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Mobile Payments Market In APAC

High percentage of smartphone penetration is the clear driver as number of smartphone users in Asia has now reached to over billion with an average of 53% which is the highest among all regions in the world

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Definition / Scope

A mobile payment system is an innovative technological solution where payment of goods/services is facilitated through the means of mobile phones between merchant and customer with the access of communication network. The payment solution provides payment at physical point of sale, online shopping and also enables to transfer money among peers and family.

Market Overview

The payment market first became common in western countries like USA and Canada which later on shifted to European region. At present context, it is becoming popular in the APAC region. The Asian technology industry is different to that in the west countries. The pattern in west suggests the movement from physical shops to PC to laptops and finally Smartphones whereas in Asian countries consumers are moving straight to smartphones. In terms of technology they have leapfrogged[1]

Why Asia is considered as emerging market for mobile payment solution? The question is addressed by two major economies China and India. With population over 2.5 billion which also represent one third of the global population these fastest growing economies[2] consist of young and tech-savvy customers who are embracing the new technology and are very open towards innovation which is driving significant change in the payment industry in these countries. In mobile payment, China is leading the worldwide.

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Key Metrics

Metrics Value Explanation
Base Year 2017 Researched through internet


Market Risks

Lack of proper guidelines on handling security features such as tokenization and biometrics authentication, effective resolution of data privacy issues and also inability to provide seamless user experience is the main reasons for the slow take up of the payment service.[3]

Trust is very significant issue as 31% customers in The Philippines would want a more secure payment before they would actually shop online.[4] To prevent identity theft and fraud it is necessary to ensure customer protection and strong security systems in mobile devices.

Top Market Opportunities

  • Malaysian tolls are going 100% cashless through use of a single payment method.[5]
  • The payment applications such as We chat pay has been competing with Banking institutions in fin tech arena because they are neither heavily regulated nor tied down in legacy structures which allow them to cater to the customers with financial services as per their needs and wants[6]
  • In China, About half of all e-commerce in China happens on mobile, compared to just over a fifth in the US and around a third in the UK.[7]
  • Japan is one country which has the most sophisticated physical infrastructures required for the m-payments which is developed with the collaboration of Japanese government, NFC vendors and payment service providers[8]
  • The Indonesian population is fastest growing economy in e-commerce in the world and the people in Indonesia have a high rate of adoption of digital payments[9]
  • Asia’s emerging markets, in particular Southeast Asia with its 73 percent unbanked population – that is roughly 438 million people without a bank account, provides enormous potential for the adoption of mobile solutions as an alternative to traditional payment options.[10]

Market Drivers

The key market drivers that have so far resulted in the uptake of the market in Asia are driven mostly by two factors.

First, the high percentage of smartphone penetration is the clear driver as number of smartphone users in Asia has now reached to over billion with an average of 53% which is the highest among all regions in the world.

Secondly, the youth of Asian region are tech-savvy. Similarly, in countries like Indonesia, India and Malaysia, people ageing 15-34 are dominant who have high appetite for adapting to the newer technologies faster. The mobile applications such as 'We chat' which is focused on hosting the customer service through online platform as well as make payments online is also used widely by customers as well as vendors across many countries in Asia. It is helping these countries to shift from traditional retailing into the e-platform and gradually adapt mobile payments.

Market Restraints

Although there are numerous factors which are promoting the use of mobile payments, the actual consumer use rate is comparatively low than the use of other retail payment instruments such as cash, debit and credit cards which still dominate the Asian markets. Out of the $60 trillion transaction made online only $75 billion account as the payment made through mobile.[11]

There are clear patterns of adoption before a market begins to fully embrace e Commerce. Access is the first, with the lack of infrastructure and payment mechanisms preventing e Commerce from taking off, without the takeoff of e-commerce it is very difficult to implement payment systems effectively.

Industry Challenges

The biggest challenge for the Asian region is the low penetration of financial services across remote regions in many countries. The Banking industries in many countries are mostly concentrated in urban areas. Statistics reveal that 73% people residing in the East-Asia don't possess a bank account.[12]

For instance, in countries like India the banking infrastructure is weak and internet facilities are not evenly distributed due to which financial literacy is not rampant. People have less idea about digital wallet system and it is very much necessary to educate them as even though people have used the system they are reluctant to use it in continuous basis and more willing to switch back into cash [13]

Technology Trends

  • Evolution of Asian Chat apps such as We chat, and Line have created payment services such as Line Pay, Ali pay, We chat pay which is used to facilitate everything from e-commerce to taxi-bookings. These applications allow customers to complete their transactions seamlessly.
  • Mobile payment applications such as paytm, which offers QR code based mobile payments is already becoming popular among merchants and customers. The government is also pushing QR standard to promote digital payment systems among the unbanked population.[14]
  • Similarly, in India Uber has collaborated with PayTM to avoid proliferation in usage of wallets, however to leverage growth opportunities it plans to come up with its own mobile wallet in near future[15]
  • Indonesia is one country which is fastest growing economies in e-commerce in world. The presence of fin-tech companies and banks who have technological understanding are willing to push the access beyond their internal networks which is why digital payments improve the financial inclusion[16]
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Regulatory Trends

It has been encountered that in number of Asian countries, the regulators have been making efforts to increase the payments through mobile phones and introducing policies which are favorable to customers, merchants and also the solution providers.

