Mobile payments can enable the truly cashless society, but only with the right product strategy and a global mindset as well as local, writes Quah Mei Lee of Frost & Sullivan.
In 2018, the Asia-Pacific trend towards going cashless has reached a new level and intensified as never witnessed before. Over the past two years, industry regulators have taken several positive steps in the right direction resulting in economic progress. Government drivers and initiatives have been put into place to lead their respective countries towards digitization.
A constantly growing number of companies and institutions are going cashless in this region. However, even though the pace is quickening, worryingly enough there seems to be imbalance and misalignment. Some companies are currently cramming the marketplace with local-first “me too” payment solutions, but not all are working towards going 100% cashless.
Undeniably, the much-needed trump card has yet to arrive. There is a lot of potential to disrupt the payments landscape – even with just a few minor tweaks, in some cases. If the ultimate goal is to achieve true “cashless societies” – meaning literally 100% cashless – the industry focus needs to shift from e-money/credit/debit cards to mobile payments as an enabling solution.
It may take awhile to achieve the cashless goal if enabling solutions need connectivity to become faster and cheaper, locally and globally. Up to now, key drivers have been the cost-effective use of app solutions and developments in digital identities in a fragmented region developing at different paces. Indeed, if cash were completely removed from everyday use, smartphones could be the common denominator across Asia-Pacific, but only if connected (globally when required) and paired with solutions incorporating tokenization and biometrics. An exception would be in countries where cards are mandated to replace cash – however, even the simple act of going cashless with cards can act as a catalyst for mobile payments.
Think global and local
The challenge we are facing today is related to the fact that cash is seen as a permanent payment option and that solution providers are not developing mobile payments solutions that genuinely disrupt the payments ecosystem. Most companies embark on local-first campaigns, taking solo approaches with few industry partnerships. Payment solutions need a local flavor and presence with global acceptance (if required) in a similar manner to how banks have operated their cards business for over 20 years.
Currently, there is not enough emphasis on solutions that offer global acceptance while also focusing on addressing local behavior, needs and preferences. The closest thing we have to this model is Alipay, which has both global acceptance and partnerships for local presence. Unless we are talking about less developed markets, where people are more home-bound and travel less, this will continue to be a bottleneck for the payments industry.
There is a constant need for companies to think bigger and think global. There is also a need for more emphasis on getting the payment fundamentals right. After all, how would everyday life look like if cards were not limited to only part of the population?
Get the product strategy right
A critical success factor for payment solutions is product strategy, not just having a ready convertible base. Getting the product strategy right would be key to achieving scale, which is critical to ensuring viability of a payments business model. Successful, seamless, and comprehensive solutions did not start from scratch. They addressed a gap in the market and offered more than just payments – a clear value proposition. These solutions had the support of regulators for cross-border regional and global growth. This is where today’s “me too” payments solutions are not adequately addressing market needs.
The right product strategy, as well as regulatory and industry alignment across Asia-Pacific and globally, will be critical for mobile payments to hit mainstream adoption. Currently, there is not a universal alternative payment method accessible to all that has the power to replace cash. Lessening dependence on cash can be expedited, but drastic measures to replace cash can only take place if there was such a method. To achieve this, we need more global-first solution providers and local-first solutions providers to collaborate locally, regionally and globally with interoperability as a central theme, while at the same time catering to local behaviors, needs and preferences.
An interesting concept would be Alipay as a global merchant acquirer for a global e-money scheme. Indeed, a semblance of this concept already exists in the form of TNG’s global e-wallet alliance, albeit with single partners in each market and through the use of a common currency – i.e. Bitcoin – to reduce exchange risk for its users.
The use of mobile biometrics and addressing data protection will help eliminate inhibitions to the use of mobile payments. Global drivers – such as the implementation of General Data Protection Regulation (GDPR), the mandate to use stronger customer authentication via the revised payment system directive (PSD2) in Europe, and Mastercard’s implementation of biometrics identification (including fingerprint and facial recognition) by April 2019 for its customers – will give Asia-Pacific mobile payments a much needed boost.
Likewise, local drivers need to align globally. For example, Malaysia’s newly minted minimum standard for mobile payments needs to quickly align globally for it to be effective in replacing cash.
Eventually 5G could also play a role, as the technology has the potential to transform the industry by making our future ecosystem increasingly intelligent and connected.
There is tremendous potential for growth in the payments industry, particularly alongside the rapid growth of connected devices in the IoT, but the solutions have to be cashless and mobile. To reiterate, the future of mobile payments needs to be global-first, interoperable and secure. Intentionally or not, cash and cards are global solutions. Multiple global e-money schemes might be what the industry needs, but we need to think bigger and global from now on. It is not just the solutions that need to be global – connectivity needs to be as well.