Digital payments hold key to untapped e-commerce growth in S-E Asia
DESPITE initial concerns of a post-Covid downturn, the digital payment market continues its growth trajectory in Asia, with transaction value expected to hit US$2 trillion in 2030 as more fintechs and digital banks emerge, according to a new Google-led study. The growth continues off the back of a broader digital economy boom in the region, with eight in 10 consumers in South-east Asia now digital, according to research conducted by Bain & Company and Facebook.
For online merchants, the region’s rapidly digitising economy represents a huge opportunity for growth. But part and parcel of this broader digital economy growth is the proliferation of alternative digital payment options such as “buy now, pay later” (BNPL), bank transfers, e-wallets and even cryptocurrency. It’s an opportunity – and a challenge – that’s becoming increasingly difficult for merchants, particularly small to medium-sized businesses, to navigate.
The region’s opportunity lies, in part, in the potential access to the vast numbers of consumers who are not tied to traditional payment options. It’s what some are referring to as a financial revolution – the democratisation effect of digital payment options levelling the playing field for consumers who may struggle to access traditional financial institutions.
Take Indonesia, for example, where limited data availability on low-income citizens results in low credit card usage, a consequence of banks being unable to run background checks. In South-east Asia as a whole, more than 70 per cent of the population are underbanked or unbanked, and in some countries, members of the informal workforce are in the majority – many of whom cannot access bank accounts. Among this group, mobile transactions are increasing, and accordingly, e-wallet penetration among the region’s unbanked is set to surge to 58 per cent by 2025.
Alongside the growth in e-wallet users is the growth of e-wallet providers; an example can be seen again in Indonesia, where there are more than 40 e-wallet operators licensed by the central bank. In addition to the challenge of having to navigate an increasingly complex digital payment maze, merchants face the challenge of growing consumer preference for convenience. Consumers are increasingly looking for faster, cheaper, and local payment options. Merchants who fail to offer that face the risk of losing customers to competitors, or not being able to expand into new markets.
A recent survey from Stripe found that 53 per cent of shoppers in Malaysia said they would abandon a purchase if the checkout process took three minutes, and virtually all said it was important for common payment methods to be provided. Despite this, there is evidence that businesses are not capitalising on the trend, with a study from Boston Consulting Group finding that 54 per cent of consumers surveyed in South-east Asia cited low acceptance as a major barrier to greater e-wallet usage. When it comes to identifying why, the same study found that 74 per cent of merchants in the region reported that complex merchant payment processing and high fees were major barriers to adoption.
For merchants looking to enter – or even expand within – the South-east Asian market, time and resources are needed to invest into integrating local, preferred payment options. This is not a hurdle that has gone unnoticed. In a recent keynote address, Ravi Menon, managing director of the Monetary Authority of Singapore, noted that cross-border payment and settlement was one of two key challenges in financial services where fintech can potentially play a positive transformative role. There has been a push for a regional collaboration for real-time, cross-border payments in recent years. In 2017, Singapore’s Nets, Malaysia’s PayNet, Thailand’s ITMX, Vietnam’s Napas and Indonesia’s Rintis came together to sign a memorandum of understanding to push for this collaboration. Similarly, payment gateways like Xendit, 2C2P and Omise provide an entry point to markets like Indonesia, Thailand and the Philippines, allowing businesses to accept payments in those markets.
These developments are a good start, but as payment options continue to proliferate, businesses that want to truly capture the opportunities of the digital economy boom in South-east Asia need to be able to provide interoperability between payment providers, allowing them to enter new markets and access new customers quickly and easily. An open and agnostic infrastructure can connect merchants to a range of different, unaffiliated payment providers, in the markets where they are needed.
South-east Asia’s digital growth is not limited to online retailers. Superapps, mobility, travel, gaming, ticketing, fintech – the region is being heralded as an untapped goldmine for the digital economy boom. But businesses in the region that aren’t able to tackle the notoriously fragmented payments landscape will struggle to capitalise on the opportunity in their own backyard. As consumer expectations grow, the ability to seamlessly offer alternative, local payment options alongside traditional credit card transactions is no longer a nice-to-have for merchants; it is essential.
The writer is head of sales, Asia-Pacific, at Primer.
