By Priyanka Sahoo, Tech for Good Institute
The digital economy in Southeast Asia is expected to hit a gross merchandise value (GMV) of $200 billion by the end of the year. This is according to the latest e-Conomy SEA 2022 report published by Google, Temasek and Bain covering the six major markets of Southeast Asia, namely Malaysia, Indonesia, Philippines, Singapore, Thailand and Vietnam. The value of the digital economy is a 20% increase from last year and three years ahead of earlier projections.
Now in its 7th edition, the report provides an overview of the region’s growth drivers and sector-based analysis of where opportunities lie. After several years of rapid digital transformation, the level of adoption is maturing. Digital players are now shifting their focus with a priority on deepening consumer engagements rather than consumer acquisition. The digital financial services (DFS) sector, for example, is identified as a growth driver and can also foster more economic participation in the digital economy.
However, there are key challenges ahead for Southeast Asia’s digital decade. With the current macroeconomic conditions, it is expected that consumer behavior and activity will also change. These challenges include: the rising cost of goods due to inflation, the reduced disposable income as an effect of economic slowdown, and the decrease in availability of products because of supply chain disruptions. The report however is still optimistic that the region is still on track to reach US$ 1 trillion by 2030.
To reach this potential, there are key insights from the report that need the attention of governments, the private sector, investors and consumers.
Addressing the persistent digital divide through public-private partnerships
There is still a large digital divide observed between urban and suburban consumers. While e-commerce adoption is spread uniformly across urban and suburban areas, there is a considerable difference when it comes to the use of other digital services such as online media (gaming, video and music), grocery, transport, travel and food delivery. The low demand in these sectors (except e-commerce) suggests that digital companies need to cater differently to suburban customers’ needs and buying patterns. This includes innovating around small ticket-size orders or offering low price points profitably. The government and the private sector should work together to improve digital infrastructure, enable equitable access, and promote digital literacy in areas outside of metro cities.
Digital and financial literacy is needed for DFS adoption
Driven by the pandemic, e-commerce adoption rapidly increased and is now reaching maturity. To promote further growth, the DFS sector is identified as the driver for the digital economy. DFS opens new economic opportunities especially for the unbanked population, deepening the consumer engagement in the digital economy. Google, Temasek and Bain highlight this potential as the majority of the unbanked population perceive digital banking and fintech services in favorable light. This is in line with the recent findings of the Tech for Good Institute (TFGI) that points out that trust in banks and DFS providers are high in Southeast Asia. But for consumers to use DFS, the TFGI study highlights the importance of digital literacy among consumers in order to use technology solutions confidently. However, DFS is more than online and mobile payments. It also involves other services such as lending, investment, and insurance. To unlock this sector for the unbanked population, digital literacy should be coupled with financial literacy.
Digital Economy Companies (DECs) as drivers of a sustainable economy
There is an opportunity for DECs to push for sustainability in the region. According to the report, the carbon footprint generated through digital channels, if optimized for better practices, would be much lower than traditional commerce. Google, Temasek and Bain predicts sustainability would be deemed more important in the future than top-line growth. However, availability, affordability, lack of awareness and low transparency on sustainable options are some of the major challenges hindering the acceleration of a sustainable digital economy. An upcoming TFGI study on the role of DECs in Southeast Asia’s digital economy offers a deep-dive into this question.
As the digital economy matures in Southeast Asia, it is expected that the rapid growth rates experienced in the past years will normalise back to the trendline. To continue the region’s digital progress and unlock areas of growth, initiatives in inclusion and sustainability will be crucial for digital players. A holistic outcome to realise the promise of technology is not only in terms of the GMV added by the digital economy, but also in ensuring that no one is left behind.