Data connectivity is driving digital innovation in ASEAN, enabling advances in areas including real-time payments, and cross-border financial services. However, businesses looking to expand across the region still face a fragmented landscape of data regulation and growing restrictions on cross-border data transfers.

According to a new report by the Singapore Fintech Association (SFA), regional cooperation through initiatives like the ASEAN Digital Economy Framework Agreement (DEFA), is offering a pathway to harmonized, secure, and efficient data governance. DEFA could be a game-changer for regional business growth, efficiency, and innovation.

The report, based on a survey of 109 organizations across ASEAN conducted between November 2024 and March 2025, reveals that businesses in the region are calling for legal harmonization and seamless data flows, warning that without these, companies are struggling to scale, product launches are delayed, and operational costs are rising while revenues fall.

In particular, the majority of respondents are endorsing DEFA, with 71% of respondents believing a robust DEFA could significantly enhance revenue, efficiency, and business growth by ensuring consistent and predictable cross-border rules.

Currently under development, DEFA is a regional agreement that aims to create a unified framework promoting seamless digital trade, data flow, and cooperation among ASEAN member countries by 2025.

Limiting access to key resources

Results from the study reveal that restrictions on cross-border data transfers are limiting businesses’ access to essential global tech resources.

73% of the ASEAN companies surveyed believe that such restrictions hinder their access to critical tools, such as cloud platforms, development software, application programming interface (APIs), all of which are vital to remain competitive. These companies expect their operational costs to increase and productivity to decrease due to such rules.

Another 73% anticipate operational costs to increase under stringent data rules. Additionally, 73% foresee decline in productivity, while 61% anticipate a direct negative impact on revenues, notably because of the need to duplicate systems, and hire additional compliance staff.

Limiting expansion potential

Cross-border data restrictions are also hindering ASEAN businesses’ ability to expand across borders. 73% of respondents reported that such measures negatively impact their ability to operate in restricted markets, with significant negative impact on crucial operational activities. Respondents cited customer support (74%), consolidated/aggregated reporting (71%), and new product development (70%), as the most impacted operational areas.

Hindering tech adoption and investment

Restrictions are also slowing technology adoption, particularly in artificial intelligence (AI). 70% of respondents said that cross-border data transfer restrictions have a negative impact on their creation and use of generative artificial intelligence (AI).

This is because good quality data in sufficiently large volume is essential for AI model training. Therefore, restricting access to such data affects the adoption and development of new technologies. This ultimately limits the growth and productivity of ASEAN firms and economies.

Such constraints also deter foreign investors, who seek regulatory clarity and scalability. Complex data rules force firms to duplicate infrastructure and hire separate local teams in each country, prompting many to scale back or opt-out entirely due to the high compliance costs involves. This environment discourages investors from backing local businesses, pushing critical technology investment toward more integrated digital economies.

A fragmented regulatory landscape

Data governance across ASEAN is highly inconsistent, with some countries championing open data flows and regional integration, while others are emphasizing data sovereignty and introducing localization requirements.

For example, a fintech company in Cambodia may be legally required to store customer data within national borders. This limits their access to cloud-based customer relationship management (CRM) tools hosted in another country.

Meanwhile, an Indonesian payments firms expanding to Thailand may need to duplicate infrastructure, segregate user data, and navigate separate approval processes in each country. This raises costs and delays entry.

ASEAN’s DEFA initiative

Recognizing these challenges, ASEAN governments are advancing DEFA as a regional solution. First introduced in 2023, DEFA aims to offer a comprehensive roadmap to reduce friction in cross-border data transfers, and encourage the adoption of mechanisms which enable seamless cross-border connectivity.

In particular, the initiative seeks to establish common standards on data flows, privacy, cybersecurity, and digital trade across member states, simplifying compliance, reducing costs, and accelerating regional integration.

According to Boston Consulting Group (BCG), progressive DEFA provisions could help double ASEAN’s digital economy to US$2 trillion. ASEAN’s digital economy is projected to triple between 2021 and 2030 through the natural adoption of digital technologies, growing from approximately US$300 billion to almost US$1 trillion by 2030.

Following global trends

ASEAN’s DEFA initiative builds on a series of international precedents. The Digital Economy Partnership Agreement (DEPA) was signed in 2020 by Singapore, Chile, and New Zealand, establishing shared rules on data flows, privacy, and digital trade.

In North America, the United States-Mexico-Canada Agreement (USMCA), which requires the removal of barriers to cross-border data flows, entered into force in 2020.

In Asia-Pacific (APAC), the ASEAN-Australia-New Zealand Free Trade Agreement (AANZFTA) comprises rules that support the free flow of data across borders and prevents unjustified data localization requirements, while maintaining appropriate regulatory space in certain areas, including for the protection of privacy. It first entered into force in 2010 for Australia.

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