The Asian payments landscape: what shapes the industry, who drives its growth

What is so special about Singapore as a market, so that PPRO looked into it to expand?

When we decided to expand into Asia, we found Singapore as the best option for various reasons. First of all, the country has a welcoming entryway into the Asian market, especially into South-East Asia. The second factor that makes Singapore special is the logistic hub, which translated into a great transportation infrastructure and travelling experience. Lastly, although it’s one of the smaller markets in the region (with 5 billion in ecommerce), one really sees the innovation being driven here and an advanced payment landscape. On top of that, we thought that it might be a great opportunity for us to enter this particular market, since we already have established partners here.

What can you tell us about the Asian Market?

Asia is home to nearly half of the worlds population. And this implies a great number of people that can’t be boiled down in a simple manner. There is a wealth of diversity in not only language and culture but also when it comes to payment methods. We need to differentiate between South East Asia with its huge, diverse payments culture and India, China or Oceania. Besides that, every country in Asia is very different. In Japan, for instance, there is a great preference for cards as a payment method, but if you go to Malaysia, you’ll see that bank transfer and cash are the popular choices.

So how do people pay for their goods? Overall, the Asia Pacific has a 40% usage of e-wallets – much higher than other regional averages, which hover in the mid-20s.

Which countries are interesting from an ecommerce perspective?

At PPRO, we include New Zealand and Australia in the Asia Pacific, which have a more mature ecommerce environment, both of which are growing their ecommerce at about 10% per year.

Perhaps the more interesting countries to look at are the emerging economies: Vietnam, the Philippines and Malaysia. All of their ecommerce economies are quite small (Vietnam: 6 bln, Philippines: 4 bln, Malaysia: 4 bln) but these markets are primed for ecommerce growth. They are all seeing large ecommerce growth year over year (Vietnam: 20% Philippines: 50% Malaysia: 100%). These countries also showcase a trend in the region: low credit card penetration (Vietnam: 4.1%, Philippines: 1.9% and Malaysia: 21%).

What are the countries that shape the payments industry?

Lets take a look at the two countries that dominate the region politically and economically, which have also been shaping the payments industry there: China and India. These two countries make up nearly three quarters of the population in the region and are driving consumer preference.

Though it has nearly the same population as China, India is economically punching below its weight: 12.3 trillion vs 2.5 trillion. In November 2016, the Indian government took steps to crack down against corruption on money laundering by removing 86% of all currency from circulation and encouraging people to adopt e-wallets. This has seemingly worked to push people towards digital money and there are now more than 20 popular ATM e-wallets. The initiative was supported by the Indian government in the form of open banking regulation with Unified Payments Interface (UPI), which has paved the way for instant payments.

At the moment, India prefers to pay online with cards, but with only a small margin above e-wallets (32-25) which have seen a 4% bump in 2017. The average Indian spends only 338 a year on online while compared to China at 1,934. As such, ecommerce in India will continue to expand.

China is a distinct entity by itself, being known as the second largest economy after the US, the largest economy in terms of ecommerce size in the world, and the torchbearer of the digital payments revolution. Payments in China are dominated by two brands: Alipay and WeChat Pay. E-wallets are 49% of local payment split, where Alipay has a 54% market share and 40% are taken over by WeChat Pay. Ahead of cards at 22.6% there is also cash at 10% and bank transfer at 12%, with other methods taking up to 5%.

What is really interesting to see is that with the rise of the Chinese middle class, more Chinese tourists going abroad are expecting to pay for goods in the way they are used to in their country. It is now notable that many stores around the world are allowing for Alipay and WeChat pay at POS, in order to meet the customers’ expectations. Therefore, these mobile payment services are carried over to other regions and even continents, due to the economic development in China.

Do you have any theories as to why e-wallets have taken off in Asia, but really in China?

I believe that what is happening now in China can be defined as a Perfect Storm. There is very little card usage anyway. And Alipay, much like PayPal, it started out as a wallet for a website and has spun off to become its own thing. WeChat Pay has a similar success story leveraging a social network and the virtual red packets. Since Alipay and WeChat Pay almost extend to every corner of China, it’s not surprising that e-wallets have taken off in Asia - starting with China.

In terms of payments, what is that merchants have to look out when trying to sell into China?

For the B2C industry, merchants have a number of options, such as Alipay, WeChat Pay and UnionPay, in the customers’ checkout. Another critical aspect that all companies must take into account is the regulatory space, particularly the AML and onboarding requirements. For example, businesses are obliged to provide proof of services for a payment.

Another aspect that should be stressed upon is the fact that Hong Kong and mainland China are two completely different stories, as it is much easier to access the first one, in part, because Hong Kong was always an entry point to the Chinese market in terms of trade and finance.

About An Lu

An Lu is Manager for Payment Networks at PPRO Pte Ltd. in Singapore where his main task is developing PPRO’S payment network in the APAC region.An started his journey in the payments industry with an engineering role at PPRO in Germany. He has since held roles in project management, product management and business development. He has recently moved to Asia with his family to establish PPRO’s office in Singapore. An holds a Master of Science degree in Computer Science from the Technical University of Munich (TUM), Germany.

About PPRO

PPRO enables integrated electronic payment processing on a global scale spanning the entire payments value chain from acquiring through processing, collection and settlement. PPRO acts as a B2B payments hub, connecting PSPs and other merchant aggregators, such as acquirers and processors, with local payment schemes.