this figure could increase to US$60 billion by 2025 - if there are supportive regulations and the right financial infrastructure in place to improve access to financial services for the unbanked.

Regulators across Southeast Asia have adopted a market-driven approach towards Open Finance.

While countries such as Singapore and Indonesia have set the standards on Open API standards with local banks such as DBS and BRI participating with public APIs, the rest of the region have adopted a wait-and-see approach towards regulating banks to share their financial data.

Despite the unbanked population numbering north of 290 million, Open Finance will allow them to easily leverage their data and connect to more financial services that can help improve their financial wellbeing.

This, in turn, will create increased revenue for digital financial services players as they will have access to more eligible customers.

As the regional digital finance industry enters a new decade of unprecedented growth, the winning companies will be those who are able to distinguish themselves from the competition by offering hyper-personalised financial services that are tailored to the evolving needs of consumers.

Stay ahead

At Finantier, we enable financial companies to do that by helping them aggregate financial data of their customers from a wide range of platforms - all through a single API.

By creating customised products and offering a frictionless user experience, the companies we work with stand out from the rest.

Besides, our developer-friendly APIs allow companies to easily embed our services on top of their platform and start creating personalised financial products within hours.

Hop onto a chat with us today and join a growing community of fintech companies who have used Finantier to gain an edge over their competitors and thrive in a US$60 billion market.

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