  • The Government in India is trying to expand the service area and quality of mobile communication network with the aid of both domestic and foreign firms[4]
  • Whereas in Hong Kong, various governmental bodies such as Telecommunication authority, Consumer council and Monetary authority are driven to issue general guidelines on consumer safety when using m-payments[17]
  • In Singapore, government is successfully promoting the cashless society. In 2017, it was declared as a national top priority, simplifying and integrating all systems via the Payment Council to promote e-payments.[18]
  • By being able to keep track of monetary transactions, the government can deter and punish scammers and prevent phenomenon like money laundering or tax evasion which is why promotion of m-payments are in top priority of government of most of the countries in Asia[19]

Other Key Market Trends

The recent focus on financial inclusion policies in various countries has given a boost to connecting the unbanked. Because of the high potential of growth in technology sector Asia has also become a popular hotspot for the Fintech investments. In 2016, Fintech investments in the APAC region have grown by more than 500% compared to the same period last year (from $445 million to $2.7 billion). China is one country which is solely responsible for the growth.[20]

Market Size and Forecast

Asia Pacific will have $71.92 billion mobile payments market at present which will grow exponentially to reach $271.47 billion by 2021. The number of customers will reach 130.8 million users[21]

The number of active customers will also double by 130 million in 2021[22] The APAC region is expected to be leading in terms of revenue in global mobile payments hitting 37% CAGR by 2020.[23]

Technology Roadmap

The mobile payment solution contributes towards the financial inclusion. The link between technology and economic growth is direct. China's economic growth is expected at 6.5% in 2017, East Asia from 4.8 to 5% whereas India's growth rate stands at a staggering 7%.[24]

Financial services through the means of mobile phones can be very beneficial in the developing countries. Through this, it is not only going to transform the lives of all the individual, institutions but also economy as whole. It is expected that a tune of 3.7 trillion in added growth to GDP of the emerging nations of Asia within a decade.[25]

The goal must be to provide the unbanked and under banked population with mobile banking and m-payment services. This helps the financial institutions to tap into a new revenue stream and also develop their customer base, however the cost of promoting, developing and infrastructure investment of such systems must be predetermined[26]

Distribution Chain Analysis

There are basically four channels for the mobile payment companies to operate in which are the follows:

B2B model

At present, B2B payments are not rampant because of the maximum amount of payment still based on cash. Generally, there is risk of fraud and error in manual data entry which can be unsafe in the case of B2B payments as such transactions account of large sum of money. Also challenges of delayed and long payment cycles are faced on the businesses end.[27]

B2C Model

The Best and successful example of B2C payment is Asia is, We Chat Pay which was initially a social networking and instant messaging app which transformed as a multifunctional platform through which customers can manage both their personal and professional transactions.[28] The payment mechanism is what the retailers have tapped onto to serve customers in convenient and fast which makes it a seamless super payment app.

P2P Model

PayNow, a peer-to-peer (P2P) funds transfer service using just mobile numbers, has been introduced.[29]

Remittance Mobile Payments

In India, people regularly use their mobile phones to send remittance payments between friends and family members as geographic separation and limited banking services make other transfer options more costly.

Competitive Landscape

The access of internet, smartphones and card payment facilities vary from country to country. Countries like China, Japan, Singapore, India and South Korea have the most tech-savvy and progressive consumers than anywhere in the world.

Singapore is one country which has a low population despite of this it has to sophisticated technology whereas countries like Japan were unexpected laggards in the field because even though having such advanced infrastructure, the mobile payment market has just started to heat up here. Mostly because of two reasons. First, the inability of smartphones to create much hype in the market and second Japanese customers prefer to make cash payments with only about one-fifth of the total payment being made cashless.

The cashless payment percentage in Japan accounted only 17% of total overall retail consumption and also the people are reluctant towards adoption of digital wallet system, this figure is lower than South Korea's 85%, Singapore's 56% and India's 35% respectively.

South Korea leads the world as a nation with lowest transaction made with cash which account of only 20% of the total payments. Besides Singapore it is Asia's fourth largest economy and is aiming to go cashless by 2020[30]

In 2017, there were 520 million Alipay users in China alone, equating to approximately 37% of the country’s population. We Chat is growing fast, too, with close to 1 billion active monthly users, resulting in We Chat Pay capturing 40% of the mobile payments market.

