Choice is the true marker of financial inclusion for Asean consumers

Asean’s turn to take the global stage as the world’s growth epicentre may have been disrupted by the pandemic at the start of a much-anticipated decade for its projected ascent - but not everything has been at a standstill over the past 2 years. 

Another growth story comes alive when you look beneath the surface of the mobile phone of each of the 60 million consumers who came online during this period.

All of a sudden, the silent symphony of keyboard clicks behind the region’s virtual marketplace serving 350 million digital consumers replaced the hustle and bustle of Asia’s vibrant markets. Western Union saw a 20 per cent increase in demand for digital platforms across Malaysia, Singapore and Thailand alone.

Digital connectivity and the attendant surge in digital consumption circumvented many of the challenges the pandemic posed in the traditional economy - the impact of which has already been reverberating across sectors and industries. The result is the promise of a US$1 trillion digital economy ready for lift-off by 2030. 

Digital payments have now provided a gateway to financial inclusion for the region’s underserved population and catered to the needs of its rising middle class. Yet there remains a cash economy operating outside the reaches of the digital sphere. 

The missionaries of financial inclusion – both local and regional government bodies and global fintech giants alike – now need to cover the last mile for these communities. This includes tailoring solutions for the digitally disinclined segments of the population, such as those accustomed to walking to the nearest Western Union agent location to retrieve cash wired by economic migrants in a family support system established for decades.

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A recurring theme we have found is that Asean consumers want choice above all as a true marker of financial inclusion. 

Asean will remain a cash-friendly economy for the foreseeable future

For every 4 Asean consumers with ready access to financial services, there are 6 others who do not have a bank account or adequate credit access, according to the World Economic Forum. In 2020, in excess of 80 per cent of all transactions between consumers and businesses were in cash.

The dynamism of Asean’s economy lies in its people and micro, small and medium enterprises, which according to the Asian Development Bank, employed as much as 69 per cent of the region’s labour force between 2010 to 2019. At least 7 in 10 are informal workers with no bank accounts who transact predominantly in cash. 

Embedded finance digitally initiated and delivered in cash

The rise of e-commerce platforms and digital banks in Asean has offered unprecedented access to financial services through embedded finance. Non-financial institutions are now making a play to super-size their customer base by offering digital financial services. 

For example, e-commerce platforms may now offer a Buy-Now-Pay-Later (BNPL) option to build a stronger orderbook, expanding their customer base across those who might otherwise not be able to afford upfront payment.  A ride-hailing app may offer an e-wallet service to make payment to its retail partners. Apple is one prominent company making in-roads in the BNPL space. It has unveiled plans to break through in financial services by becoming a lender through its Apple Financing LLC subsidiary. 

The introduction of embedded finance has advanced financial inclusion and brought greater convenience to customers. It also showcases the relevance of cash and a consumer preference for an omnichannel approach - where they could choose to initiate a transaction digitally while paying out cash on delivery.  

A digitally inclusive but not digital-exclusive approach 

While the growth of the region’s digital economy has gathered pace, it is highly unlikely to see cash payments, which make up 70 to 80 per cent of Asean’s retail transactions, going away in the near future.

Our data tells us that consumer preferences are fast evolving, with customers seeking choice on how they send or receive money, based on convenience and need. In 2021, Western Union served more than 9 million branded digital customers globally. Approximately 30 percent started their relationship with us at a retail location. 15 percent of them transacted with us at least once at a retail location last year. 

The region’s digital transformation and growing internet penetration have steered digital inclusion for more to access financial services to great effect. However, the narrow focus of mobile money and digital banks may once again underserve a segment of the population that is not online either by choice or by circumstance.

The omnichannel nature of thriving retail enterprises signals the need for and effectiveness of a digitally inclusive but not exclusively digital approach. As we grow into the digital-first environment the pandemic has thrust upon us, we shall see that having a choice – and not mere access – to transact digitally or in cash will be the true marker of financial inclusion. 

The writer is president of APAC & EMEA at Western Union.