Southeast Asia’s payments and fintech landscape has been a hotbed of innovation, evolution and also rapid growth. With millions of people joining the fintech movement and adopting digital payment methods, cross-border currency transfers and more, the industry looks set to continue along this dynamic path.
Within all of this, there are still a lot of unknowns and opportunities. To help guide us on what’s going on with the payments industry in Southeast Asia, we spoke to Safdar Khan, who is the Division President, Southeast Asia, Mastercard.
He is responsible for driving the implementation of the company’s multi-rail digital payment agenda in all 10 Southeast Asian markets. Safdar is a 15-year veteran of the company, having formerly held the role of Division President, Southeast Asia Emerging Markets.
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Safdar gave us deep insight into the Southeast Asian market, as well as using Mastercard’s data, was able to map out some of the trends they are seeing that will impact us all. Here’s what he had to share.
How have cashless payments evolved in Southeast Asia over the past couple of years and what major shifts do you see forthcoming in the next few years?
Cashless and digital payments were already on the rise in Asia even before the global health crisis of COVID-19 emerged. And, we have seen drastic changes in the way consumers pay, from shifting toward a cashless society to a digital revolution in e-commerce payments. The pandemic accelerated everything and everyone into the digital world and there is no turning back with consumers now having taken on a ‘digital-first’ mindset and lifestyle. Here are some of the key behaviours we’ve witnessed in digital payments as consumers looked for faster, safer and more convenient ways to pay.
- Digital payments show no signs of slowing down, especially in Asia Pacific (AP): While the pandemic was the initial catalyst that caused digital payments uptake to skyrocket, adoption has not waned with the virus. In fact, uptake continues to rise today across AP. This can be seen through consumers’ consistent willingness to use a range of emerging payment methods. Our recently launched Mastercard New Payments Index 2022 shows that nearly 9 out of 10 (88 percent) consumers in Asia Pacific have used at least 1 digital payment method, such as digital wallets, QR Codes, Buy Now Pay Later (BNPL), cryptocurrencies, biometrics and others, in the past year.
Diving into Southeast Asia, what’s interesting is 80 percent of consumers in Thailand increased their usage of at least one digital payment method in the last year, and this clearly demonstrates uptake in momentum. Like Indonesia and the Philippines, Thailand’s payments landscape was traditionally cash dominated. However, this changed swiftly during the pandemic where Thai consumers readily adopted digital payment methods. Thailand’s transaction value of digital commerce is projected to hit US$31.3 million in 2022, a two-fold increase from US$15 million in 2020. Thai consumers are also now more digitally savvy when it comes to managing a range of personal financial matters, with 81 percent having used digital tools for at least one financial task like paying bills (78 percent), banking (75 percent), opening new bank accounts (64 percent), starting automated savings or saving more (63 percent), and financial planning/forecasting (59 percent), according to Mastercard New Payments Index.
And 94 percent of consumers in Vietnam are likely to use a digital payment method such as mobile wallet and account-to-account, more than the traditional payment methods in the next year, as reported in the same study.
- Rise of real-time payments (RTP): On the peer-to-peer payment front, RTP is quickly becoming a critical element of many regulators’ national digital agendas as these are powerful solutions that are accelerating financial inclusion and expanding digital ecommerce. In Southeast Asia, several markets are developing their own domestic real-time payment systems, e.g. Singapore’s FAST and Thailand’s PromptPay allow citizens to transact 24/7 in real, or near real-time, which drastically reduces cash dependency. Through Vocalink (a Mastercard company), we are providing support to governments in Asia to design and build real-time account-based payment infrastructures, applications, and services. We’re seeing very significant volumes and huge velocity driven by small ticket items and the gig economy. In The Philippines, we partnered with InstaPay to make it easier for Filipinos to pay and receive payments instantly, by simply scanning a QR code or using the receiver’s mobile number or email address. The next challenge is connecting Asia Pacific’s many domestic RTP systems across borders.
- Consumers have a broad mainstream awareness but relatively low in-depth knowledge of new digital currencies and assets: According to Mastercard New Payments Index, the majority of Thai consumers have heard of cryptocurrency (91 percent), non-fungible tokens (NFTs) (87 percent) and other digital assets – but uptake has been gradual.
