Contactless payments provide the ability to tap the card, smartphone, wave wearable device in front of a contactless reader or even scan QR code to process a transaction. Looking into Southeast Asian’s payment market, the region is undergoing digital transformation and is a leader in adoption of new, next-gen payment technologies. The adoption of mobile app-based contactless payment services continues to increase rapidly in the region due to several driver factors including high mobile penetration, strong government push to create a cashless society, and growing merchant adoption of contactless payment.
According to Frost & Sullivan, over 140 million users in Southeast Asia made a purchase through contactless payment in 2022, which was an increase from 137 million users in 2021. This figure indicates a wider reach for consumers to accept contactless payments and it appears that contactless payments are becoming an increasingly popular choice for consumers in Southeast Asia, due to their speed and convenience.
Emerging technologies such as near-field communication (NFC), unified point-of-sale (POS), and virtual cards will encourage customers to use and merchants to accept contactless payment as the main option. In the highly competitive Southeast Asian payment service industry, market participants are constantly improving their payment capabilities, offering promotions and client loyalty programs to increase differentiation.
While industry participants have succeeded in driving adoption through measures such as introducing QR code or NFC-enabled device to merchants, encouraging digital payment methods remains an uphill battle, especially in cash-based countries. For instance, family-owned businesses especially in sub-urban and rural area are often reluctant to use contactless payments due to unfamiliarity with the payment method and transaction process.
Key prominent FinTechs companies offering contactless payment in the Southeast Asia region include GoPay (Indonesia), PayMaya (The Philippines), GrabPay (Singapore), and True Money (Thailand). These companies offer mobile apps that allow consumers to make contactless payments at retail merchants with promotional discounts to attract and retain customer. Since many Southeast Asians are price-conscious incentive seekers, competition revolves around price and promotions.
Digital payment acceptance increased especially in retail shops (e.g., large, branded outlets, convenience stores). Moreover, with the application of standard QR Payments (e.g., QRIS, PayNow, and DuitNow) and unified POS terminals to increase the use of digital payment schemes and allow merchants to accept payment from domestic and international providers, it can be predicted that contactless payment will eventually become the standard means of payment in the near future.
The industry has witnessed the growth of open application programming interfaces (APIs) that streamline product development and the customer journey. Innovations leveraging open banking APIs will pave the way for data sharing from multiple data points, helping providers develop customer behavior profiles that can improve the purchase experience. Investments in next-gen architectures will increase as companies identify important secure contactless payment enablers such as tokenization, automatic checkout, and cloud-native platforms.
However, providing contactless payment is not without challenges. Each payment channel and application has to connect seamlessly and securely with associated solutions, such as analytics, settlement systems, and multichannel payment routing. Merchant applications and POS terminals must also be intuitive to use and easy to deploy. The use of mobile-based POS terminals is becoming common, with merchants embracing this cost-effective technology for an easier checkout process. Merchants can accept a combination of contactless interfaces (NFC, QR code, or even biometric) without compromising user experience. One thing to consider is that the merchant onboarding process must be carefully tailored and merchants must be trained, particularly physical merchants, as these are public conversations where merchants act as spokespeople to educate end users on how to use digital payment.
Overall, the use of contactless payment is becoming widespread in the Southeast Asia region, with payment applications across retail and public transit. Furthermore, with the inclusion of market participants in the payment ecosystem including open-loop payment system operators, we can expect rapid development and deployment of innovative contactless payment systems for the consumers.