Digital Finance to Bank the Unbanked Can Boost GDP by As Much As 6% in Southeast Asia

Digital Finance to Bank the Unbanked Can Boost GDP by As Much As 6% in Southeast Asia

Digital Finance to Bank the Unbanked Can Boost GDP by As Much As 6% in Southeast Asia

The FINANCIAL -- Digital technology that promotes financial inclusion can increase GDP by as much as 6% for economies in Southeast Asia, according to a new report Accelerating Financial Inclusion in Southeast Asia with Digital Finance.

The report is jointly published by the Asian Development Bank (ADB), global management consulting firm Oliver Wyman, and financial inclusion-focused consulting firm MicroSave. 

The study, which looks at digital finance in Cambodia, Indonesia, Myanmar, and the Philippines, is derived from interviews with more than 80 stakeholders across the four markets, extensive secondary research, and economic analysis.

Promoting the use of formal financial services continues to be a challenge in the region and the depth of engagement varies with different financial products. Among the study’s findings, only 18% of adults use a bank account to receive wages or pay utility bills and only 11% borrow from formal sources.

“ADB sees financial inclusion as an essential part of financial sector development,” said Michael Barrow, Director General of ADB’s Private Sector Operations Department. “Without access to formal financial services, the unserved and underserved segments of society will be excluded from growth and its benefits. Digital finance presents a unique and potentially transformative opportunity to advance financial inclusion.”

The research finds that digital financial solutions could play a significant part in closing gaps in financial inclusion, addressing about 40% of the volume of unmet demand for payment services and 20% of the unmet credit needs in the base of pyramid and micro, small, and medium enterprises segments. 

Digital financial solutions will have the most significant impact on financial inclusion in five key areas: 

1. Enabling fast, low-cost, and convenient customer identification and verification processes;

2. Improving supply-side economics with last mile distribution and servicing enabled by mobile phones and point-of-sale devices;

3. Supporting supply-side business cases with initial push in government-to-person payments and remittance flows;

4. Enhancing access to alternative sources of data to improve customer profiling, credit risk assessment, and fraud detection;

5. Mobilizing micro-saving through lower cost digital origination and servicing channels. 

“For this opportunity to be realized, collaboration by different participants in the ecosystem will be critical,” according to Duncan Woods, Head of Oliver Wyman’s Retail & Business Practice in Asia-Pacific. “Public policy and regulatory guidelines can provide the framework to stimulate the development of digital financial solutions, which we expect will materialize through collaborations between banks, telecommunications and financial technology firms, and NGOs, each bringing specific capabilities along each part of the financial value chain.” 

While digital finance alone cannot close the gaps in financial inclusion, the effect of leveraging digital technology to bank the unbanked could boost GDP by 2% to 3% in markets like Indonesia and the Philippines, and 6% in Cambodia. 

Making the most of this opportunity could also help influence the financial services industry, particularly in smaller markets such as Cambodia and Myanmar, where only a small percentage of the current needs for financial services are met by formal providers. 

“Digital finance is the new normal in banking. Financial institutions will have to make this transition and develop distribution models and products for digital finance,” said Manoj Sharma, Managing Director of MicroSave in Asia.