Only 60 percent of Thai consumers have done at least one crypto-related activity in the past year, with opening or using a crypto wallet the top activity (57 percent), followed by holding cryptocurrency as an investment (48 percent).
That said, most Thai consumers are optimistic about the value of cryptocurrency and blockchain assets as investments – 75 percent of Thai consumers agree that NFTs and other digital assets can be good investments. Majority want increased flexibility to use crypto and traditional payments in interchangeable ways – using cryptocurrency to make payments for everyday products and services (70 percent) and purchasing digital assets such as NFTs with a debit/credit card (69 percent) – highlighting the potential for future crypto engagement. However, Thai consumers are looking for more stability in crypto, with 78 percent of them agreeing that the government should regulate the cryptocurrency and stablecoin industry.
Mastercard launched the region’s first crypto-linked payment cards where we partnered with Amber Group, Bitkub in Thailand, and CoinJar in Australia. These are the first APAC-based cryptocurrency platforms to join Mastercard’s global Crypto Card Program which makes it simpler, and faster for crypto firms to bring secure, compliant payment cards to market, as consumers increasingly seek to fund everyday transactions with digital currencies.
- The next evolution of artificial intelligence (AI) will be made more robust with behavioural biometrics: We are already seeing wider use of device-based information given the growth of mobile commerce. The next evolution is behavioural biometrics, and these will include the way an individual angles or holds a smartphone or swipes a finger across a tablet screen. These specific and unique individual data points will allow fraud detection models to assess any “abnormal” use of the device, further personalizing their analysis and results.
Mastercard has long pioneered biometrics – in stores and online – as a secure way to verify identity, therefore replacing the need for consumers to key in their passwords. In May, we launched Mastercard’s new Biometric Checkout Program where all you need is yourself. The program lets shoppers pay with just their face or hand at stores of all sizes, from major retailers to mom-and-pop shops. The program is now available in Sao Paulo, Brazil and future pilot are being planned for roll-out in Asia and the Middle East.
Southeast Asian consumers today recognize the potential for biometrics to offer both security and convenience when making payments. According to Mastercard New Payments Index, 61 percent of Vietnamese respondents say security is the #1 most important factor when deciding which payment method to use. More than three-quarters (78 percent) of Vietnamese say using biometrics is more secure than a PIN, password or another form of identification, and 61 percent of them feel comfortable sharing their biometric data to save time.
However, 72 percent of Vietnamese consumers are concerned about which entities would have access to their biometric data – highlighting an opportunity for providers to build trust. Yet, the recognition of convenience and the overall enthusiasm for biometrics remains – 75 percent of Vietnamese consumers find it easier to make a biometric payment in comparison to using a card or device, and over half (59 percent) of Vietnamese consumers used biometrics more frequently in the last year, demonstrating enthusiasm and untapped potential if providers can address consumers’ misgivings about privacy.
- BNPL awareness is high among Thais and Vietnamese, while comfort is mixed: Buy Now Pay Now (BNPL) awareness is high but overall comfort remains low – half (50 percent) of consumers in AP are comfortable using BNPL today, according to Mastercard New Payments Index.
In particular, consumers in Thailand and Vietnam tap on BNPL offerings for their low/no interest payments, and when they want to expedite bigger purchases without waiting. Still, trust and comfort are key factors as both Thai and Vietnamese consumers say they would feel safer using BNPL solutions backed by a major payment network (77 percent Vietnam, 80 percent Thailand) or their existing bank (78 percent Vietnam, 76 percent Thai), rather than other providers.
In short, the future of money, as with everything else, is digital. Driven by the pandemic-induced accelerated digital transformation, several markets in Southeast Asia sped up their adoption of digital banking and payment by making digital transactions safe and convenient for both consumers and merchants. Now in this current endemic stage, the region is well positioned to capitalize on the continuous shift to cashless payments.
At the same time, it’s important that all the players in the financial ecosystem – banks, fintechs, governments and other stakeholders – continuously champion newer payment technologies.
Ultimately, our role is to ensure that consumers can pay however they want, whenever they want – always safely and securely – while offering businesses and merchants a range of choices in how they pay and get paid.
What impact if any, do new fintech services like BNPL or travel cards like Amaze have on the overall payments landscape in Southeast Asia?
