South-east Asia's Internet economy on track to pass US$300b by 2025: report

DESPITE a challenging economic climate brought about by the coronavirus pandemic, South-east Asia's Internet economy is still on track to exceed US$300 billion by 2025, in line with previous estimates put up a year ago.

This is the first time that such estimates in the annual South-east Asia e-Conomy report by Google, Temasek and Bain & Co had not been revised upwards to reflect the growth of the Internet economy. This year, the region's Internet economy is expected to hit US$100 million in gross merchandise value (GMV) - which measures the total value of merchandise sold - leaving it roughly flat from a year before.

Covid-19 has proven difficult for certain sectors such as ride-hailing, online travel and lending. Unsurprisingly, online travel was the worst hit, and nosedived 58.8 per cent to US$14 billion in GMV for 2020.

Transport, too, saw a drop in GMV to US$5 million, from US$8 million a year before, as urban mobility plunged by up to 80 per cent at the height of the lockdown, the report noted.

"Even as restrictions eased, work-from-home arrangements and reduced confidence in shared transportation will likely see muted volume through the first half of 2021. But in the long run, the transport sector should recover and return to normal levels," it added. It is expected to rise to US$19 billion by 2025.

However, the pandemic has benefited some sectors as well. Contractions felt in sectors like travel and transport were offset by gains in others.

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The report noted that sectors such as e-commerce, payments, remittances and online media have all experienced "accelerated" growth this year.

E-commerce has seen a 63.2 per cent jump in GMV to US$62 billion, from US$38 billion a year ago. It is expected that this will grow to US$172 billion in 2025, up from previous years' estimates, with a compounded annual growth rate (CAGR) of 23 per cent.

Over a third of the year's online commerce was generated by new shoppers, of which eight in 10 intend to continue buying online, said the report, which surveyed 4,781 respondents in the region.

Purchase frequency, too, has increased, it noted, although the shift towards essential groups has shrunk average basket sizes. Consumers that have now tried online grocery shopping have doubled, with over 75 per cent indicating they will continue to do so post-Covid-19.

"This could accelerate future growth once grocers resolve logistical and profitability challenges," said the report.

Online media saw a 22 per cent rise in GMV this year to US$17 billion, driven by a surge in new users in online gaming as well as subscription services for music and video during lockdowns.

Streaming entertainment adoption is now estimated to be a year ahead of projections, said the report, as these new users are expected to be "here to stay".

Digital financial services, measured through verticals such as payments, remittance, lending, insurance and investments, were mostly on an upward trajectory in 2020. Investment assets under management soared 116 per cent to US$21 billion; gross transaction value for digital payments stood at US$620 billion, up 3 per cent from the previous year.

Remittance flows rose 43 per cent to US$15 billion, and insurance was up 30 per cent to US$2 billion.

Lending was the only vertical that bucked the trend, staying flat at around US$23 billion. However, these services are all expected to rise by at least 15 per cent "in a healthy trajectory" to 2025, said the report.

This comes as digitisation of participants in the digital financial services ecosystem - consumers, digital financial service providers, regulators and businesses - has accelerated.

Consumers have now found long-lasting online habits amid Covid-19, with a greater shift away from cash, and increased trust of online transactions.

Based on Kantar research, the average number of cash transactions by consumers declined from 48 per cent pre-Covid-19 to 37 per cent post-Covid-19. At the same time, frequency of e-wallets transactions rose from an average of 18 per cent pre-Covid-19 to 25 per cent post-Covid-19.

More merchants now accept digital payments as well, since barriers to adoption of digital payments have been lowered by the pandemic. There is also new urgency for established financial services players to digitise operations, while regulators too have encouraged and supported the adoption of such services.