FinTech investments in ASEAN clocked in at $4.3 billion in the first nine months of 2022 — higher than the combined sum from 2018 to 2020, a report said Friday.

According to the report released by professional services firm PwC Singapore, the Singapore Fintech Association (SFA) and Singapore Economic Development Board (EDB), with emerging economies, an expanding population and growing middle class, Southeast Asia presents a land of opportunities for FinTech.

It said young and vibrant demographic that is receptive towards technology, the rapid urbanization of rural areas, fast growth of household incomes that drive consumption behavior, small-to-medium enterprises (SMEs) that remain underserved by traditional finance, leaving gaps to be filled by FinTech innovations.

“Collectively, these factors position this region to be a fertile ground for FinTech companies to test and grow their products,” said the report.

However, it noted that emerging economies often grapple with challenges in financial and technological infrastructure, talent shortages, complicated tax and regulatory regimes, political and economic instability, and limited access to funding.

“This is where Singapore comes in. The economic powerhouse of Southeast Asia serves as an excellent bridge for companies to reach these neighboring countries,” it said.

Besides the obvious physical proximity, it said the city-state has an extensive network of some 27 implemented free trade agreements.

“Its conducive business environment accompanied with strong technological and financial infrastructure balances the risks involved in investing in emerging economies,” it said.

It said the city-state also boasts a diverse, multilingual talent pool and a wide range of funding sources for early-to late stage companies.

Meanwhile, the report highlighted the widespread adoption of artificial intelligence (AI) is rapidly transforming all industries.

It noted a good adoption rate in the RegTech sector.

“Emphasis on AI governance means implementing a digital trust strategy that cements trust and confidence in the technology,

“Strong safeguards against malicious usage of AI have come under the spotlight as the technology gains traction,” it said.

It also said client relationships must be reimagined, as the use of tools like ChatGPT are expected to grow at an exponential speed.

The report also sees the green economy to gain momentum.

It noted there is an ongoing pressure for businesses in Asia to adopt greener practices.

“FinTech unlocks sustainable investment opportunities, accelerating the transition to a green economy,

“Project Greenprintand ESG Impact Hub are some initiatives launched by Monetary Authority of Singapore (MAS) to build and scale sustainable businesses,” it said

Globally, FinTech momentum also continues to grow, according to the report.

It said the financial technology industry witnessed unprecedented growth over the past few years.

It noted that the COVID-19 pandemic propelled this rising sector to greater heights as many countries rushed to transit into cashless societies.

Meanwhile, in PwC’s 2022 FinTech report, 60 percent and 35 percent of respondents in the payments and lending sectors, respectively, reported more than SGD 10 million ($7.57 million) in annual revenue.

However, with ongoing geopolitical tensions and ever-shifting global macroeconomic conditions, the report said the landscape witnessed today is vastly different from just a year back.

It noted that news of big tech firms winding down operations and conducting mass layoffs spread across the world as they braced themselves for recession.

“Many FinTech companies have taken similar approaches to control costs. As a matter of course, the flow of investments decelerated, falling to $75.2 billion in 2022,” it said.

Despite the slowdown, it said the sector managed to capture a market value of more than $194.1 billion and is still enroute to grow at a compound annual growth rate (CAGR) of 16.8 percent between 2023 and 2028, reaching $492.81 billion.

Despite the seemingly bleak outlook of the industry, the report said that the momentum of financial innovation has not slowed down as international organizations push for greater financial inclusion.

Payments continue to hold the top spot, with the total transaction value in the digital payments segment estimated to be $9.47 trillion in 2023 and the amount of users expected to reach 5.48 billion by 2024.

Following closely behind is the rise of neobanking, with the segment expected to show a revenue growth of 28.9 percent and the average transaction value per user projected to be $18,080 in 2023.

Another segment making tailwinds among reserve banks across the globe is that of central bank digital currencies (CBDC).

It is estimated that 114 countries, representing over 95 percent of global gross domestic product (GDP), have either launched or are considering launching national digital currency for either retail or wholesale purposes.

This is a massive step up from 2020, where the number of countries was only 35.

Singapore FinTech Association & 5 national FinTech associations to form Asean FinTech Movement