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Southeast Asia enters Digital Decade

November 24, 2021

Young Asian family looking at the laptop together at home.

Filippo Giachi

SVP – Asia Pacific

The commercial markets of Southeast Asia are entering a “digital decade” that could see the value of the region’s Internet economy expand to US$365bn by 2025 and over US$1tn by 2030, according to estimates.

The 2021 edition of the economy SEA report compiled by Google, Temasek, and Bain analyzed Vietnam, Thailand, the Philippines, Malaysia, Singapore, and Indonesia trends. These six countries combined will have an estimated 440m Internet users in 2021, up 10% from 400m in 2020, as expanded mobile network coverage in urban and rural areas and penetration of affordable smartphones in the region made it easier for more people to get online.

The majority of those consumers are also making good use of their connected devices to buy goods and services. The report estimates that 80% of the region’s Internet users will make at least one purchase online in 2021, led by Singapore (97%) and Thailand (90%) ahead of Vietnam (71%) and the Philippines (68%).

20% CAGR to 2025

The numbers appear to confirm that greater engagement with digital commerce this year is not a one-off trend driven by pandemic-related economic lockdowns and physical store closures. Instead, it’s a new way of life for consumers in Southeast Asia, which they intend to maintain in the future.

The value of gross merchandise value (GMV) sales in the region – which include online media and travel, transport and food, and eCommerce – is forecast to jump 49% from US$117bn in 2020 to US$174bn in 2021. It is expected to expand at an estimated compound annual growth rate (CAGR) of 20% to reach US$363bn by 2025, according to Bain’s analysis. A boom in eCommerce activity drove the most significant gains in 2021. And a resurgence in online travel is expected to deliver even more substantial acceleration over the next four years. Transport, food, and online media too will grow faster from a smaller base.

With 274m people, Indonesia remains the single largest digital market by value amongst the six countries featured in the Google, Temasek, and Bain report. It accounted for an estimated US$70bn (40%) of the US$174bn in 2021, for example, although it was the much smaller territory of the Philippines (population 112m) which will grow faster to account for US$17bn in 2021, up 93% year on year.

Digital payments funding a more significant proportion of purchases

The report also found that small to medium enterprises (SMEs) in Southeast Asia have been fervently adopting new digital technology to help them meet demand. One in three believe they would not have stayed in business during the pandemic were it not for digital platforms, more so in Malaysia (43%), the Philippines (39%), and Singapore (38%).

Those platforms include customer-facing solutions that enable the exchange of goods and services between merchants and customers and tools designed to enhance retailers’ operational and back-office productivity. They also involve digital financial solutions that enable contactless and cashless transactions and give sellers and buyers access to credit, commercial insurance, and other financial services. Nine in ten Southeast Asian merchants now accept digital payments.

Cash remains king in Southeast Asia, funding 58% of purchases in 2020 and 59% in 2021. But as in other geographies, its use is locked into a slow, seemingly terminal decline as digital payments accelerate. Though they currently account for a smaller proportion, electronic wallets (eWallets) delivered 4% of Southeast Asia’s gross transaction value in 2021, up from 3% in 2020. By 2025, Bain expects eWallets will fund 7% of the region’s GTV (cash will fall to 47%), with the remainder made up of cards and account-to-account payments driven primarily by real-time payment mechanisms.

Digital Decade heralds exponential growth

Like its consumers, the region’s retailers recognize the benefit of digital payments in enabling easier, lower-cost processing and enhanced security compared to cash transactions. And some also report that customer numbers and sales increased after they started accepting them.

That maintains a “virtuous cycle,” driving greater merchant adoption and, in turn, increased consumer usage as more retailers accept digital payment mechanisms. Over the next one to two years, 90% of digital merchants in the SEA region expect to continue using or increasing their digital payments usage, with eWallets their top choice, concluded Google, Temasek, and Bain. The vast majority (82%) also now expect that more than half of their sales will come from online channels by some point within the next five years.

However, that doesn’t mean there isn’t room for improvement to the digital infrastructure already put in place. Many online merchants believe that more work can be done in helping them resolve customer issues, for example, and offer more integrated digital services that incorporate elements of logistics and payments processing.

Specialist third-party payment providers like DOCOMO Digital are well equipped to help the region’s merchants on that journey, with the skills and partnerships in place to facilitate all forms of digital payment and handle customer support, billing, and refunds on their behalf.

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