Similarly, in India Paytm tookoff after it tapped on to the opportunity brought by demonetization and promotion of cashless and digital society. It also has planned to merge its wallet with payment bank in 2017[31]

Competitive Factors

Google pay is the first company to develop an audio QR system in its payment arena. This system will bring a transformation in the digital payment technology by eradicating the NFC based technology or Bluetooth which is integrated by many digital payment solution corporate giants at present.[32]

Prompt pay is another system of Thailand's e-payment plant which is initiating to integrate financial transactions, taxation and welfare payments into electronic system. It also doesn’t charge any transfer fee on P2P payments as opposed to Banks. Ali pay is entering into the South-Asian e-commerce market as well as tapping into the opportunity of tourism whereby Chinese tourists visiting south Asian countries have access to use Ali pay in many regions. For instance, in 2016, out of 8.2 million Chinese tourists who visited Thailand in 2016, 5 million of them used Alipay.[33]

Also the Union Pay, China’s largest card issuer has been planning to use QR based system and also about to collaborate with Swiss watch company, Swatch to create a contactless payment watchCite error: Closing </ref> missing for <ref> tag

Strategic Conclusion

Then why are the payment solution providers not coming up with an innovative seamless comprehensive solutions? Confusion has been created by the multiple solutions present in the market which is restricting the demand of consumers to use such payment services. Thus, for an ideally seamless solution in the mobile payments it must consist of components such as ability to make payment online and offline, have value added services and loyalty programs, integrate document authentication, identity verification software and finally availability of various financial services.

In near future, it is necessary for mobile payments to become universally accepted, serving local and global markets through cross-border transactions. They will need to evolve into multiple platforms such as payments, insurance, loan, remittance, membership details in order for the mobile wallets will replicate physical wallets completely.

References

  1. https://www.finance-monthly.com/2017/11/why-are-mobile-payments-50-times-more-popular-in-asia/
  2. https://www.frbsf.org/banking/files/Asia-Focus-Mobile-Payments-Nov-2013.pdf
  3. https://globalpaymentsummit.com/going-cashless-mobile-payments-asia
  4. http://www.tnsglobal.com/asia-pacific/intelligence-applied/asia-pacific-leads-world-mobile-payments-latest-study-kantar-tns
  5. https://globalpaymentsummit.com/going-cashless-mobile-payments-asia
  6. http://www.tnsglobal.com/asia-pacific/intelligence-applied/asia-pacific-leads-world-mobile-payments-latest-study-kantar-tns
  7. https://www.finance-monthly.com/2017/11/why-are-mobile-payments-50-times-more-popular-in-asia/
  8. https://www.frbsf.org/banking/files/Asia-Focus-Mobile-Payments-Nov-2013.pdf
  9. https://blog.wirecard.com/6-surprising-facts-payment-asia-know/
  10. https://www.paymentscardsandmobile.com/fresh-look-asias-payment-landscape/
  11. https://www.frbsf.org/banking/files/Asia-Focus-Mobile-Payments-Nov-2013.pdf
  12. http://www.tnsglobal.com/asia-pacific/intelligence-applied/asia-pacific-leads-world-mobile-payments-latest-study-kantar-tns
  13. https://www.straitstimes.com/asia/growing-demand-for-mobile-payment-services-across-asia
  14. https://www.globaldata.com/asia-mobile-payment-opportunities/
  15. https://www.paymentscardsandmobile.com/mobile-payments-market-projected-grow-cagr-33-4/
  16. https://blog.wirecard.com/6-surprising-facts-payment-asia-know/
  17. https://www.frbsf.org/banking/files/Asia-Focus-Mobile-Payments-Nov-2013.pdf
  18. https://blog.wirecard.com/6-surprising-facts-payment-asia-know/
  19. https://blog.wirecard.com/6-surprising-facts-payment-asia-know/
  20. https://gomedici.com/apac-to-lead-the-global-mobile-payments-market/
  21. https://globalpaymentsummit.com/going-cashless-mobile-payments-asia
  22. http://www.frost.com/prod/servlet/cio/297851763
  23. https://gomedici.com/apac-to-lead-the-global-mobile-payments-market/
  24. https://www.techrevolution.asia/mobile-payments-showcasing-innovation-asia/amp/
  25. https://www.techrevolution.asia/mobile-payments-showcasing-innovation-asia/amp/
  26. https://www.frbsf.org/banking/files/Asia-Focus-Mobile-Payments-Nov-2013.pdf
  27. https://www.paymentscardsandmobile.com/fresh-look-asias-payment-landscape/
  28. https://www.paymentscardsandmobile.com/fresh-look-asias-payment-landscape/
  29. https://www.paymentscardsandmobile.com/fresh-look-asias-payment-landscape/
  30. https://www.straitstimes.com/asia/growing-demand-for-mobile-payment-services-across-asia
  31. http://www.frost.com/prod/servlet/cio/297851763
  32. https://www.techrevolution.asia/mobile-payments-showcasing-innovation-asia/amp/
  33. https://theaseanpost.com/article/digital-payments-are-future-transactions-southeast-asia-0


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