The payments industry in the Asia-Pacific (APAC) region has been experiencing disruption over the past few years. Rapid proliferation of fintech companies has challenged existing paradigms of traditional players. Traditional financial institutions have been slow in technology adoption and lack the agility of fintech firms. Technology disruptions have forced these incumbents to rethink their business models and adapt to the ever- changing business environment.
The availability of low-cost smartphones and digital payments technology makes financial transactions possible even for the un-banked via mobile applications to perform bill payments, local remittances and other financial services. The ability for nearly anyone to complete digital transactions is a key enabler for the expanding access to financial services across countries in the APAC region.
Telcos played a major role in building the early payments ecosystem but their role now is changing fast. Some telcos in the region are successfully tapping digital financial services such as Globe Telecom in the Philippines with their GCash service and Vietell in Vietnam offering ViettelPay service.
However, often times, telcos are unable to quickly adapt to a changing environment, sustain and stay relevant in the payment industry. Some telcos have decided to shut down their payments service, divest their shares, or merge their digital financial service with fintech companies equipped with necessary competencies and technological capability for growth in the payments industry.
For instance, Digi has stopped its mobile payment service ─ VCash, in November 2019 due to a change in business strategy. Another example, Smart Axiata decided to merge its subsidiary company, SmartLuy, with Cambodia’s mobile payment service provider PiPay in early 2020.
The introduction of biometrics and tokenization has transformed mobile and online payments across APAC region; including emerging countries. For example, the Myanmar administration is initiating a biometric digital identity document (ID) system for its citizens to further strengthen the e-KYC process. KiwiPay, a Laos payment service provider, has collaborated with Alipay and the Department of Immigration (DoI) of the Lao People’s Democratic Republic (PDR) to handle visa processing for tourists leveraging Alipay’s facial recognition payment system.
Furthermore, the development of open application program interface (API) platforms among key industry players has improved the payments system infrastructure and market delivery. It is also driving growth in payments use-case development in e-commerce, and is poised to impact revenue growth from larger transaction volumes.
In case of payment interoperability, key initiatives such as the Asian Payment Network (APN) are being developed by the Association of Southeast Asian Nations (ASEAN). This will enable instant regional cross-border payments, routing payments through mobile phones, and real-time cross-border payment collections within Southeast Asian countries.
From a payment services provider’s perspective, these trends pose opportunities for business growth. This will also open doors for market participants to offer comprehensive payment services. In addition, the COVID-19 pandemic has fostered technological innovation in this industry. For example, “mobile remittance” gained wide acceptance, as consumers were largely home-bound during this time
The following, summarizes our takeaways on three key growth opportunities in the payment industry:
- Developing solutions for untapped segments. The digital economy is expected to grow rapidly in the near future. In Southeast Asian countries, the Internet economy is expected to grow to $200 billion by 2025 from $50 billion in 2017, at a CAGR of 18.9%. The development of 5G and APIs enables businesses to maximize innovation and create new services for consumers. The rural market has a great potential for financial inclusion. Approximately 63% of the population in Southeast Asia lives in rural areas. All of these factors collectively demonstrate market potential for payments service providers. By collaborating with agent networks to offer financial solutions for the underserved, service providers can grow the payments ecosystem.
- Mobile remittance and cross border payment. Over the years, remittance services have become a basic necessity for migrant workers. According to the latest United Nation (UN) data, the number of international migrants globally increased significantly, from 221 million in 2010 to 272 million in 2019, at a CAGR of 102%. For this segment, convenient and fast access to international remittance services is important to support their families at home. As a result, the market has witnessed the growing demand for cross-border payments. Interoperability between payment service providers can be implemented through industry collaborations/partnerships across different countries. Collaboration between local governments (especially central banks) in the APAC region can help payment service providers to overcome the issue of interoperability between the different payment systems.
