SEA’s digital economy set to hit $200 billion this year·

Despite the macroeconomic headwinds, South East Asia’s (SEA’s) digital economy remains on course to reach $200 billion in gross merchandise value (GMV) in 2022, said the  e-Conomy SEA 2022 report by Google prepared on the basis of research conducted along with Temasek and Bain & Company.

The sharp growth of the digital economy is up 20 percent from $161 billion in 2021.

The research was conducted in Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam by interviewing a total of 4,995 respondents.

In fact, it is reaching this threshold three years earlier than was expected in the e-Conomy SEA 2016 report. “Digital adoption continues to rise even today, albeit at a slower pace than the steep acceleration seen at the height of the pandemic,” the latest report noted.

There is particular mention about the adoption and usage of digital financial services (DFS), propelled by a shift from offline to online in the last few years. “With rising interest rates and a riskier lending environment, however, fintech players, platforms, and newly launched digibanks will see their business models stress-tested (in the coming months),” the report said.

Meanwhile, banks and insurance companies are rapidly digitalising their services and maintaining a stronghold on affluent consumers.

To stay competitive, leading established banks are investing heavily in ramping up their digital capabilities so as to offer a better user experience and more value-added services, such as digital payments and investments.

Digibanks compete for mass and unbanked consumers while established banks fast-track digitalisation. SEA’s digibanks aim to emulate peers in developed markets (e.g. the UK or South Korea) that enjoy a 60-70 percent cost advantage compared to more traditional banks.

Efficient, non-legacy platforms, together with streamlined operations and distribution, allow digibanks to pass on savings to their customers.

Digibanks’ opportunity lies in credit. They have access to proprietary consumer data and are in a position to capture share of underbanked via alternative credit decisioning.

According to the report, SEA’s digital economy sectors are following three distinct trendlines. E-commerce follows an S-shaped growth curve, in which it continues on its growth trajectory, but from a higher starting point after the steep acceleration during the pandemic.

Others, such as food delivery and online media, are returning to their trendlines after a two-year spike. And lastly, travel and transport are moving along a U-shaped recovery, with pre-pandemic levels still some miles away.

Tech investments in SEA remain robust this year. However, the funding landscape tells a tale of two ends — early-stage deals are continuing with strong momentum, while late-stage deals are seeing more pronounced dips and a pause in IPOs.

Meanwhile, DFS has overtaken e-commerce in investment volume. Investors will be cautious in the short-term as most do not expect a return to 2021 deal activity and valuation peaks in the next couple of years.

On the social front, the digital economy has created 160,000 high-skilled jobs and indirectly supports nearly 30 million jobs, while the platforms have enabled over 20 million merchants and six million restaurants to grow their businesses online.

The gradual return to office, increase in brick-and-mortar shopping, and resurgence of tourism are driving a U-shaped recovery from lockdown lows.

The report also said that the inflow of tourists from mainland China has come down, and popular destinations for SEA travellers, such as Japan and Korea, remained off-limits for much of 2022.

Senior economist and Director General of the Institute of China Studies at Royal Academy of Cambodia, K Y Sereyvath, told Khmer Times that the rising digital economy “reflected the robust response of the private sector to the pandemic.”

“Rapid digitalization of the economy is also due to the big investments in the banking sector. The sector is also a large source of finance for digital enterprises,” he noted.

Source: Khmer Times