What you need to know
China may be ahead in the mobile payment game, but these countries are starting to catch up.
While some New Year traditions have evolved over the years, one constant remains timeless – the age-old practice of giving and receiving of hongbaos (red packets).
The mechanism for doing so is evolving as innovative companies follow the success of WeChat in China by pushing the idea of giving hongbaos digitally instead of stuffing physical red packets full of cash. Expect tech startups across the region to promote these types of rewards as they attempt to push boundaries in cashless payments and mobile wallets.
The ultimate goal isn't to give away money, but to displace cash altogether by giving consumers an easier way to make financial transactions on a daily basis.
Mobile wallets fall under the subset of e-payments, which include debit and credit card transactions and prepaid-based, stored-value payment cards. Proponents of mobile wallets claim that they are simpler, faster, easier and more secure than cash or even credit or debit card payments.
They also offer more value-added services, including ties to loyalty cards, transferring and receiving money between users and bank accounts, and splitting bills, to name just a few.
Unlike cash, which users must continually replenish via the ATM, mobile wallets travel with them all the time in the form of a smartphone app. They have memory, which means an audit trail that can be used to track their purchases and manage their spending.
But despite the advantages, there remain impediments to widespread adoption of e-payments – let alone mobile wallets – in countries such as Taiwan, Singapore and Malaysia.
Taiwan's targets
For instance, e-payment introduced by Visa and MasterCard has been in existence in Taiwan since 2008 and there are signs they are being increasingly used in the island state, with monthly retail sales spending attached to credit cards registering NT$233.7 billion (US$7.96 billion) in November 2017, up about NT$100 billion from 2009, according to Financial Supervisory Commission (FSC) data.
However, the use of these cards are largely confined to purchases made in larger retail shops rather than everyday transactions. The fact is that adoption of mobile wallets pegged to smartphones still lags other countries in the region, notably Singapore, South Korea and Japan.
According to the FSC, e-payments’ proportion of total payments in Taiwan stood only at 26 percent as of June 2016. Studies conducted by other organizations indicate similar figures.
For example, a 2017 study by McKinsey, a global consultancy firm, titled “Taiwan’s Digital Imperative” noted that the country’s percentage of consumer payment transaction by cashless payments was only 30 percent. In the same study, McKinsey said that South Korea’s figure stood at 53 percent.
A MasterCard payment benchmark index study, which tracks e-payments, pegs Taiwan at 11th position, behind Asian countries such as Singapore (1st), South Korea (5th), Japan (6th) and China (10th). Malaysia languished in 14th position.
However, things are set to change.
Taiwan’s FSC aims to double the use of cashless payments to 52 percent in five years. Private payment companies have also been aggressively courting consumers in Taiwan. Japanese giant Line Pay entered the market in 2015 and has added over 400 e-commerce and brick-and-mortar merchants since then. It has also partnered with CTBC Bank to introduce a localized Line Pay card.
In 2016, China’s WeChat Pay entered the market, while Alipay, Android Pay and Apple Pay followed in 2017. Industry observers say these are first steps to encourage the savvy, younger generation to spur electronic and mobile wallet payment usage in the country.
All these systems take advantage of two trends. The first is based on a technology known as near field communication (NFC), a secure, contactless wireless-based payment system. The second leverages a more basic approach of using the issuance of a matrix-based barcode called QR (Quick Response) code. The goal of both systems is to replace cash transactions.
Market researcher International Data Corporation (IDC) estimates that electronic wallet (mobile wallet) transactions in Taiwan are estimated have reached US$2.27 billion as of the end of 2017.
In contrast, total transactions of other Southeast Asian nations such as Singapore and Malaysia are estimated to be about US$450 million and US$520 million, respectively, for the same period.
“Taiwan’s total mobile wallet transactions represents approximately 18.1 percent of total in-country digital transactions (alongside online banking, credit cards and debit cards),” said Sui-Jon Ho, senior market analyst of IDC Financial Insights. “Malaysia’s total e-wallet transaction stands at 10.2 percent, while Singapore stands at 9.7 percent of total digital transactions.”
Ho said these figures are expected to rise to 16.9 percent for Taiwan, 20.1 percent (Malaysia), 9.4 percent (Singapore) per annum by 2020.
Latent potential in Singapore and Malaysia
Taiwan isn’t the only country that has ambitions to grow its cashless, e-payment transactions and usage of mobile wallets. Singapore and Malaysia have similar plans but, along with Taiwan, are facing some impediments doing so.
Singapore is famed for being technologically savvy, with high smartphone penetration and a prevalent use of credit and debit cards. But converting consumers and merchants to go completely cashless via the mobile wallet is still far a distant prospect.
In a recent National Day Rally Speech last year, Prime Minister Lee Hsien Loong noted that while Singapore had all the makings of a digitally literate and connected country, it lags other countries in e-payments, simply because the industry is too fragmented with too many “different schemes and systems that do not talk to one another.”
In neighboring Malaysia, central bank Bank Negara reported that as of 2016, Malaysians made only 3.4 transactions per capita using debit cards in 2016, up 2.9 transaction (17.2 percent) per capita from 2015. The low card usage suggests that there remain hurdles in getting consumers to turn to e-payments for now.
