Comment on “Fintech and Financial Inclusion in Southeast Asia and India”

Morgan (2022) provides a comprehensive analysis of the Fintech scene and its influence on financial inclusion in Southeast Asia and India. He describes how Fintech can contribute to promoting financial inclusion which poses a pressing challenge in this region. Among the various categories of Fintech, Morgan focuses on digital payments and alternative finance, taking account of their importance in enhancing financial inclusion. He explains each category in detail and how they are developing in the region, as well as how they are regulated/promoted. Morgan successfully deals with the daunting task of bringing together and evaluating the various characteristics of the relevant countries that differ significantly from one another.

Morgan points out that digital payments such as mobile money and digital remittances are growing rapidly, including among the unbanked and under-banked. But as for alternative finance, for instance crowdfunding and P2P (peer to peer) lending, even though they are also developing very fast, Morgan argues that the overall penetration rate is still substantially lower than conventional lending. In addition, Morgan discusses that even though Fintech can enhance financial inclusion, at the same time it can bring various risks to consumers. One of them is the potential increase in income and wealth inequality, given that Fintech adoption can be seen more in higher income countries, and within one country there is an adoption gap depending on income and educational backgrounds. Morgan stresses that policy measures are necessary so that the benefits of Fintech are distributed more broadly and in a more equal manner.

There has been a huge amount of hype surrounding the Fintech landscape in both Southeast Asia and India in recent years. The spread of the internet and smartphones on the one hand and the underdevelopment of financial services on the other in this region have brought various business opportunities for Fintech services. Numerous Fintech startups have been founded and have attracted investments from all over the world. In Southeast Asia, venture capital investment into startups dedicated to the payments and financial services sector amounted to US$1.3 billion in 2020, the second largest after the multi-vertical sector in which many startups included here also provide Fintech services (Cento Ventures, 2021). In the meantime, Fintech investment in India in the same year was US$1.2 billion, close to Southeast Asia's figures and made up one of the top three investment categories (Sheth et al., 2021).

The surge in Fintech startups raised alarm among the traditional financial institutions, and they too started adopting Fintech in order not to be left behind. A prominent example is DBS: a Singapore-based bank that has been proactively embracing Fintech to become “digital to the core” (DBS, 2017). Its efforts have paid off and today DBS is recognized as the world's frontrunner in digital banking. Other banks, from state-owned banks in Vietnam and public sector banks in India to private banks in Thailand, are also taking on Fintech, even if they may not have gone as far as DBS.

Considering all these developments, it would only be natural to assume that Fintech has penetrated the economies of Southeast Asia and India and has brought about positive effects toward financial inclusion. Therefore, Morgan's observation is somewhat sobering: The penetration of Fintech has so far been uneven, and it is also breeding new disparities in the region. In this regard, Morgan contributes to eliminating the illusion that we unintentionally tend to fall into, that technology can solve all sorts of problems including social issues.

This leads to the following two questions. First, how can we evaluate the current “unequal” distribution of merits provided by Fintech in Southeast Asia and India? Morgan discusses Fintech's limited effects, but this may be because it is fairly new and developing, and it can be just a matter of time before we are able to see it utilized more extensively. Or Fintech startups, although the number has increased dramatically, may still be too small to make notable macroeconomic differences. Also, there are possibilities that traditional financial institutions are embracing Fintech but at a limited scope, for example, using Fintech mainly to serve their existing customers and not to expand their customer base to segments they have not previously reached out for. Secondly, how can we make sure Fintech can bring positive results to the region with minimum side effects? Morgan mentions the need for policy intervention and makes several suggestions. Detailed studies are necessary to find out what kind of policy measures would be effective without at the same time preventing innovative Fintech solutions from coming out.

Overall, Morgan makes a meaningful contribution to our understanding of what is currently going on in Fintech and financial inclusion in Southeast Asia and India, and provides an important basis for further research on this topic.