South Korea is going cashless. Again. This time it's e-wallets and digital banks driving the trend, not credit cards. South Korea is already one of the world's most credit-card friendly countries. By some estimates, it has the world's highest credit card penetration rate. South Korea also has the world's highest internet connection speeds. These factors are much more integral to South Korea's Cashless 2.0 movement than covid-19, even if the pandemic is pushing more of the economy online.
Indonesia's e-commerce market is surging amid the pandemic, giving a big boost to digital wallets. Transactions at the four largest e-commerce sites in the country will double to US$29 billion from US$14 billion in 2019, according to a study by the Bank of Indonesia published in July. Digital wallets accounted for 90% of cashless payments in the first five months of the year, while bank cards handled the rest.
The Philippines has not raced to go cashless. Efforts to digitize the financial system got underway nearly two decades ago, but have made limited inroads. Cash still accounts for 90% of transactions, according to the Better than Cash Alliance, and looked like it was going to remain dominant - until the pandemic. Within a few months, the payments landscape has changed dramatically in the Philippines, with digital payments emerging as a must-have.
Airwallex is among a handful of fintech unicorns that have closed huge funding rounds in the middle of the coronavirus pandemic. In April, Airwallex raised US$160 million from investors as its valuation climbed to US$1.8 billion. Airwallex was established in Australia in 2015 and while now headquartered in Hong Kong, is still considered an Australian fintech. The company has sought to capitalize on demand for cheaper cross-border payments services among SMEs in its home market, where the major banks are notorious for charging high foreign-exchange fees. Airwallex says that its machine-learning technology enables fast, inexpensive and transparent global payments.
Japan has been trying to digitize financial services for years, given the high costs of maintaining a cash-based economy and the need for convenient payment options during the upcoming Olympics. The government's"Cashless Vision" initiative that seeks to increase non-cash transactions to 40% by 2025 began back in 2018, well before the covid-induced cashless drive that's sweeping across Asia. Going cashless to promote hygiene would probably seem superfluous in Japan, a country already known for its exacting hygiene standards.
AMTD is stepping up efforts to build a regional fintech ecosystem in Southeast Asia and plans to take a controlling stake in Singapore's FOMO Pay, a payments solution provider. The FOMO Pay deal follows AMTD's recent acquisitions of the leading insurtech PolicyPal, and CapBridge, Singapore’s first regulated securities exchange for digital assets and private companies.
By now it's a familiar story: COVID-19 is driving cashless payments adoption in Southeast Asia. As one of the region's key economies and recipients of fintech investment, Vietnam is a market to watch. What's notable about Vietnam is that it's better poised for an economic recovery than almost any other country because of how well it has controlled the coronavirus pandemic. While the rest of the world was in recession, Vietnam's economy grew 0.36% in the second quarter, beating a 0.9% contraction forecast by economists surveyed by Bloomberg.
Southeast Asia's two most valuable tech startups are determined to reinvent themselves, transforming from ride-hailing giants into digital banks. Singapore's Grab is leading in every Southeast Asian market but one: Indonesia, which happens to be where its arch-rival Gojek is based. Having recently received investments from Facebook and PayPal, Gojek looks to have the edge in the region's largest economy. But Grab is determined to prevail there. That's why the Grab-backed digital wallet Ovo is reportedly planning to merge with Dana, which is backed by Chinese fintech giant Ant Financial. Together, Ovo and Dana might be able to give Gojek's fintech arm GoPay a run for its money.
A unicorn cannot thrive on ride hailing alone. That's why Indonesia's Gojek is betting on fintech to bolster its fortunes. Its arch-rival Grab is taking a similar road. Starting with payments, the ride-hailing giants aim to transform themselves into bonafide financial services providers, monetizing customer data by using it to create different digital banking products. Despite the pandemic, Gojek managed to raise another US$1.2 billion in March to support its expansion efforts. Gojek then acquired the Indonesian payments startup Moka and established a tie-up with the fintech Pluang, which offers digital gold investments.
Malaysia was gradually moving in a cashless direction long before the coronavirus pandemic hit the country, forcing it into lockdown from mid-March until early May. The virus just may have accelerated Malaysia's cashless push though, as people out of necessity opted for contactless payments instead of those involving contact. Now, digital wallets are offering new incentives to consumers and merchants, while policymakers are tightening regulations around the use of cash. Malaysia's cashless vision appears to have gotten an unexpected boost from the pandemic.
The economic downturn fomented by the coronavirus pandemic has been a rude awakening for cash-burning fintech startups. They and their backers are finding that there's a price to pay for championing breakneck growth over profitability. In contrast, fintechs with solid balance sheets, like London-based digital money transfer firm TransferWise (profitable for three years in a row), are poised to pursue targeted expansion. Tapping resilient demand for its cross-border payments services, TransferWise recently inked a partnership with China's Alipay and expanded to the United Arab Emirates.
Libra is the most visible profile prong of Facebook's fintech offensive, but it may not be the most important. Not for now, anyway. U.S. officials and regulators remain circumspect about Facebook's digital currency project. Facebook has a long way to go before it wins their trust. In Asia, Facebook has a seemingly simpler task: Roll out the digital wallet of WhatsApp to monetize its large regional user base, concentrated in India and Indonesia. That's proving to be difficult too though.
In every crisis, there are opportunities. While many investors are tightening their belts during the coronavirus pandemic, some are opening their wallets. Now is the time to double down on certain investments. Take Australia's Airwallex as an example. The Melbourne-based cross-border payments platform closed a mammoth US$160 million (A$250 million) funding round in April, bringing its valuation to US$1.8 billion from US$1 billion. Less than half of the capital was raised in January, according to Australian Financial Review. Airwallex managed to raise the rest amid the pandemic's surge.
Across Asia, the cashless drive had been gaining momentum long before COVID-19 broke out in late 2019. In less than a decade, China, the region's largest and the world's No. 2 economy, has transformed from a cash-dominant into a cash-light economy. Its neighbors have been following suit.
A 2019 McKinsey study found that digital payments in Asia are growing at a roughly 15% annual clip, more than 2.5 times the typical economic growth rate in the region. Overall, cashless payments have been underpinning the rise of digital banking across APAC.
Asia may be at an inflection point for cashless payments as the coronavirus rages globally and hygiene concerns about the use of physical currency are growing.