Digital payments are growing rapidly in Asia, fuelled by increasing smartphone ownership and improving access to the internet.
An increasing array of solutions such as digital wallets, mobile payment apps and stored value cards are making money transfers, be it remittance or payments of goods and services, simpler and more convenient – according to a bulletin report from East & Partners.
Given that India, China and the Philippines are the three largest recipients of remittances globally, Asia offers a vast opportunity for payment solution providers. The number of non-cash transactions in the region is expected to hit 276.8 billion by 2020, according to the recent World Payments Report. This represents an almost three-fold increase since 2015, an unprecedented growth in the space of only five years.
The Chinese payments landscape
China is leading the mobile payment revolution. The country’s mobile payment market was valued at US$5.5 trillion in 2016, nearly 50 times that of the United States. Revealing the Chinese consumer’s payment behaviour and tracking the evolution of the industry will provide clear guidance of payments globally.
The story of China transitioning to a cashless society is about Alipay versus WeChat Pay. Collectively, these two Chinese technology giants hold more than 90 percent of the mobile payment market with a split of 58/42. Alipay was initially created as a payment tool for Alibaba’s e-commerce platform, while WeChat Pay was expanded from its social networking and instant messaging app. Unlike many of the apps developed in the West, these Chinese “super apps” are multifunctional. Apart from making payments, users can also hail a cab, buy movie tickets, order takeaways or invest in wealth management funds through the same platform.
In recent years, Alipay and WeChat Pay have steadily increased their presence in international markets. For example, Tencent launched its WeChat payment service in Europe in July through partnership with German payments company Wirecard. Alipay, on the other hand, entered the European market much earlier in 2015 and has a growing footprint in North America, East Asia, Southeast Asia and South Africa. Currently, these two companies share a similar strategy for overseas expansion – catering to Chinese tourists abroad, as opposed to targeting European or American domestic customers up front.
In part due to low credit card penetration and lack of legacy banking structures, China is leapfrogging the era of credit cards into digital payments. Recognising this inevitable trend, UnionPay, China’s largest card issuer has rolled out a QR code-based payments in May. The organisation has also teamed up with Swatch Group to create a contactless payment watch.
Huge growth potential in emerging Asia
India is shaping up to be a key battleground for digital payments providers, considering that the country also has a massive, young and tech-savvy population with affordable smartphones and improved high-speed wireless networks. Google’s move to launch Tez, a mobile payment app, in India last month is seen as capitalising on this opportunity. While digital payments gained momentum when Prime Minister Narendra Modi abruptly withdrew all 500-rupee and 1,000-rupee notes from circulation last November, there is still a way to go for India. Asia’s emerging markets, in particular Southeast Asia with its 73 percent unbanked population – that is roughly 438 million people without a bank account, provides enormous potential for the adoption of mobile solutions as an alternative to traditional payment options.
However, this region is fragmented with heterogeneity in economic development and infrastructure provision, resulting in different levels of readiness to embrace digital payments. Understanding cultural nuances and local market dynamics is crucial for providers. This is best illustrated by how WeChat Pay became Alipay’s biggest competitor despite being a latecomer. The successful implementation of Red Packet on its platform, based on the tradition of giving red envelops filled with money during Chinese New Year, weddings and special occasions, has enabled WeChat Pay to dramatically grow its user base in a short time span.
Meanwhile, digital payments have not yet truly taken off in the developed markets in Asia. In Singapore, for example, the plethora of digital payment options available and lack of interoperability among these systems have made users reluctant to fully adopt electronic payments, preferring cash and credit cards instead.
In a bid to push for more integrated payments services in this fragmented market, PayNow, a peer-to-peer (P2P) funds transfer service using just mobile numbers, has been introduced. A taskforce has also been created to develop a common QR code for Singapore. With 70 percent of transactions still conducted in cash, Japan faces a similar challenge. In order to wean the nation off heavy dependence on cash, Japanese banks plan to launch a new digital currency known as J Coin by 2020.
For digital payments service providers, grabbing market share means more than transactional revenues. The big prize is the valuable payments data gathered, enabling real time analysis of customer spending patterns and proactively influencing buying behaviour in goods and services.
A global comparison
While messenger and payment apps dominate in Asia among consumers, and are becoming the preferred payment method by merchants, research from East & Partners finds other regions are a long way off adoption, despite the high uptake of mobile and smartphone devices.
For example, in Australia, which has 84 percent adoption of smartphones according to Deloitte’s Mobile Consumer Survey 2016, East found that just 19.5 percent of all Australian merchants have “mobile friendly” websites, while less than one in three of those businesses accept mobile payments via their website. Australian merchants do however see this as a growing area of importance, driven small to medium businesses, who want to be where their customers are.
Meanwhile, East’s 2017 UK Merchant Payments Report found that businesses were prioritising investment in mobile and contactless technology at an overwhelmingly faster rate than internet payment platforms. Over half, and nearly one in four UK merchants nominated contactless card payments and mobile card acceptance as priority areas of future payment product investment respectively.
Corporate payments space is ready
To date, improvement in user experience has been far greater on the consumer and retail side than in the corporate sphere. In terms of payments, a recent study suggests 73 percent of fintech investment are dedicated to the consumer space, 24 percent to enhancing banking efficiency and only 3 percent to the corporate customer. The inherent complexity of transaction in business-to-business (B2B) payments involving multiple banks and often cross border, makes it harder for solution providers to deliver innovative, customer-centric solutions that fit multiple customer needs.
Currently, B2B payments across Asia are still primarily manual with a very high proportion of payment volumes remaining cash-based. This generates higher error rates in manual data entry, risk of fraud as well as higher headcounts in matching purchase orders (PO), setting up new vendors, and syncing information to enterprise resource planning (ERP) platforms, among others. On the accounts receivables front, regular challenges faced by corporates include delayed payments and long payment cycles.
As treasurers and financial controllers experience these new payment capabilities and ideas in their private lives, their expectations of corporate payments are undergoing a paradigm shift. The presence of a large small and medium-sized enterprise (SME) sector in Asia, coupled with greater emphasis on cash flow management and flourishing cross-border trade, especially intraregional, will act as catalysts for the growth of B2B payment solutions.
A wave of Asian fintechs are recognising the growing opportunity in the digital corporate payments arena. For example, MC Payment has developed a product to support B2B payments processing with Level 3 data, while Eko-Pay has partnered with MasterCard to provide an automated payment solution that enables corporates to streamline workflows and improve productivity. In order to retain corporate customers and position themselves for further growth, banks will need to invest in new payments technologies, enhancing the user experience of their corporate customers. So, what are corporates looking for and value the most in digital payments products? Real time payment capabilities? E-invoicing? Mobile payments approval?