Fintech: the natural response to a quarantined economy

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COVID-19 is putting millions of micro, small and medium-sized enterprises (MSMEs) in Southeast Asia at risk. This is perhaps one of the biggest tragedies resulting from this pandemic considering the size of the sector in the region.

  • MSMEs are seen as crucial to the future economic success of many Southeast Asian countries;
  • In the wake of the COVID-19 pandemic, the IMF’s World Economic Outlook predicts GDP will fall to minus 6% for five of the Association of Southeast Asian Nations (ASEAN) countries : Indonesia, Malaysia, the Philippines, Thailand and Vietnam;
  • Fintech emerges as a crucial means of supporting MSMEs during the pandemic as well as an opportunity to stimulate their growth in a way that benefits society at large.

In the wake of COVID-19, the IMF’s World Economic Outlook predicts GDP will fall to minus 6% for five of the Association of Southeast Asian Nations (ASEAN) countries: Indonesia, Malaysia, the Philippines, Thailand and Vietnam. The Asian Development Bank predicts that ASEAN’s GDP growth will be just 1% in 2020.

MSMEs are seen as crucial to the future economic success of many Southeast Asian countries. MSMEs have grown rapidly over the past decade thanks to thriving environments, they account for almost all establishments in Southeast Asia and contribute between 52% and 97% of employment in the region.

Fintech: the natural response to an economy in quarantine 5

However, COVID-19 guidelines mean these businesses can only continue to operate if they provide essential products and services. Even for MSMEs in essential industries, the pandemic and economic shutdown have further disrupted both small and large economies, leaving difficult hurdles for the ASEAN economy to overcome.

Fintech: the natural response to a quarantined economy

Health policies, fiscal policies and stimulus packages have been drawn up across Southeast Asia and around the world to cushion the rapidly worsening economic downturn. ASEAN countries have provided fiscal stimulus packages averaging around 6% of their GDP, according to data from the Center for Strategic and International Studies, SEA COVID-19 Tracker.

ASEAN member countries have generally focused their stimulus packages on health, cash transfers, aid for SMEs, tax relief and finance loans. However, the massive problems for all aspects of society caused by a fast-spreading virus and a global lockdown could not be solved by government aid.

One of the main obstacles to the impact of stimulus packages for small businesses has been the difficulties of their implementation. Providing incentives to all sectors of the economy was a nightmare. Imagine disbursing money to millions of businesses and eligible individuals claiming cash benefits while protecting your health and trying to avoid contagion.

How COVID-19 will affect GDP growth in Southeast Asia

Soon, major private companies pledged to secure food supplies and donate personal protective equipment, medical supplies, alcohol and hand sanitizers, and food; as well as setting up their own quarantine facilities. In Malaysia, a telecom conglomerate, Axiata Group and its subsidiaries launched a RM150 million (~$35 million) cash fund for financial assistance to MSMEs through a micro-finance service.

During the global lockdown, MSMEs needed financial technology (fintech) to maintain business operations. FinTech companies have also brought intrinsic relief to business owners who risked getting sick from continuing to operate manually. It’s not just around-the-clock convenience that has brought FinTech into the limelight, but it has simply eliminated the risk of exposure to COVID-19 for many people.

Through fintech, millions of unbanked individuals across the region have been able to access government assistance at a time that prioritized containing an aggressive pandemic. Since many FinTech companies are start-ups, their courage and agility in pivoting their operations to provide specialized services when customers needed them has strengthened the industry.

Banking services, digital payments and debt financing services have significantly propelled the economic wheel throughout the lockdown. Applications provided by a few innovative banks and digital payment companies were essential to keep monetary activities moving and help balance supply and demand. Singapore’s peer-to-peer money transfer platform PayNow saw transactions double for customers of two local banks in the first quarter compared to the same period last year.

Online finance companies also continued to operate to support businesses that could not afford any disruption resulting from negative cash flow. In the Philippines, UBX, the fintech arm of a traditional local bank, has partnered with popular Southeast Asian e-commerce platform Lazada through its local arm, Lazada.ph, to support MSMEs on the e-commerce site platform with program credit line financing. UBX, through its lending marketplace, SeekCap, also reported a 300% increase in loan applications during the first quarter of 2020.

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