Southeast Asia’s largest platform companies all reported second quarter earnings recently. Some results were better than others, but Sea Group, Grab and GoTo all continue to struggle with the fundamentals. The latter two companies are not profitable, while Sea’s performance underwhelmed investors.
Japan’s megabanks are not the only Japanese financial services companies keen on growing their fintech footprint. The SoftBank spinoff SBI Holdings is a digital focused conglomerate with a securities division, a digital bank that is reportedly Japan’s largest by deposits, an asset management arm, an insurance business and a venture capital arm.
In a rapidly digitizing world, many Asian countries are going cashless in order to create better, faster, and cheaper payment infrastructure. But should 100% cashless be the goal?
While cashless transactions offer clear benefits, significant barriers exist to achieving a completely cashless society. Infrastructure limitations, inadequate digital literacy, and disparities in access to technology hinder the widespread adoption of digital payments in many Asian countries. In addition, cultural preferences and the role of cash in informal economies are tough to dislodge.
Asean has a cross-border payments dream that is slowly moving closer to coming true. Despite the very real interoperability challenges, Southeast Asian countries nonetheless seem determined to build a payments rail of their own that can boost the use of local currencies – perhaps at the dollar’s expense – while speeding up transaction time, lowering transaction costs and strengthening connectivity among their respective financial systems. The latest countries to sign onto this project are the Philippines, Vietnam and Brunei.
Just when it seemed Capital A had put aside its digital banking ambitions, the ever-ambitious airline/platform company announced its partnership with the Philippines’ ascendant online lender UnionDigital Bank. The tie-up between Capital A and UnionDigital Bank comes amid a growing travel recovery in Southeast Asia and strong demand for digital financial services in the Philippines.
Buy now, pay later (BNPL) has surged in Indonesia over the past few years, plugging a large lending gap and in many cases acting like a credit card in all but name. BNPL has grown so briskly in Indonesia that some analysts believe it will replace credit cards altogether.Perhaps not.
Australia-founded but Hong Kong-headquartered B2B payments sensation Airwallex has had a busy 2023 thus far. Not only did it just inject US$165 million into its Singapore entity, it also secured a China payments license in March and inked a partnership with American Express in January that will allow its clients in Australia, the UK, Singapore, and Hong Kong to accept Amex cards as a payment method option. It all seems to add up to an Asia-centric growth strategy that is less grandiose than what the Financial Times described in 2020 as the company wanting to “upend the global payments system.”
Japan’s cashless journey is unique in Asia. While most countries in the region that have accelerated cashless payments in recent years are seeking to simultaneously boost financial inclusion, Japan is one of Asia’s best banked countries, with more than 95% of its adult population having a bank account. For Japan, going cashless is not about increasing participation in the formal financial system, but rather about reducing cash-related costs, as well as bringing the country’s technological prowess to financial services and increasing competition in the financial sector.
One has to give Ant Group credit: Despite the bruising tech crackdown it has endured at home, it has not given up on its vision of creating a regional payments ecosystem. In fact, Ant arguably had the idea to link up the disparate markets of Southeast Asia via a proprietary digital payments network even before different countries in the region began to set up their own bilateral rails using QR codes.
GCash is by several measures the most successful e-wallet in the Philippines. There is no question it has a massive user base – 81 million active users and 2.5 million merchants and social sellers as of May. What’s more, according to the company’s leadership, it became EBITDA profitable three years ahead of schedule, though it has declined to be more specific than that. While the global economic environment is not optimal for an IPO, GCash itself is doing well enough that it can probably afford to go ahead with the listing before year-end.
For the longest time, the China payments market was an oligopoly of the privileged three: first the state-owned UnionPay, and then as the country transitioned to mobile payments, Alipay and Tenpay. U.S. card giants like Visa, Mastercard, and American Express as well as PayPal could only look on with envy and frustration as Beijing kicked the can down the road on boosting market access – which was supposed to have been complete by 2006 per the conditions it agreed to upon accession to the World Trade Organization in 2001.
The paramountcy of the SWIFT interbank messaging network to cross-border payments can be measured in many ways, and SWIFT itself likes to do so with its data on transaction numbers and amounts. For instance, as of December 2022, Swift had recorded an average of 44.8 million FIN messages (payments and securities transactions) per day during the year, a year on year rise of 6.6%.
Across Asia’s emerging markets, earned wage access (EWA) has been gaining traction rapidly in the past two years. In a nutshell, EWA platforms allow employees of a company to access a portion of their earned pay before payday. EWA is catching on fast in some of Southeast Asia’s largest emerging markets where per-capita GDP remains relatively low and significant portions of the population are either unbanked or underbanked.
This commentary was written in collaboration with Banking Circle.
The majority of cross-border payments are currently carried out via telegraphic transfers supported by SWIFT’s network of correspondent banks. These transfers are often criticized for being slow and expensive. A transfer can take several days to complete, while the World Bank estimates the average cost of a transaction to be about 6% of the transfer value.