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E-payment’s old-timers aren’t going anywhere

Singapore’s e-payment incumbents are no pushovers even as non-traditional players muscle in on the growing cashless ecosystem.

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Phone makers, telcos, ride-hailing companies and deal voucher businesses are all muscling in on the e-payments space. But the old guard of e-payments looks more than ready to meet the challenge.

No single winner

The e-payments space is highly fragmented at the moment, and there could well be consolidation on the road ahead. But this is unlikely to be a one-winner-takes-all shakeout.

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For a start, the payment process, from transaction to settlement, is so complex that it is hard for any single player to dominate the entire value chain.

In fact, players have realised that the more efficient way to keep up with the rapidly growing space and evolving technologies is to team up. This can make partners out of rivals and disruptors. In January 2018, for instance, seven payment services and solutions providers – Diners Club, EZi Wallet, EZ-Link, Liquid Pay, Mastercard, UnionPay International and Wirecard – formed a consortium to support an interoperable QR code platform.

Looking horizontally along the value chain, the regulatory environment also appears to be supportive of an ecosystem that can sustain multiple players. In Singapore, the Monetary Authority of Singapore (MAS) is seeking legislated authority to force major solutions providers like key banks to open up their platforms for third-party providers.

Nicki Ramsay, chief of online card payments platform CardUp, says: “Dealing with payments is complex and time consuming. To bring a new solution to market requires participation from multiple players as well as both consumer and merchant adoption, making it difficult for just one player to dominate.”

Ms Ramsay says that in an increasingly digital world, customers expect payments to be seamlessly integrated into “life experiences”, whether it is taking a taxi, sharing a meal with friends or shopping online.

“Tech companies, with their scale, speed to market and digital ethos, have been able to address this and launch payment products in competition with traditional banks. All these factors, combined with local market nuances in the Asia-Pacific region, have resulted in an increasingly fragmented e-payments sector which makes it hard for a single player to win.”

Solutions that come as part of broader ecosystems may yet gain dominance, but not enough time has passed to call a winner, says Leslie Choo, vice-president and general manager for Asia at payment system company ACI Worldwide. Consumers will dictate the adoption of payment methods, and any winner will only achieve ubiquity in the longer term if it can offer the optimal balance of convenience, features and security.

“Ecosystem-based payment options, such as WeChat and Alipay, may currently have an advantage as they cover both the user penetration and merchant acceptance sides of the equation – but it is still early days,” says Mr Choo.

The competition will also continue to evolve.

Aditya Haripurkar, founder of mobile payment solutions provider Hit Pay, stresses that the first generation of tech companies remains in the running. “Don’t count out tech giants like Google and Facebook, who can make an eventual play and come out as winners.”

Old-timers are fighting back

In Singapore, the incumbents appear for the most part to be keeping up with the changes. The banks, for example, have adopted the PayNow framework to enable bank-agnostic, peer-to-peer fund transfers over mobiles. NETS, the banks’ direct debit network, has also developed QR code-based solutions.

ACI’s Mr Choo says that banks in Singapore are funnelling considerable levels of investment into the development of payments solutions, especially compared to what is happening at the global level.

According to data from ACI Worldwide’s recently released 2018 Asean Payments Insight Survey, 53 per cent of Singaporean bank executives polled said that their banks were expecting to increase their investments in payments solutions by “a lot” (more than 5 per cent), while 27 per cent expected this to increase “a little” (one to 5 per cent).

These figures were significantly ahead of that for the broader South-east Asia region, where only 28 per cent said investments will increase by “a lot” and 43 per cent said investments would increase by “a little”. At the global level, the differences are even more pronounced at 20 and 33 per cent respectively, says Mr Choo.

Out-of-industry newcomers are also almost all in the wallets space, and have not been able to crack the dominance of existing players when it comes to back-end processes like interbank communications and settlement.

For example, third-party e-wallet solutions might settle peer-to-peer transfers without a bank, but it is hard to avoid dealing with the banks when it comes to actually putting a credit card or cash into an e-wallet.

The banks’ existing services also, for the most part, already enjoy relatively high penetration rates.

Jeremy Tan, chief of mobile payment solutions firm Liquid Group, says: “The interesting thing about payments is that all large merchants currently consume payment services that are today provided by the various banks, networks and gateways.

The litmus test will be getting competitors of your existing business to use it and to deliver a sustainable (and proprietary service) in the long run.”

Cash is sticking around

Cash is a common enemy to all e-payment players, but banks have the least to worry about when it comes to the persistence of physical money. And cash isn’t going anywhere, for now.

Warren Hayashi, president for the Asia-Pacific at payments platform Adyen, notes that cash remains king in Indonesia, and he thinks it is better to keep working with cash than without.

“There is a huge opportunity to digitise payments to provide a better customer experience. To be inclusive to all consumers, businesses should consider methods that let people pay in the ways they know and trust. It will significantly increase a business’s reach and conversion rate,” he says.

There is, however, a strong push to move away from cash.

Regulators keen on a cashless society are searching far and wide for solutions to the inclusion challenge – making sure that everyone has access to the digital infrastructure in a cashless system.

As Ashley Koh, a senior vice-president at mobile wallet solutions firm MatchMove Pay, puts it, the aim is to make sure that nobody is penalised.

“As the widest range of goods and services go online, the most competitive pricing is also found online. In most circumstances, the excluded segments are the ones who are in need of cheaper goods and services, and choosing to exclude them is wrong on so many levels,“ she says.

Ms Koh argues that government support would be crucial in the private sector to push for equality in e-payments. “We need to reduce tariffs or increase subsidies so that everyone has access to a smartphone. We need to treat digital inclusion as a social right. Governments around the world are talking about universal access to health and education, and water. We ask that governments take the same steps with digital payment access.”

