Technology and open collaboration key to addressing financial inclusion in SEA

While increasing financial inclusion has long been an aspirational goal for many organisations and governments in developing nations, the economic damage wrought by Covid-19 has made it a more urgent necessity.

At the same time, the pandemic has caused a dramatic shift towards digital which has brought the future forwards. Combined with the advances in financial technology - fintech - which make the provision of digital financial services both easy and cost effective, this presents a unique opportunity to redefine finance for good by bringing underserved populations into the financial ecosystem for the first time. Tech will be at the heart of navigating a digital "new normal"

In 2020, consumers and businesses alike have been forced to adapt to completely new arrangements such as social distancing, working from home, as well as contactless delivery of goods and services.

This has brought financial technology to the fore, as consumers and businesses have had to change the way they engage with financial services. In fact, we've seen more digitalisation in the last few months than people had expected to see over the next several years, and this increased digital adoption will result in a permanent shift in user behaviour. Indeed, a Mastercard survey conducted this year found that 75 per cent of consumers in Asia Pacific said they will continue to use contactless payments even after the pandemic is over.

While the SARS epidemic in 2003 hastened the development of digital payments and e-commerce in China, this year we've seen how fintech has enabled millions to access crucial government aid.

For example, the Philippines government turned to PayMaya's e-wallet and other digital financial services to disburse financial aid, both at a national and local level, distributing more than P1.4 billion to at least 120,000 citizens between March and June 2020. There is no doubt that the recent acceleration towards digital is here to stay and will push forward the development of a digital financial landscape in the post-Covid world. Financial inclusion in Southeast Asia - racing against the clock

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As Covid-19 continues to redefine the way we live and work, the financial services sector has an especially urgent role to play in supporting economies as they transition rapidly to a digital-first model, and help to ensure no one is left behind without access to essential financial systems and support.

In 2020, 1 billion people across Asia do not even have a basic bank account. In Southeast Asia, nearly 70 per cent of the population is still underbanked, meaning they have no access to services like credit cards or long-term savings accounts. Another key challenge is the lack of financing for micro, small and medium enterprises (MSMEs) which employ more than 80 per cent of Southeast Asia's workforce, with the current the funding gap in the region estimated at more than US$300 billion.

Difficulties in demonstrating creditworthiness to traditional lenders, which have been further exacerbated by the pandemic, are particularly acute in Southeast Asia, where the majority of MSMEs are still heavily reliant on cash across the value chain.

Research by the World Trade Organisation has found that over half of trade finance requests by SMEs are rejected globally, compared to just 7 per cent for multinational companies, often due to a lack of information. New ways of assessing creditworthiness must urgently be developed to sustain the region's smaller businesses which cannot hope to weather crises or grow as a result.

Marrying technology with collaboration is key to sustaining ASEAN's economy

Cutting edge fintech has been a key enabler in the advancement of the financial services industry. Many of the services we take for granted in Singapore, from online account opening to paying hawkers through an app, are made possible by Application Protocol Interface (API) technology.

This technology facilitates the transfer of data between the systems of banks and non-bank companies such as fintechs, which has enabled banks to collaborate with diverse solution providers. Instead of having to develop and test new products and services themselves, which is time consuming and very expensive, they can tap on providers that are already highly specialised in a particular area. This helps to reduce costs and drive service efficiency, and means they can implement the most up-to-date technology available. These synergies are key to helping fill critical gaps and deliver unmet consumer needs, particularly in challenging times.

A good example of this is TONIK, the first pure-play licensed digital bank in Southeast Asia, which is launching in the Philippines this year. The country has an unbanked population of 70 per cent - one of the highest in the region - and TONIK is aiming to attract over a million customers in five years by providing a route to banking that is totally digital, thereby including millions of potential customers who have never been able to open an account before.

Collaboration between banks and fintech solution providers is crucial for success, but this goes wider in the context of financial inclusion. Financial institutions, fintechs, industry groups and governments must share their collective expertise to accelerate innovation and positive change.

For instance, Mastercard and the Asian Development Bank, with partners Finastra, N-Frnds and SGeBIZ, have launched a project to help build a new digital pathway to credit for wholesalers. Through the application of technology, the program aims to help SMEs digitise trade, making it easier for them to participate in global supply chains. The program will start in Indonesia with 500 retailers and aims to build to 5,000 retailers by the end of Q1 2021.

This powerful example shows how the combination of technology with open collaboration can help improve critical access to finance and level the playing field. To achieve this, all ecosystem players, large and small, must be encouraged to contribute and innovate together, leveraging the power of the cloud-based ecosystem.

As governments and businesses look ahead to 2021 and the path to recovery, applying technological solutions and embracing open collaboration will be essential to building solutions that stick, and help individuals and businesses seize opportunities through continued economic uncertainty.

The writer is managing director, APAC, at Finastra