Mobile payments: a key enabler of cashless societies

Quah Mei Lee/Frost & Sullivan
22 May 2017

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 benefit from strong regulatory pressure coupled with rapidly growing payment-infrastructure should soon raise them to the ranks of high-income nations.

It’s all about the smartphone

Going cashless is seen as a catalyst for the mobile payments market: 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 in this region.

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

Number crunch

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 (total 2016 mobile payments excluding China and India) grow to reach $271.5 billion by 2021, while the number of active customers will double to 130 million users.

The market in China alone will grow to $1.4 trillion by 2021. Regulatory push, standardization, the 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 benefiting from regulatory pushes, the initial slow take-up is mainly due to the drawbacks of today’s mobile phone as end-device. This includes 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 and, above all, a mobile phone that doesn’t replicate 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.

Ubiquity: the golden rule

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

And there’s a lack of comprehensive solutions to attract segments determined to use 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.

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 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.

Checkmating the cash-king

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 small, albeit growing, fraction of the global payments market. How can we blame it 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 keep our eye on 100% cashless as the end goal despite the challenges.

Quah Mei Lee is an industry principal at Frost & Sullivan

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