Digital Finance to Bank the Unbanked Can Boost GDP by As Much As 6% in Southeast Asia

INGAPORE (31 January 2017) — Digital technology that promotes financial

inclusion can increase GDP by as much as 6% for economies in Southeast
Asia, according to a new report Accelerating Financial Inclusion in Southeast
Asia with Digital Finance. The report is jointly published by the Asian
Development Bank (ADB), global management consulting firm Oliver
Wyman, and financial inclusion-focused consulting firm MicroSave. 

The study, which looks at digital finance in Cambodia, Indonesia, Myanmar,

and the Philippines, is derived from interviews with more than 80
stakeholders across the four markets, extensive secondary research, and
economic analysis.

Promoting the use of formal financial services continues to be a challenge

in the region and the depth of engagement varies with different financial
products. Among the study’s findings, only 18% of adults use a bank
account to receive wages or pay utility bills and only 11% borrow from
formal sources.

“ADB sees financial inclusion as an essential part of financial sector

development,” said Michael Barrow, Director General of ADB’s Private
Sector Operations Department. “Without access to formal financial services,
the unserved and underserved segments of society will be excluded from
growth and its benefits. Digital finance presents a unique and potentially
transformative opportunity to advance financial inclusion.”

The research finds that digital financial solutions could play a significant
part in closing gaps in financial inclusion, addressing about 40% of the
volume of unmet demand for payment services and 20% of the unmet
credit needs in the base of pyramid and micro, small, and medium
enterprises segments. 

Digital financial solutions will have the most significant impact on financial
inclusion in five key areas: 

1. Enabling fast, low-cost, and convenient customer identification and

verification processes;
2. Improving supply-side economics with last mile distribution and servicing
enabled by mobile phones and point-of-sale devices;
3. Supporting supply-side business cases with initial push in government-
to-person payments and remittance flows;
4. Enhancing access to alternative sources of data to improve customer
profiling, credit risk assessment, and fraud detection;
5. Mobilizing micro-saving through lower cost digital origination and
servicing channels. 

“For this opportunity to be realized, collaboration by different participants

in the ecosystem will be critical,” according to Duncan Woods, Head of
Oliver Wyman’s Retail & Business Practice in Asia-Pacific. “Public policy and
regulatory guidelines can provide the framework to stimulate the
development of digital financial solutions, which we expect will materialize
through collaborations between banks, telecommunications and financial
technology firms, and NGOs, each bringing specific capabilities along each
part of the financial value chain.” 

While digital finance alone cannot close the gaps in financial inclusion, the
effect of leveraging digital technology to bank the unbanked could boost
GDP by 2% to 3% in markets like Indonesia and the Philippines, and 6% in
Cambodia. 

Making the most of this opportunity could also help influence the financial
services industry, particularly in smaller markets such as Cambodia and
Myanmar, where only a small percentage of the current needs for financial
services are met by formal providers. 

“Digital finance is the new normal in banking. Financial institutions will have
to make this transition and develop distribution models and products for
digital finance,” said Manoj Sharma, Managing Director of MicroSave in
Asia.

ADB, based in Manila, is dedicated to reducing poverty in Asia and the

Pacific through inclusive economic growth, environmentally sustainable
growth, and regional integration. Established in 1966, ADB in December
2016 marked 50 years of development partnership in the region. It is
owned by 67 members—48 from the region.