Five things you need to know about the Asian payments landscape
The Asian payment landscape is fragmented and complex, however, it also presents a number of opportunities for its trade partners. With global trade being driven by Asia, understanding the region’s payment ecosystem is crucial for businesses planning to expand in the region.
1. Mobile is driving the adoption of digital payments
Banking infrastructure was slower to develop across Asia than in Europe and the US, which has given the region a huge advantage in some ways. More traditional banking methods have been leapfrogged in favour of digital payments, and with 70% of the Asian population expected to have access to smartphones by 2021, mobile payments are expected to soar to $32 billion per year.
This shift to digital payments is most apparent in China, where the size of the Chinese mobile payments market is estimated to be 90 times larger than that of the US.
2. High levels of interoperability between preferred payment methods
As part of our research into the cross border payment landscape in Asia, we analysed each country’s preferred payment providers and how they compared to those of the country’s largest trading partners.
What we found was that even within Asia, payments are holding businesses back. Solutions are being developed locally, leading to interoperability, and resulting in significant limitations for consumers and businesses wishing to send or receive money across borders.
This was particularly prominent in South East Asia. For example, in Indonesia, two popular payment solutions, iPay88 and MOLPay, are only available to the Association of Southeast Asian Nations, excluding regions with which they do the majority of their cross border trading, including the US and Europe.
3. Non-financial entrants dominate – especially in China
Two of the most popular payment methods in China are eCommerce giant Alibaba’s payment arm, AliPay, and Tencent’s WeChat Pay, a payment feature integrated with social messaging app, WeChat.
According to Alipay, in 2017 there were 520 million Alipay users in China alone, equating to approximately 37% of the country’s population. WeChat is growing fast, too, with close to 1 billion active monthly users, resulting in WeChat Pay capturing 40% of the mobile payments market.
Both are expanding to reach their base outside of China, and with strong trading partnerships with the US, UK, and Germany, businesses based in these regions would do well to take note.
4. Regional banks are booming thanks to de-risking
Following the financial crisis in 2009, huge numbers of US and European incumbents decided to shut down correspondent banking operations in Asia. This was due to concerns over penalties for breaching anti-money laundering (AML) regulations, the rising cost of due diligence, and the complexities that come with the region’s highly-fragmented market.
This left a gap in the market for cross border payments, which has since been filled by regional banks. According to Global Trade Review, since 2009, Chinese correspondent banking has increased by 3,355%.
5. Innovation in B2B payments lags behind B2C
While consumers have been embracing digital payments, B2B payments in Asia are predominantly cash-based. The vast majority of investment has been made in developing B2C solutions, leaving businesses with limited options, especially when it comes to transferring money across borders.
Despite this, the adoption of e-wallets and mobile payments holds huge potential to open up markets to international trade. Demand is pushing for businesses to be able to benefit from the same technological advances available to consumers, and solutions already successful in this market could be adapted to expand offerings to a B2B audience.