Kuala Lumpur, November 2023 – Google, Temasek and Bain & Company released the 8th edition of the e-Conomy SEA report titled “Reaching new heights: navigating the path to profitable growth”. The findings reveal that despite global macroeconomic headwinds, Southeast Asia’s (SEA) gross merchandise value (GMV) continues an upward trajectory and is set to reach $218 billion, growing 11% year-on-year (YoY). The revenue from Southeast Asia’s digital economy is poised to hit $100 billion this year, recording 8x growth over the past 8 years.

This is the first year the report shares revenue numbers in addition to GMV, providing a more detailed look at how businesses have accelerated growth amidst macroeconomic headwinds. It also takes a deep dive into the opportunities of increasing digital participation to unlock further growth in the region’s digital decade.

The e-Conomy SEA 2023 report shows that digital businesses in Southeast Asia have successfully monetized the digital economy – moving from user acquisition to deepening engagement with existing customers. The region consistently delivers on both GMV growth and revenue growth, which proves that monetization and overall market growth are not at odds.

Here are the key insights from this year’s report on Malaysia.

Malaysia’s domestic demand stands resilient despite external headwinds – Household spending is on the rise, in tandem with employment and wages. As a result, domestic demand will drive economic growth in the market. However, in line with regional and global shifts towards high cost of capital and issues across the funding lifecycles, investments in Malaysian digital companies declined to the lowest level in 6 years after record highs.

Despite the increased prudence by investors, dry powder in Southeast Asia has risen to USD15.71 billion at the end of 2022 from USD12.4 billion in 2021. This shows that there is capital available for companies that can demonstrate clear pathways to profitability and prove to investors that they have strong exit options.

Malaysia’s travel recovery drives digital economy to USD23B in 2023, e-commerce acceleration required to hit ~USD30B by 2025 – Online Travel is the main driver for Malaysia’s digital economy in 2023, reaching USD4 billion. The sector recorded the fastest growth across the digital economy sectors – 49% YoY. Outbound travel demand remains elevated, providing support for continued recovery and near-term growth in the digital travel industry.

Malaysia has the fastest-growing Transport and Food Delivery sector in SEA. The sector grew 16%, boosted by Malaysian commuters’ return to offline activities and their continued preference for food delivery. Even though foot traffic in malls has recovered to pre-pandemic levels and the food and beverage industry is experiencing an uptick, Malaysian consumers have held onto the digital habits that make their lives easier, such as food delivery and e-commerce.

E-commerce growth is flattening after growing 4% between 2021 and 2022 from pandemic-driven growth, but it remains Malaysia’s biggest digital economy sector at USD13 billion, accounting for 57% of the total GMV. E-commerce is seeing high adoption in Kuala Lumpur and Selangor. However, there is a persistent gap between demand and supply gap in other areas of Peninsular Malaysia and East Malaysia, which presents an opportunity for e-commerce players to expand in those areas.

Adoption of digital financial services (DFS) continues to grow from strength to strength,placing Malaysia as the 2nd biggest digital payment market in SEA

The irreversible offline-to-online behavior shift continues to drive growth in DFS adoption, and cash is no longer king with QR codes and other forms of digital payments becoming ubiquitous.

Digital payments are the biggest value driver within the DFS categories in Malaysia – USD165 billion GTV 3 in 2023 – boosted by the government’s support for digital payments adoption and distributing benefits to lower-income communities through e-wallets. This has placed Malaysia as the 2nd biggest digital payment market in SEA in 2023.

Digital wealth grew 61% YoY – fastest of all the DFS categories – and is expected to be the second largest DFS sector in Malaysia by 2030. The increasing interest towards digital wealth presents a lucrative opportunity for established financial services institutions to retain high-net-worth customers. As the competition between DFS players intensifies, pure-play fintechs have extended their lending services to the underbanked segment, while established financial services institutions have been quick to shift their large existing customer bases to digitalized services.

Expanding depth of digital participation is needed to enable the next wave of growth

Malaysia has seen good progress on digital inclusion, making inroads into rural areas to bridge connectivity gaps. The percentage of households with internet access saw an increase from

76% to 97% for urban and 49% to 89% for rural, within the time frame of 2015 – 2022. However, consumers outside of metro areas are at risk of facing a widening digital economic divide when it comes to digital participation – active involvement in the digital economy through consumption of products or services across sectors.

Over 70% of digital economy transaction values in Southeast Asia are made by the top 30% of spenders. In Malaysia, these high-value users (HVUs) spend 5.3x the amount non-HVUs spend online. More than half of HVUs reside outside metros, proving that opportunities for digital businesses to grow exist beyond metros such as Kuala Lumpur and Selangor.

Bridging the digital participation divide is the collective responsibility of all digital economy stakeholders. Removing barriers, such as supply and security issues, can improve the participation of non-HVUs and enable Malaysia’s digital economy to reach its full potential – USD30 billion GMV by 2025.

“Malaysia’s GMV is projected to reach between $45B and $70B by 2030 and we’ve seen how the resurgence of tourism along with Malaysian consumers’ sticky digital behaviors in e-commerce and food delivery can contribute to this economic growth. With Malaysia making good progress in bridging connectivity gaps, addressing digital participation beyond metro areas can prove to be a key in unlocking the next wave of growth,” said Samuele Saini, Country Director, Google Malaysia.

“It is remarkable that both Southeast Asia’s digital economy GMV and revenue continued their double-digit growth momentum, with revenue breaking the $100B mark in 2023. This shows the resilience of the Southeast Asian digital economy and that the key players are making progress towards more healthy unit economics and sustainable business models. Despite external headwinds and some return to in-person dining and shopping, we are optimistic that the overall digital economy will continue to grow in the longer run,” said Willy Chang, Partner, Bain & Company

(This article was adapted from a Google press release)