Governments can do the same with broadband and data access. Ms Koh says: “Telcos these days are focused on the next-generation broadband network and chasing profits. Governments need to step up and ensure that certain segments of the economies are given access to data.”

But the regulators could go a step further and impose costs on cash transactions.

HitPay’s Aditya Haripurkar says: “Universal adoption of e-payments requires a change in mind-set and behaviour. Since it is unlikely for the majority to voluntarily make the change, it requires measures that would lead to a forced change in behaviour. These measures may include limiting the use of cash withdrawals, imposing a fee on cash withdrawals and reducing accessibility to ATMs or cash withdrawal points complemented by a communication strategy which highlights the convenience and benefits of e-payments to the wider population.”

Use-case will win, or lose, the battle

Regardless of who is providing the solutions, both incumbents and newcomers will ultimately have to prove that they can safely manage the risk for every transaction from start to finish.

“Time-starved customers aren’t going to keep trying to use a payment method especially when there are other methods of payment which work,” says Mr Hayashi.
He explains that traditionally, the e-payment process is seen as fragmented because of the many players and steps involved. That is, for a transaction to move from the issuer to the business, it needs to pass through various parties: a payment gateway, a payment processor and a risk management solution.

“This fragmented process increases the risks of failure in a transaction,” says Mr Hayashi.

But businesses are wising up to this fact and changing their perception of e-payment, he notes. Instead of managing various solutions and third parties, businesses are looking towards unified end-to-end payment solutions that offer omni-channel possibilities, fraud prevention and tools that optimise authorisation rates.

“Essentially, businesses look to streamline their payments process to obtain a centralised view of their transactions. This reduces the workload associated with managing different parties across multiple territories, giving businesses the freedom to scale faster and focus on increasing revenue.” 
Ms Koh says that another key aspect of “winning the e-payment war” is to recognise that “we are already into our second act of e-payments”.

“In FinTech 1.0, startups take one financial services feature and make it ‘better, faster and cheaper’. The next phase of successful fintech is about ‘rebundling’ – enhancing with other value-added services, bringing forth even greater value proposition all on a single platform.”

For example, MatchMove Pay started with a focus on creating a stored value wallet with instant payment card issuance onto its business-to-business (B2B) platform, and later added complementary services such as domestic and cross-border money transfer services on the platform.

“The next natural step is to further satisfy clients’ needs in borrowing and lending. We understand that at the core of every fundamental financial services product, people need the ability to store money digitally (not under their pillows), spend them anywhere they like online and offline, send money to friends at home and overseas, and have access to loans should they need one, all from a single place.”
Ooi Huey Tyng, Grab’s managing director for GrabPay Singapore, Malaysia and the Philippines, adds that players have to address the needs of cash-first industries and offer a payments platform “designed for them”. For example, a solution for cash-first merchants should also help them to expand their business.

Gregor Arn, chief of mobile wallet company Cheers Global Wallets, agrees that this is not a winner-takes-all market, as e-payments will become an integral part of apps, devices and “almost everything we use”.

He says: “As a result, we will no longer be opening a payments app, a wallet, or swiping a credit card. If you want to stay relevant as a payments company, you have to be able to provide products that work seamlessly and can be implemented frictionless as part of the customer journey.”

Money is cultural

The Asia-Pacific region presents its own unique challenges in the adoption of e-payments.

Mr Hayashi observes that in Asia alone, no country is the same in terms of payment preferences. In Singapore and Thailand, credit cards “still dominate” when it comes to online payments. China shoppers, on the other hand, are savvy when it comes to mobile payments and major payment methods in the market, including Alipay, Tenpay, UnionPay, and WeChat Pay, he adds.

“These specific consumer preferences are hard to change because it has a lot to do with trust. They also should not be ignored because it can lead to loss of revenue and customer loyalty. For businesses working across multiple markets, it might make sense to work with a payment solution provider who has a keen understanding of local markets.

“This overview of market preferences can fine-tune the payment methods and processes used. An accurate report of how customers pay can also be generated so businesses can update their payment strategy consistently.”

Money and online payments even seem “oddly cultural” and form potential hurdles that companies will have to leap over, says Piruze Sabuncu, head of Stripe for South-east Asia and Hong Kong.

“This increasingly fragmented payment landscape is causing added complexity and friction. Every additional hoop that consumers need to go through to purchase something is another barrier to conversion. Previously, the technology to solve these problems was only available to the largest organisations, which could afford to invest in building huge teams to tackle these issues, one by one, country by country.”

Within South-east Asia, Singapore seems to have taken the lead. Pranav Seth, OCBC Bank’s head of e-business, business transformation and fintech and innovation group, says: “The winners in the drive towards digital adoption and e-payments are ultimately the users. Singapore has taken a leadership role across Asean in building key interoperable infrastructure such as PayNow and SGQR to enable the growth in digital payments.

“The digital payments journey is still in its early stages but is growing exponentially with multiple facets of the ecosystem coming together to solve customer and merchant pain points.”

Grow the pie

Financial services companies and institutions have been central to every major development in e-payments in the past, be it the first telegraphic wire transfers more than a century ago or the rise of the credit card in the past several decades.

They face disruption from the latest wave of changes marked by the emergence of non-traditional players like ride hailing company Grab, performance gaming specialist Razer and mobile phone maker Samsung.

The developments in the e-payments space in Singapore suggest however that incumbent players continue to provide and dominate essential functions for the ecosystem. In fact, the emergence of non-traditional players seems to point toward a growing of the pie rather than a displacement of the old guard, with a multi-player situation developing. The challenge is to make it all work for users.