Southeast Asia's large unbanked population presents challenges not widely experienced in more developed markets. For example, the boom of e-commerce catalyzed by the coronavirus pandemic highlighted issues in collecting payments from customers without credit cards.
However, digital financial services offered by new entrants are beating incumbents in bringing the estimated 198 million unbanked Asians into the new economy. For example, Singapore’s Sea Group recently reported a more than 700 percent year-on-year growth in 2021 Q4’s revenue from its digital financial offering, SeaMoney.
There are approximately 400 million adults in the region, so 198 million represents close to half of them. Additionally, another 98 million are regarded as “underbanked" because they lack access to financial products beyond their bank accounts. (These figures date back to the 2019 e-Conomy SEA published by Google, Temasek, and Bain & Co. before the pandemic.)
What Is Sea Group?
Sea Group’s e-commerce platform Shopee is the most visited in Southeast Asia. And its Garena Free Fire game was the most downloaded app in the world. SeaMoney, the Group's payment services arm, provides financial solutions for AirPay, ShopeePay, ShopeePayLater, and other related brands. The services allow customers to make payments, request loans, query bank balances, or buy insurance policies, depending on the market.
The company started as Garena in 2009, an online games portal, which is still its central and most profitable business. It was listed on the NYSE four years ago and is one of the most valuable public companies in Singapore, with many regarding it as the PayPal of South East Asia. Tencent is a significant investor in Sea Group, and in 2018 granted it the rights to publish Tencent’s game titles—including Player Unknown's Battlegrounds, League of Legends, and Arena of Valor—in South East Asia for five years.
Digital Banking Shows Strong Growth in South East Asia
The e-Conomy report for 2021 says the transaction value of digital payments in South East Asia totaled $707 billion for the year, a rise of 9 percent over 2020’s $646 billion. And it reports that the use of e-wallets is up 45 percent from pre-COVID levels. SeaMoney has taken a good share of this activity.
Active users across its products were 90 percent up on 2020 numbers, totaling 45.8 million in Q4. And revenue grew 673 percent to $470 million. CEO and founder Forrest Li explains this with the fact that Shopee and SeaMoney are highly synergistic with one another and create a “flywheel effect on scaling.” The Group expects 2022 revenue for the digital financial services segment to be between $1.1 billion and $1.3 billion.
If SeaMoney has a digital bank license in a particular country, it can offer traditional banking services such as taking deposits, providing loans, and offering insurance and investment services to both retail and business clients. SeaMoney recently obtained a digital full bank license from Singapore and has licenses to operate in Vietnam, the Philippines, Malaysia, Thailand, and Indonesia. It can provide loans in the latter two.
However, SeaMoney still faces stiff competition. Two ride-hailing unicorns, the Singapore-based Grab and Indonesia-headquartered Gojek, have also started the large-scale, aggressive layout of e-wallets. There are more than 40 mobile wallets in Malaysia.
Furthermore, China’s Alipay and WeChat Pay are looking to expand into neighboring regions. And Singapore’s incumbent banks also have digital offerings such as DBS’ Paylah and OCBC's Pay Anyone. So, while SeaMoney reported a Q4 loss of $149.8 million (ebitda), it’s an improvement on 2020’s loss of $171.3 million, and right now, the race is for market share rather than profits.
SeaMoney’s revenue is derived mainly by charging commissions to third-party merchants with e-wallet services by charging interest on sums loaned to borrowers. It’s loss-making because it reinvests revenue to increase users and payment volumes. And it will try to obtain more licenses to offer a more comprehensive suite of products in more countries, which will present greater fee opportunities.
Indonesia Represents the Biggest Opportunity
One of SeaMoney’s largest markets is Indonesia, the largest economy in Southeast Asia and the 16th largest globally. In 2019, it had an unbanked population of 180 million people, half of whom are under thirty. In addition, Indonesia consists of over 17,000 islands, with about 6,000 inhabited.
For traditional banks, to service such a geographically diverse population would be impossibly costly. However, at least 30 percent of Indonesians have smartphones, so mobile technology was an obvious solution to their banking problems. And SeaMoney reports that in Q4, more than 20 percent of active users used multiple products, proving how successfully it is serving its consumer ecosystem.
Sea Group will continue growing its three digital segments and monitoring opportunities in online food delivery, e-learning, and telemedicine. However, Li says that while the Group is open to serving global users, South East Asia remains its priority.