Blockchain

The Growing Role of Blockchain Technology In Southeast Asia

The objective of investors is to not only expand to new markets but also implement their developments comprising blockchain technology
The Growing Role of Blockchain Technology In Southeast Asia
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5 min read
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The potential application of blockchain has gone far beyond the financial realm. There are projects in insurance, copyright protection and other fields. However, the implementation of such projects is still a matter of future. Now, the use of blockchain turns to be more realistic in existing fintech companies.

The Last Will Come First

The undoubted advantage of countries in SE Asia contributing to the introduction of new technologies is the low base effect. The penetration of banking services and traditional payment systems in most countries is very low. For example, only 27 per cent of the population own transaction accounts in the Philippines, and 31per cent in Vietnam. The majority of people have no credit history, which makes them unattractive for traditional lenders. In addition, banks are poorly represented outside large cities. Residents of rural areas and small entrepreneurs who prefer payments in cash comprise a promising audience for microfinance and p2p lending companies.

Thus, the development of new financial technologies will be especially relevant to SME. Highly developed small business in Southeast Asia brings 45-55 per cent of GDP from country to country. However, the SME industry is quite specific here. In the US and the EU, the sector of services takes the first place within activities of small business and that is why highly competitive what makes companies demonstrate the highest efficiency. In Southeast Asia, agriculture and craft industry involve most of SMEs. As a rule, they use outdated equipment and have low productivity. Due to these reasons, bank loans turn to be hardly accessible for small businesses and lack of credit makes modernization of production impossible.

The Next Generation

However, the emergence of a new generation of farmers and entrepreneurs who are familiar with modern technologies and the growing Internet penetration in rural areas can provide SMEs with an opportunity to raise funds in the p2p lending market independently. Implemented blockchain serves to minimize the size and cost of transactions, which will allow lenders to hedge risks through diversification, and the introduced smart contracts will protect investments from the scam.

Reaching a fundamentally new audience allows fintech companies to make a significant contribution to the development of the financial system that provides support from the government. The study made by the Institute for Development of Economics and Finance (INDEF) and the Indonesian FinTech Association (Aftech) showed that online lending created 250,000 jobs in Indonesia and contributed up to the US $1.7 billion of GDP growth. This rate is significantly higher than in the United States and Western Europe.

The introduction of calculations based on blockchain helps to reduce the costs of financial institutions. However, such opportunities often face bureaucratic issues. Fintech has proven its efficiency for the economy of the Southeast Asian countries. Therefore, the adaptation of legal requirements to new realities is much easier here than in the United States and the European Union.

Mobile Lifestyle

The notable trend of recent times in Southeast Asia is the widespread Internet penetration. For example, there live 90 million people in Vietnam and 55 million are active Internet users. At the same time, mobile devices provide the main Internet traffic. The analytical company DigiTimes Research predicts that Southeast Asian countries will lead by the volume of sold smartphones in 2018-2022.

The impetuously expanded access to the Internet has already significantly altered the mentality of users. If sending a message in a messenger takes a few seconds, then why should transactions take several hours? For people who have not used services of traditional banks before and are not used to the methods of their work, this question is extremely relevant. The companies, which offer the fastest solution, will gain a competitive advantage. Since blockchain provides high-speed transactions, the introduction of such technologies will become a priority for payment systems and e-wallets.

Another important factor associated with the spread of the mobile Internet is the desire to receive a familiar set of services anywhere. Successful fintech companies quickly outgrow the business on the scale of one country and start establishing foreign affiliates.However, there are many cases when a company does not allow its client to use the services of its branch in another country. This is very inconvenient if a customer places funds to the company's internal account as vouchers or points. For example, the Indonesian unicorns Go-Jek and Grab competing in several market sectors have already opened branches in the most Southeast Asian countries and use digital currency linked to fiat currency rates in Go-Pay and Ovo e-wallets respectively. The implementation of a distributed ledger will allow such companies to preserve common standards of service, provide clients with an opportunity to pay for goods and services in different countries with funds from their accounts in the company and also keep a complete historical record of interactions with clients.

External Incentive to Enter the Global Market

The new important factor for the development of blockchain in Southeast Asia has become a sharp change in the Chinese policy concerning p2p lending platforms and related industries, which has been met quite critically by the business community. The introduction of strict regulation is pushing Chinese fintech companies to create divisions in the Southeast Asian countries.

Large corporations, like Alibaba and Tencent, have already acquired a number of successful fintech companies or established their own branches in Southeast Asia. In October, Executive Chairman of Alibaba Group Jack Ma, known to be an advisor to the Indonesian government on e-commerce, announced plans to establish an institute in the country to train up to a thousand of tech entrepreneurs yearly. Then, many smaller Chinese tech companies are following the leaders to tap the Southeast Asian countries. The objective of investors is to not only expand to new markets but also implement their developments comprising blockchain.

As a result, it will give access the Southeast Asian countries to the most innovations, which will allow the entire region to take the leading positions on the global financial market.

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