THE digital economy in South-east Asia is set to deliver US$100 billion in revenue from digital financial services, e-commerce, travel, online media, food and transport.

Of the US$100 billion, digital financial services make up US$30 billion, with the other sectors contributing US$70 billion, according to the e-Conomy SEA 2023 report by Google, Temasek and Bain & Company.

E-commerce comes in second, contributing US$28 billion in 2023. This sector has overtaken online media, which is set to contribute US$26 billion.

Revenue has outpaced gross merchandise value (GMV) growth, at 23 per cent to 16 per cent year on year between 2022 and 2023. This is likely to continue as the monetisation drive by the digital economy is set to grow revenue at 1.7 times the rate of GMV.

“This shows the resilience of the South-east Asian digital economy and that the key players are making progress towards more healthy unit economics and sustainable business models,” said Florian Hoppe, Bain’s partner and head of vector in Asia-Pacific.

GMV continues to grow in the region, hitting US$218 billion in 2023, up 11 per cent from US$195 billion in 2022. E-commerce continues to make up the bulk of GMV, with travel in second place and online media in third position.

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GMV is forecast to reach US$295 billion in 2025, revised down from US$330 billion in 2022’s report. This is a reflection of the change in long-term goals and post-pandemic effects on the various sectors.

E-commerce revenue has grown 22 per cent from US$23 billion in 2022 to US$28 billion in 2023. Revenue growth has been driven by higher take rates and additional revenue streams from adjacent services such as logistics and advertising.

Commissions for e-commerce have reached China’s benchmarks, with 3 per cent to 4.5 per cent commission hikes over recent years. Further growth is unlikely due to the region’s purchasing power.

Advertising services have been a successful way for e-commerce sellers to generate awareness and drive sales, and are likely to become a core revenue stream for e-commerce players.

GMV for the sector continues to grow despite reduced discounts and promotions, hitting US$139 billion in 2023 and forecast to reach US$186 billion in 2025. Mid-term growth is expected to be driven by market leaders expressing willingness to spend in defending their market position.

Food delivery continues to grow revenue, hitting US$800 million in 2023, but GMV fell to US$16 billion from US$17 billion in 2022. But GMV is still set to grow and hit US$20 billion in 2025.

Increased take rates have aided revenue growth in food delivery, but is unlikely to grow as it has reached global benchmarks of 15 per cent to 20 per cent. The sector is likely to continue expanding into adjacent services such as advertising and subscriptions.

Advertising could be a viable revenue stream, with the potential to hit US$100 million annual recurring revenue for larger players.

To sustain long-term growth, food delivery players will have to look at user and order growth. Players will have to consider cost efficiencies to provide differentiated and affordable offerings.

Transport revenue has continued to grow in the past three years, hitting US$1.1 billion in 2023, from US$700 million in 2022. GMV for the sector is set to hit US$7.3 billion in 2023, with a 2025 forecast of US$10 billion, surging past 2019 levels of US$7.8 billion.

The monetisation drive has led to commissions hitting a ceiling, with current rates at 20 per cent to 25 per cent, comparable to global rates.

Transport players will have to scale up their customer base while being profitable, with services such as carpooling and using technology to improve unit economics and driver productivity.

Future growth will have to come from expansion into regions outside of capital cities, where lower demand and price points have made it difficult to grow sustainably.

In the region, high value users (HVU) have driven spending in the digital economy, with 30 per cent accounting for 70 per cent of transactions values. Across the different markets, these HVUs account for 69 per cent to 78 per cent of spending, and outspend other users by about 6.5 times on average.

This spending gap is likely to increase as HVUs are set to spend more in the next 12 months.

These HVUs are not just higher income users, with half in the lower to middle-income users. While the bulk resides in major cities, 24 per cent of them reside outside these cities.

But non-HVUs present a 1.9 times growth opportunity compared with HVUs, if key issues are resolved. Non-HVUs would spend an average of 73 per cent more if these issues are resolved, versus HVU’s 39 per cent more.

Non-HVUs’ main issues revolve around lower prices, trust in the platform and ease of use. Should these issues be resolved, non-HVUs’ behaviour could be changed to shop online.

In the long run, South-east Asia continues to have headroom for growth, with GMV potentially hitting US$1 trillion by 2030. But factors of digital inclusion, expansion beyond big cities, and interconnected regional activities through agreements will be needed to power this growth.

“Our 2030 view remains bullish given robust macro fundamentals and a dynamic digital space which brings all the ingredients for long-term success – we expect revenue growth and profit levels to continue to outpace GMV,” said Hoppe.