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A unique path towards digital payment transformation in Asia’s emerging markets

BY PAUL LEISHMAN

The transformation of payment practices in emerging Asia is underway. Let’s take a closer look at what and who is driving this change.

Most people in countries like Indonesia, India, and the Philippines do not use credit cards. The World Bank reports that card penetration among those 15 years and older in these countries in 2017 was 2.4%, 3.0%, and 1.9%, respectively, which remained largely unchanged from 2011’s figures of 0.5%, 1.7%, and 3.1%.

The region’s dominant ecommerce companies were established during this time, and the answer to low card penetration wasn’t to fall back on local digital payment methods, as none existed in most cases. Instead, companies relied on something that’s uncommon in mature markets: cash on delivery.

Here’s how it works: the customer places an order for a pair of shoes on a website, delivery time is set, and the customer assures the company that he or she will be waiting at the door to hand over cash at the agreed time. When the delivery person arrives with the shoes, the customer (a) is there, pays for them, completes the transaction, and leaves all parties happy, or (b) is not there, and the delivery person trudges away, having wasted time and company money.

Digital payment innovation was long overdue, and 2018 proved to be the year it arrived. Just as Asia’s emerging markets are diverse, solutions being brought forward are, too.

Straying only slightly from the behavior customers are already comfortable with, we’ve seen convenience stores (i.e., 7-Eleven in the Philippines and Thailand, Alfamart and Indomaret in Indonesia, and more) introduce digital payment offerings which enable customers to make a purchase online, and pay using cash or a debit card in-store. This way, anyone within walking distance of a convenience store can buy things online, even if they don’t have a bank account.

Banks have gotten in on the action, too. While credit card penetration in emerging Asian markets is low, bank accountpenetration is often significantly higher. Take Indonesia, India, and the Philippines as examples, where 48%, 80%, and 32% of those 15 years and older report having an account at a formal financial institution in 2017, respectively (World Bank). In recent years, banks have started to introduce respectable apps to allow customers to transact online from their accounts.

You may be wondering what role the blockchain has in all of this. The answer is: none.

Interestingly, the most dramatic innovation in digital payment came fromcompanies that were seen as complete outsiders to the existing system, such as GOJEK in Indonesia, Paytm in India, GCash in the Philippines, and others that have poured enormous resources into building e-wallets and disrupting the digital payment space.

Take GOJEK, for example. It’s a super app that offers a range of features and services in Indonesia, and its payment arm GO-PAY is among the most transformative. The company meets the foremost requirement for e-wallet success in a region where it’s typically not possible for customers to link a card to an account in the same way they can in markets like China or the United States: make it easy for customers to get money into the account.

GO-PAY impressively addresses this issue by building their payment service on the back of their existing motorcycle and ride-hailing business, as users can deposit money into their GO-PAY account by giving cash to any of the hundreds of thousands of drivers. In most cities in Indonesia, ‘cash-in, cash out’ (CICO) agents on wheels are never more than a few steps away.

You may be wondering what role the blockchain has in all of this. The answer is: none. The reason Asia’s emerging markets did not see compelling digital payment innovation until recently was not because technology companies in this part of the world were incapable of building a digital ledger and processing transactions at scale. Rather, they weren’t able to find an efficient way of building out an enormous physical network to collect money from customers. That was a problem the blockchain could never solve.

This brings us to the next digital payment concern that GOJEK, in particular, has addressed admirably: how can customers become comfortable transacting from an e-wallet and remain motivated to retain a balance?

It’s unlikely for a customer to buy a $500 television the first time they use a digital payment service; they want to start with small transactions, so they can come trust the service. E-wallet providers have found that a great way to facilitate trust is allowing customers to purchase prepaid mobile credit from their apps.

The vast majority of customers in emerging Asian markets use prepaid mobile accounts, so this is a small-value payment almost everyone needs to make, typically several times per month. Once customers are comfortable buying prepaid mobile credit, they will often move on to other high-frequency digital payments such as electricity bills or mobile game credits. Then comes the $500 television.

Building a successful digital payment service of any kind is challenging, slow, and expensive. The companies that provide e-wallets are continually raising money to invest in marketing, product development, and so on. Paytm recently caught Warren Buffett’s attention, as Berkshire Hathaway invested US$300 million into the company last year. With more companies fighting to win in the digital payment space, there’s no doubt that 2019 will bring further growth and innovation.