- Virtual credit/debit card payment solutions. There is an opportunity for players to dominate the online payments space by building a super-app equipped with virtual credit/debit cards. Use of data analytics tools, such as, predictive or behavior analysis in digital payments in the last few years has enabled payment providers to harness and utilize valuable information to enhance customer service. Use of payment technologies such as Quick Response (QR) codes and biometrics will continue to increase. As more data becomes available to be analyzed and analytics becomes more time critical; technology can enable automation of the reconciliation process for merchants and a better customer experience for consumers.
The rapid proliferation of advanced technologies and changing dynamics of consumer behavior is clearly driving transformation in the payment industry in the APAC region. By 2021, mobile remittance and cross border payment market in the APAC region is expected to reach $295 billion and will increase at 7.5% year-over- year (YoY). These present opportunities to offer diverse payments solutions that can meet customer expectations, at the same time, create new revenue streams to sustain business growth.
Frost & Sullivan’s observations on strategies to tap the opportunity are:
Success of the payments industry is dependent on its ecosystem of partners, and it is critical that stakeholders (i.e. telecoms service providers, banks, financial institutes, merchants, and local governments) work together to innovate and improve the payment products/services that are relevant for all customer segments. Some payment service providers are already taking advantage of partnerships and collaborations with key industry players within this ecosystem. This strategy helps deliver faster time to market for new products/services, which gives service providers the competitive advantage of “react fast” and “be first to market”.
For example, Myanmar Post Telecommunication (MPT) Money is utilizing this strategy by teaming up with local banks, e.g. CB Bank and AYA Bank, to deliver seamless and convenient cash-in and cash-out services for MPT Money users in Myanmar. That means that if users need to cash-out from their e-wallet, they can use the bank’s automated teller machine (ATM) to withdraw money. This complements the traditional payout methods and enables reach amongst the underserved consumer segment. In addition, MPT Money is also supported by MPT’s nationwide mobile network that serves 20 million mobile users in Myanmar with their strong sales and distribution across the country. This gave MPT Money the capability to rapidly capture the market.
Secondly, payment service providers are now exploring new use cases that will bring innovation into the digital financial services industry, driven by consumer demands for efficiency and speedy process. For example, in June 2020, MPT Money explored the demand for loan disbursement payouts service by partnering with Myanmar Agricultural Development Bank (MADB). MADB delivered funds by utilizing MPT Money agents, without any fees and charges for the users, thus eliminating the cost of disbursement services by traditional banks. This could reduce the reliance on cash, especially in rural areas, thereby enabling users to participate in the digital economy.
Thirdly, payments service providers are leveraging financial inclusion strategies. They offer a holistic digital financial service, which improves their product portfolio and helps expand their services. Such initiatives can improve access to basic financial services including savings, credit services, micro insurance, mobile commerce, and wealth management. Payments service providers can play a key role in local economic development by offering these services on its digital platforms and contribute to economic growth of their countries.
Lastly, with a borderless world imminent; payment service providers have begun to expand their businesses into neighboring countries, especially the emerging countries in Southeast Asia, such as Thailand, Vietnam, and Laos. These countries have seen a growing demand for digital financial services, especially mobile remittance and cross border payments. Payment service providers can leverage strategic partnerships with key industry players e.g. non-government telcos or fintech companies with large cross-border payment corridors. This can create a favorable financial service ecosystem covering both, the supply and demand side.
In conclusion, the importance of payment services cannot be underestimated. Payment service providers are set to play a key role in moving the industry forward by providing a seamless experience and forging strategic partnerships, while continuously adapting to ever-changing customer expectations will augur well for this industry.
 The Number Of International Migrants Reaches 272 Million, Continuing an Upward Trend in All World Regions, Says UN https://www.un.org/development/desa/en/news/population/international-migrant-stock-2019.html , Accessed on 24th Sept 2020
 World Bank Predicts Sharpest Decline of Remittances in Recent History https://www.worldbank.org/en/news/press-release/2020/04/22/world-bank-predicts-sharpest-decline-of-remittances-in-recent-history, Accessed on 6 Oct 2020