Both countries are determined to drive change. The Monetary Authority of Singapore (MAS) plans to enhance the adoption of e-payments and establish new models for governance of payments. Bank Negara is doing the same, aiming to boost the total number of national e-payment transactions from 44 transaction per capita to 200 by 2020.
The private sectors in both countries are also angling to dominate the nascent payment market with their respective solutions. In Singapore, new players such as ride-hailing app Grab has recently introduced GrabPay, which the company says will target street vendors. Several banks have also launched their respective mobile wallets in a bid to drive e-payment transactions, DBS Bank, UOB and OCBC among them.
Not wanting to be left out, non-bank payment organizations such as NETS and EZ-Link have joined the fray, offering cashless payments for street vendors.
In Malaysia, Bank Negara has issued some 31 e-money licenses, indicating there may be more mobile wallet players on the horizon. One example is Boost, a mobile app developed by Axiata Digital, the digital arm of Malaysia-based regional telecoms player Axiata Group. In conjunction with its mobile wallet launch on Jan. 29, the startup is offering a chance for users to win hongbao when using the app to pay for goods and services in February. Some other entrants are FavePay, One2pay, vcash, Samsung Pay, CIMB Pay, and MaybankPay.
These players all hope to push cashless payments by co-opting as many merchants to accept these modes of payment while recruiting users on their respective mobile wallet platforms.
Challenges abound
While regulators and private companies try to encourage e-payments and mobile wallets by liberalizing market rules and issuing appropriate new licences to so-called financial technology (fintech) companies to spur competition, industry players The News Lens spoke to say there is potential to grow mobile wallets but there are still some significant challenges facing the industry.
IDC’s Ho suggests Singapore leads mobile wallet adoption, followed by Taiwan and Malaysia. Much of this is due to the ubiquity of their EZ-Link card, which began as a commuter payment option, but quickly progressed to becoming a cash-substitute for over-the-counter purchases, he said.
Pranav Seth, head of e-business, fintech and innovation at Singapore’s OCBC Bank, said many Singaporeans are already used to contactless payment via their credit or debit cards, and that this is what is driving the adoption of mobile wallets, as they are a natural extension of smartphone usage.
“This can be seen in how our customers’ mobile payment spend has increased threefold since we launched in 2016,” Seth said.
Still, Seth acknowledged that driving further adoption remains tricky. Hawkers, he said, are wary of going completely cashless for reasons such as lack of space for terminals, costs associated with payments via terminals, the time required to learn how to use the terminals, and that payments are not done in real-time and require up to two days to be processed, potentially leading to cash flow issues.
In addition, getting merchants who prefer cash in hand to adopt e-payments may be challenging as cash transactions may be exempt from certain taxes compared to digital payments, he added.
The situation in Taiwan isn’t dissimilar. Chang Chew Soon, founder of Malaysia-based payment startup Soft Space, believes that for starters, Taiwan’s economy is driven largely by small and medium businesses, many of whom are wary of using cashless point of sale (POS) terminals for fear of the potentially high cost of acquiring and maintaining them. Soft Space is a provider of payment systems software in Taiwan, Thailand, Australia and Malaysia.
Additionally, Taiwan’s banking infrastructure is so developed that there is no shortage of ATMs around for consumers to withdraw cash. Moreover, older Taiwanese citizens just prefer using cash as they are so used to it, he explained.
As for mobile wallets, Chang argued that there are too many players in Taiwan, and each mobile wallet only serves its own customers’ needs, thereby creating fragmentation of the same kind bemoaned by Singapore’s prime minister.
“There isn’t a universal payment system in Taiwan,” Chang said. Each mobile wallet operator has its own app, and only rewards loyalty points for using that app. So a patron who goes to five different stores will have to use five different mobile wallets when transacting. This discourages usage.”
In Malaysia, mobile wallets are still a nascent concept, argued Lim Kok Hing, founder and executive director of iPay88, a Malaysian-based payment solutions company, acquired by Japan’s NTT Data in 2015.
“While mobile wallets benefit tech-savvy consumers, there is a gap created by those who are adverse to technology within society,” he said.
Lim said that for mobile wallets to really take off, they must bring about a change of habit in consumers and must add value to their users’ lives – all without incurring significant increases in cost.
“One scenario could be like this: When dining at a restaurant, consumers should also be able to choose their food, order it from their tables, receive discounts, pay at the end of the meal, split the bill if necessary, and receive an electronic bill all within the app.
“If they are able to experience this and not have to pay a lot for getting such services, then more people will use mobile wallets,” he argued.
At the end of the day, there are still hurdles to cross. IDC’s Ho said convenience is synonymous with scale, and at this point, cash holds an advantage over e-payments, because paper tender is universally interoperable while mobile wallets are not.
“The market is inundated with too many shallow or superficial propositions that cannot scale up because they not only have to compete against cash but with each other,” Ho said, adding that the reality is that consumers still have a finite spending capacity regardless of payment method.
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Editor: David Green