Digital financial services are predicted to generate at least $38 billion in revenue across Southeast Asia by 2025, a new study revealed Wednesday.
The report, co-authored by global management consultancy Bain & Company, Google and Singapore state investor Temasek Holdings, said that number could even grow to $60 billion in the next 6 years if there are continued investments, better infrastructure, and supportive regulation.
If those numbers are realized by 2025, it would represent a jump between 245% and 445% from the $11 billion in digital financial services revenue today. Most small businesses and consumers still predominantly use cash at the moment.
"Southeast Asian financial services market itself is relatively underdeveloped when we look at developed markets benchmarks," Aadarsh Baijal, partner and leader of Bain & Company's digital practice in the region, said at a news briefing.
More than 70% of the region's 400 million consumers are currently either unbanked or underbanked, the study said. The unbanked are adults who do not use banks or financial institutions.
"The underbanked are really consumers who have a bank account but are not really participating fully in the financial services market," Baijal said. "They don't have access to basic things like credit cards or insurance, they're under-protected, they don't have the right long-term savings."
There are some 98 million underbanked in Southeast Asia's six largest economies, and they represent "the biggest potential and the true growth engine in digital financial services," the report said.
Consumer technology platforms such as Grab or Gojek have an advantage in gaining market share in this segment because of their expanding customer base who use multiple services from them, according to the study.
It added that a company's success in the online financial services sector depends on three things:
Grab and Gojek started off as ride-hailing businesses and steadily expanded into other areas, including digital payments and lending. They are able to generate large volumes of data from their users regularly, and that allows the companies to understand consumer expectations, behavior and sentiment.
"Even though they have a lot of share of time, they're still battling it out for who gets the trust," Baijal told CNBC. For "share of mind, a lot of people are actually looking to new players like Revolut announcing their metal credit card," he said referring to the British financial technology company that offers banking services.
"Some other players might actually come up at the top of mind," he added.
Baijal explained that at this point, most people would still look to banks to deposit their salaries because they are perceived to be more trustworthy. "There's a little bit of a hurdle to go from 'share of time' to the others. I think (consumer technology platforms) have an advantage, but it's not that they're already ahead and others can't catch up," he added.
The study identified five areas in the online financial services market: payments, remittance, lending, insurance, and investment. Of those, digital payments are predicted to surpass $1 trillion in transaction value by 2025, while online lending will emerge as the largest revenue contributor over time.
Southeast Asia's 64 million small-and-medium-sized businesses also fall under the underbanked category, where those companies struggle for access to affordable credit, the report said.
The use of financial technologies and data can potentially help to create business models that can serve this underbanked segment. According to the report, 46% of companies surveyed said they will likely accept digital payments in the next 2 to 3 years, while 30% said they are already accepting online payments.
Wednesday's report followed a study earlier this month, also from Bain & Company, Google and Temasek, which said Southeast Asia's internet economy is expected to grow to $300 billion by 2025.
The region has a high smartphone penetration, improving internet connectivity and a growing population, which makes it a lucrative market for services like e-commerce, ride-hailing and digital payments.