In this blog article we will discuss key barriers to financial inclusion and how the Fintech industry and governments can work to accelerate financial inclusion in the ASEAN region. The ASEAN (Association of Southeast Asian Nations) region has the fifth largest economy globally, the third-largest population of more than 650 million people, and a rapidly expanding middle class. The association has managed to transition itself from a largely subsistence economy to one that relies on the product and service industries.

Despite commendable successes, many residents of ASEAN countries live in marginalized regions with little to no access to formal banking services. In Southeast Asia as a whole, there are more than 400 million people without bank accounts. There is gradual progress in bringing down this number as governments focus on tackling financial inclusion by unlocking widespread public access to essential financial and banking services, mainly through digital innovation.

Financial inclusion means that businesses and individuals get easy access to financial services and is an essential enabler of poverty reduction that helps boost prosperity, particularly in emerging economies in ASEAN like Indonesia, Myanmar, and the Mekong Region (Vietnam, Cambodia, Laos).

Barriers to Financial Inclusion

Some of the common barriers to financial inclusion across the ASEAN population include:

1. Wage Payments in Cash

Within ASEAN countries, only a third of workers receive their monthly wages into an account at a financial institution. 71% are paid in cash. But cash payment of salaries is risky for both workers and employers. Making salary payments directly into workers’ accounts at financial institutions is secure, ensuring workers have a safe way to save their money and build up credit histories.

While many digital transfer solutions exist, there’s still low adoption by many companies who prefer to continue paying in cash. Without bank accounts and records many employees are without credit histories, hindering their ability to avail of financial services such as insurance products, education loans, mortgages, and consumer credit.

2. Low Levels of Account Ownership

In the ASEAN block, around 264 million adults lack access to banking services. They typically keep their savings at home and resort to borrowing from dangerous “loan sharks” who impose exorbitant rates on a weekly or daily basis.

To foster economic development in their respective countries, ASEAN leaders must prioritize financial inclusion. Particularly among the poor, less educated individuals, and those residing in rural Southeast Asia, the exclusion from financial services is alarmingly high.

As mobile usage continues to rise rapidly in Southeast Asia, industry players should emphasize the implementation of Electronic Know Your Client (eKYC) processes to facilitate identity verification in the era of “contactless” banking.

Online identity verification through eKYC makes digital onboarding of individuals easier, without the need to visit a physical branch. It also allows financial institutions to reduce risk and boosts their confidence in offering services like personal loans to new customers.

3. Low Adoption of Electronic Payments

Digital payment solutions like mobile money offer significant benefits to end-users and financial providers, boosting the overall economy. However, while these technological advancements enhance transaction efficiency, they may result in a ‘digital divide.’ This divide primarily affects segments of the consumer market, particularly in less-developed ASEAN regions. Various reasons contribute to this divide, including:

• Lack of a national “digital ID” linked to a mobile number, for instance.
• Insufficient data protection, privacy, cybersecurity, and e-signature laws across all ASEAN countries.
• Lack of an ASEAN-wide anti-cybercrime agency to combat digital crimes and fraud, similar to Europol’s JCAT

Mobile money, especially, enables the unbanked to easily and securely access financial services, thereby promoting financial inclusion. Through mobile banking, individuals can conveniently and safely make payments for their daily needs, which is a fundamental aspect of any mobile banking app. Given the widespread ownership of mobile phones and internet access, mobile payments like Digibanc™ SocialPay serve as a vital resource for many people.