The consumer-oriented Buy Now Pay Later industry is set to exceed US$1 trillion in annual gross merchandise volume globally by 2025. The retail e-commerce market is estimated to globally increase by half by 2024, driving the growth of BNPL, especially on mobile. The increase in BNPL usage will be second only to mobile and digital wallets, while other payment methods are predicted to lose market share. The percentage of BNPL share of e-commerce is expected to roughly double by 2023.
Singapore is a favoured market for fintechs to set up, test BNPL concepts because the city has been promoted and perceived as a springboard for expansion into the rest of Asia. But traditional financial institutions are not staying still – DBS and HSBC partnered with Mastercard and Pine Labs to offer cardholders in Singapore, Indonesia, The Philippines and Hong Kong the ability to pay via interest-free instalments.
At the heart of it, payments come down to choice – and what consumers want are simple and convenient solutions that offer them greater flexibility and control over how they spend and manage their money. BNPL offers that as users can pay off purchases in manageable instalments with clear repayment terms and timelines. For consumers who do not qualify for credit cards or loans, it offers them access to credit. For those with credit cards, it enables them to better manage their cash flow without incurring interest when needed.
On the other hand, financing has always been a hurdle for small businesses, but the pandemic really brought this issue into sharp focus. In fact, many small business owners rely on personal lines of credit or non-bank lenders to help finance their operations, which is not ideal in terms of sustainable business growth. These are the gaps we tried to fill when we designed the Mastercard Installments Card for Business (previously called Pay & Split).
Essentially, this card provides small and medium businesses with a similar payment product to the consumer-oriented BNPL offerings that people are used to. Having this option enables SMEs to convert any purchase into monthly or periodic instalments, helping them to better manage their cash flow. The card also brings credit opportunities to SMEs who may not meet certain thresholds for a traditional commercial credit card or term loan but need working capital to stay afloat or expand. It also opens the door for SMEs to generate a credit rating, which can then be used to apply for more sophisticated credit products as the business grows.
Across Asia, enthusiasm for commercial BNPL products is strong amongst small businesses and especially high in Singapore where 80 percent of entrepreneurs that we surveyed are keen to use an instalment product designed for SMEs.
What are some of the hurdles still in place that are preventing faster adoption of cashless?
As mentioned in Q1, people in Asia were already paying digitally and using new forms of cashless payments prior to the pandemic. COVID-19 accelerated the adoption and increased the demand for digital products resulting in consumers making a rapid and lasting shift to a “digital by default” mindset. Case in point, the adoption rate of cashless payments in Southeast Asia stood at 93 percent in 2021.
As more businesses moved online, consumers explored new ways to shop and pay. As governments continue to drive cashless agendas involving both public and private sectors to ensure that a switch to a cashless society is as smooth and gradual as it needs to be, businesses that can provide multiple ways to shop and pay will be able to successfully meet new demands and challenges.
We are now living in a world of connected commerce with our mobile phones as the doorway and payments embedded in every touchpoint. Taking the efforts to go cashless is a step in the right direction with continued smartphone proliferation driving the journey.
First, the need to close the digital divide in Southeast Asia: Internet adoption varies widely across the region ranging from around 75 percent in the developed economies, to about 60 percent in less developed ones. In 2019, 62 percent of Indonesian adults in urban areas were connected to the internet compared to 36 percent in rural areas. Nearly 80 percent of those not connected live in non-metro rural areas of Sumatera, Java and Bali islands, which are the country’s three most populous islands.
Second, there is a significant unbanked/underbanked population in Southeast Asia with limited access to financial services: According to the World Bank’s latest report, nearly 1.7 billion people are unbanked globally – that’s close to a quarter of the global population. While Southeast Asia’s economy has come a long way in the last decade, over six in 10 Southeast Asians remain underbanked or unbanked today. One key observation made at the peak of the pandemic was that the lack of digital records or bank accounts hindered the distribution of relief aid to these individuals. People who were receiving wages in the form of cash found it harder to physically go to offices and meet employers to collect their wages. As more businesses moved online, those without a bank account or card lacked access to those e-commerce stores and as a result, they could not get the essential goods and services they needed.
