Embedded finance is changing the face of financial services in Southeast Asia in 2023

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Embedded finance is a rapidly emerging trend that is revolutionizing the conventional banking and financial services industry in Southeast Asia. With a vast majority of the population lacking access to banking services, embedded finance possesses the potential to foster financial inclusion while providing unparalleled convenience and efficiency to consumers across the region. As the benefits of embedded finance are getting recognized more widely across the region, traditional banking institutions are facing stiff competition from new-age digital banks and fintech firms that are backed by venture capital and private equity firms.

Currently, many of digital banks across the region are experiencing a strong growth environment by capitalizing on the potential of embedded finance. Cake by VPBank, a Vietnam-based digital bank, facilitates customers in seamlessly connecting their Cake accounts with various mobile wallets, e-commerce platforms, and ride-hailing services. This integration allows users to access both financial and non-financial services effortlessly. In the Philippines, UNOBank is also offering a range of banking and lending services to consumers through a collaboration with Trusting Social.

Bank INA, in Indonesia, is another player that is leveraging the potential of embedded finance to boost financial inclusion in the country. Bank INA has entered into strategic collaborations with various non-financial platforms, including e-commerce platforms and ride-hailing services, to offer financial products such as loans, savings accounts, and insurance to its customers.

Going forward, the Indonesian embedded finance industry is projected to lead the growth in the Southeast Asian region. According to PayNXT360’s estimates, the embedded finance market is expected to grow by 44.6% on an annual basis to reach US$2.02 billion in 2023. By 2029, the embedded finance revenue will reach US$8.2 billion at a compound annual growth rate of 34.3%. To tap into the growing market size and accelerate financial inclusion in Indonesia, many new players are also expected to enter the market from the short to medium-term perspective.

Notably, the demand for credit has been on the rise in the Indonesian market. As both consumers and businesses are seeking alternative lending services, the sector is offering a lucrative growth opportunity in Indonesia. Venture capital and private equity players are taking note of it, and are, therefore, making early-stage investments in emerging startups in the segment.

• Finfra, an emerging Indonesian startup that offers tech infrastructure for online businesses seeking to provide embedded finance products, raised US$1 million in funding from investors including DSX Ventures, Cento Ventures, Seedstars International Ventures, Fintech Nation, Hustle Fund, and others. Finfra is planning to utilize the capital for funding product development and growing its data, engineering, and finance teams. Notably, the firm emerged out of the consumer financial service provider Danabijak, which will continue to work as a subsidiary of Finfra. 

The firm is primarily focused on serving the B2B market, but its product offerings can also be used for B2C applications. The loan management system offered by Finfra enables businesses to offer credit to clients through its platform. Finfra is focusing on digital supply chain businesses, including agtech firms and merchant e-commerce platforms. Without the infrastructure offered by Finfra, businesses would need to acquire lending licenses and spend millions of dollars building the tech, team, and infrastructure. However, with the APIs offered by Finfra, businesses are able to offer embedded finance services seamlessly within a few weeks.

With credit emerging as the most in-demand financial service among SMEs and consumers, an increasing number of platforms are expected to integrate solutions such as the one offered by Finfra. The growth in the number of online platforms, coupled with the rising reliance on alternative credit providers will, therefore, aid the growth of the businesses like Finfra in Indonesia.

In other Southeast Asian markets too, PayNXT360 expects more such innovative startups to emerge in the space over the next three to four years. While Indonesia is projected to lead the embedded finance sector growth in Southeast Asia, markets like Vietnam and the Philippines are also expected to grow at a healthy pace over the next five years. According to PayNXT360’s estimates, the embedded finance revenues in Vietnam are projected to increase from US$373.4 million in 2023 to reach US$2.4 billion by 2029. In the Philippines, on the other hand, the embedded finance revenue will increase from US$1.1 billion to reach US$6.7 billion by 2029.

To know more and gain deeper understanding of the embedded finance market in Indonesia, click here.