Despite mobile payments boom, APAC is a long way from going cashless

mobile payments
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Throughout Asia-Pacific, where smartphone penetration is the highest in the world, consistent progress by local governments toward cashless societies benefits the mobile payments market. Leading the cashless transformation within Asia Pacific are high-income developed nations such as South Korea, Australia and Singapore. Malaysia and China are still middle-income nations, but strong regulatory pressure coupled with rapidly growing payment-infrastructure should soon raise them to the high-income ranks.

The drive to go cashless is seen as a catalyst for the mobile payments market in Asia-Pacific, both in markets where use of cards transitions gradually into use of mobile payments, and in markets where consumers are leapfrogging to mobile payments from cash.

The common denominator is the penetration and rapid growth of smartphones. Ideally, a cashless society revolves around an ecosystem that utilizes e-payment methods such as e-money and debit/credit cards exclusively. But getting there means that mobile payments must realize their full potential as a key enabler. And that means ubiquitous, cost-effective use of app-based and online solutions in a region where smartphones are prevalent.

Mobile payments now integrate into everyday life. From the acceptance of payments including micro-payments, financial services and retail, merchants see mobile phones as the future form factor for payments. R&D spend is proliferating on concepts like Amazon Go, Honda’s in-vehicle payments for parking and fuel in partnership with Visa, and Softbank’s robot service attendant Pepper, created in partnership with MasterCard. As cost pressures increase, the finance ecosystem (including banks, service providers and merchants) will eventually shift to support mobile payments.

The mobile payments market in Asia-Pacific is led by Japan, South Korea, Australia and Singapore as well as China. The regional top down regulatory push towards cashless societies across APAC will help the $71.9 billion market (as of the end of 2016) grow to $271.5 billion by 2021, while the number of active customers will double to 130 million users. That’s excluding China and India. The mobile payments market in China alone will grow to $1.4 trillion by 2021.

Cashless barriers

Regulatory support, standardization, availability of a ubiquitous payments infrastructure and comprehensive solutions – as well as local consumer behavior – play a role in determining the take-up of mobile payments and how fast the transition to 100% cashless will be in each country.

Although mobile payments have benefited from regulatory pushes, initial take-up has been slowed down mainly via the drawbacks of today’s mobile phones as a payment device – the lack of user interface and payment flow standardization, the need for additional security features such as biometrics authentication, effective resolution of data privacy issues. Above all, the modern mobile phone doesn’t replicate the user experience of a physical wallet.

The presence of proprietary local e-wallets – built to differing security standards – co-existing alongside global and open third-party e-wallets adds further confusion. More effort must be made to meet the needs and expectations of consumers to expedite growth of mobile payments.

Standardization efforts are underway in some countries, and contactless-payment facilities are growing. However, going 100% cashless means implementing a payment system that does everything a cash system can do. That means a standard interface must be available (and functioning) on trolleys, at toilets, for donations to churches, at tourist foreign exchanges, etc.

Meanwhile, there is a lack of comprehensive solutions to attract segments determined to stick to cash: the poor, the elderly, people with disabilities, people living in rural areas, short term visitors and tourists – anyone who completes a transaction that involves a payment method, loyalty/rewards/social welfare benefits, receipts and, in some instances, even identification. Users don’t like having to juggle an additional device to complete everyday transactions.

Universal standard needed

Replicating physical wallets and offering seamless user experiences requires a universal standard. Regulators must address international coordination on payment flow, guidelines on minimum security, and handling of data privacy issues. Plans should keep in mind the end goal of going 100% cashless and cater for small merchants and usage solutions outside of major towns and city centers.

Governments can lead the incorporation of identification into the mobile phone and encourage use of comprehensive solutions on all mobile phones. Ultimately, the focus now should shift to mobile payments in order to build a 100% cashless future across Asia Pacific.

Because cash is seen as a permanent payment option, solution providers aren’t developing mobile payments solutions that truly disrupt the payment ecosystem. Apple Pay, Samsung Pay and Android Pay have caused some disruption in the marketplace – collectively, these three are responsible for over 40% of global mobile payments transactions. There are also the China players (Alipay and WeChat) and Hong Kong’s Octopus card.

Mobile payments form a growing yet small fraction of the global payments market. How can we blame this on consumer behavior and regulatory factors when we have seen the likes of Airbnb, Uber and Pokemon Go flourish, and seen both consumer behavior and regulatory factors change with the right solution?

What we need is a trump card, ideally one that can work across the fragmented Asia Pacific region. Until then, we need to stay focused on the cashless society as the end goal despite the challenges.

Quah Mei Lee, industry principal at Frost & SullivanWritten by Quah Mei Lee, industry principal at Frost & Sullivan

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