Third, the gap between access vs usage of digital financial tools: Providing access to digital and financial tools/solutions is the first step towards achieving an inclusive digital economy. Efforts today also need to focus on driving the usage of the same tools and services that people now have access to. Without the ability and knowledge to use the technologies and solutions, the benefits will not trickle down to all members of the community.
Next, cash usage and dependency are still high: According to the 2020 Worldpay Global Payments Report from FIS, cash accounts for 77 percent of point-of-sale purchases in Indonesia. Cash continues to be the preferred choice by many consumers and businesses. This is especially the case when it comes to everyday transactions. The main reason cash usage is high is that there is a lack of understanding of how digital payments work and how one can use them.
Lastly, concerns over the safety & security of payment methods remain top of mind: Mastercard New Payments Index 2022 reveals that security remains top of mind among respondents, with 56 percent in Asia Pacific saying that security is their top influence in deciding which payment method to use. This same finding holds in Southeast Asia, where 57 percent of consumers in Thailand and 61 percent in Vietnam rate security as their number one key deciding factor. Cash is still viewed as the most secure payment method in many countries in Asia.
Moving societies and economies away from cash dependency cannot be done in silos. All players need to come together to leverage knowledge, tools, and technologies that change consumer and business habits and attitudes towards non-cash payment methods. With digital payments, consumers and businesses have more choices in payment methods, better access to their funds, and less friction for everyday consumption.
What’s next for Mastercard in Southeast Asia?
Mastercard is a global technology company in the payments industry. Our mission is to connect and power an inclusive, digital economy that benefits everyone, everywhere by making transactions safe, simple, smart and accessible.
With that in mind, we look to be at the forefront of the digital payments space. Consumer needs and preferences are rapidly evolving, and therefore it is essential for Mastercard to keep pace with these changes. Continuously innovating and looking at new ways to give consumers more payment choices that suit their changing needs and lifestyles, so that they can pay when and how they want, has always been the cornerstone of our business. At the end of the day, we want to stay ahead of the curve so that we always remain relevant to our customers and end consumers.
At the same time, we recognize that security plays a big part in the adoption of digital payments. That is why Mastercard has been active in the cybersecurity space, developing and investing in a range of cybersecurity solutions that help businesses of all sizes in enhancing security standards. Security is only as strong as the weakest link, hence there is a role for all to play in strengthening the entire digital ecosystem.
With our mission and purpose behind us, we’ve also been actively working with key players in the public and private sectors to drive a financially and digitally inclusive society.
Global commitment:
- We expanded our commitment to financial inclusion by pledging to bring 1 billion people and 50 million micro and small businesses into the digital economy by 2025. As part of this, there will be a direct focus on providing 25 million women entrepreneurs with solutions that can help them grow their businesses.
- In Bangladesh and Cambodia, Mastercard partnered with the apparel industry to digitize supply chains by introducing a combination of digital payrolls and an educational tool.
Helping small businesses to digitize:
- Strive (as part of Mastercard’s Center for Inclusive Growth) is a global initiative focused on strengthening the financial resilience of small businesses and supporting their recovery and growth. Our grant recipients – ChatGenie in the Philippines and Boost Capital in Cambodia – will develop innovative, scalable solutions to strengthen small businesses’ digital capabilities.
- In Vietnam, Mastercard is working with CARE International to assist banks and fintechs to tailor financial services and products to bring women into the financial system and catalyze business growth among women entrepreneurs. The goal is to reach more than 1 million Vietnamese women.
Upskilling people:
- Mastercard partnered Grab to advance digital and financial inclusion in Southeast Asia. We will soon launch entrepreneurship courses on the Grab platform to digitally upskill gig economy workers and small businesses in Southeast Asia.
- In Indonesia, we launched a flagship skilling program in 2019 – Mastercard Academy 2.0 – that is designed to engage and impact essential digital knowledge to different segments of the population. Our goal is to equip 100,000 Indonesians by 2023 – including schoolchildren, young adults, entrepreneurs and mid-career professionals – with the digital skills they need to thrive and actively participate in Indonesia’s digital transformation journey. As of June 2022, we have reached over 113,000 participants, exceeding our target by 113%.
We will continue to be where our customers and partners are so that their consumers will have greater choices when it comes to payments – anywhere, everywhere in the world.