China’s payments market has been gradually opening to foreign competition in recent years for different reasons. On the one hand, the Chinese government is wary of allowing a couple of tech giants to indefinitely monopolize a market worth US$3.5 billion at the end of 2022, according to Daxue Consulting. On the other, financial services is one sector of the economy in which Beijing wants more foreign investment. It is against this backdrop that we should evaluate the prospects of Airwallex in China now that the Australian-founded and Hong Kong-based firm has secured an e-payments license for the China market.
Can what works for digital payments in India work globally? That is the most pressing question today for the National Payment Corporation of India’s (NPCI) United Payment Interface (UPI) payment rail, the most successful initiative of its kind. While many fintech success stories have come entirely from the private sector, UPI shows that public-private digital financial inclusion efforts can bear fruit when they are implemented well. Having achieved dominance domestically, UPI is now keen to expand overseas.
Japan’s affinity for cash has made it a relative laggard in adopting digital payments, especially compared to neighbors like Korea and China. Japan only broke the 30% milestone for cashless payments in 2021, partially due to the pandemic. In contrast, Korea was almost 94% cashless in 2020, while China was not far behind at 83%, according to the World Economic Forum.
A commentary in collaboration with Banking Circle.
Large banks have long dominated cross-border payments in Asia Pacific thanks to their control of traditional correspondent banking networks and until recently, the lack of viable competitors. Banks have been particularly dominant in B2B payments as the barrier to entry is higher than in the retail segment.
Meta makes almost all of its revenue from advertising. The company has long known it needs a new engine of revenue growth, but it waited too long to introduce payments and explore fintech in general.
In Asia, where fintech growth has generally been much faster than in Meta’s home market of the United States, the company has faced market barriers in some cases and intense competition overall. At this point, it may be able to gain some payments market share in certain Asian countries with WhatsApp Pay, but it will be an uphill climb.
A commentary in collaboration with Banking Circle.
The advent of proxy-enabled national real-time payment (RTP) systems has become an integral part of Asia Pacific’s digital financial services market landscape in recent years, driven by central bankers’ determination to make financial flows faster, more efficient and more widely accessible. Southeast Asian countries have been among the most proactive in the development of such real-time payment systems, which have been rolled out domestically first and then gradually expanded into the cross-border space.
A commentary in collaboration with Banking Circle.
Mobile wallets are increasingly a preferred payment method across Asia Pacific, from China to Southeast Asia to Australia. Though e-wallet use in the region was growing steadily prior to the pandemic, the abrupt shift to online and contactless commerce in early 2020 supercharged mobile wallet adoption. This has important implications for Southeast Asia – where many people remain unbanked or underbanked and credit cards have yet to gain a strong foothold outside of Singapore and Malaysia.
Like its rival Alibaba, Tencent has developed a large portfolio of overseas fintech investments. Some of these are strategic bets on rising Big Tech companies with fintech arms, like Voyager Innovations in the Philippines and Sea Group in Singapore, which Tencent believes will eventually be dominant players. Other investments are more focused on facilitating access to the mainland China market for fintechs that have a niche there, such as Australia-founded but Hong Kong-headquartered Airwallex.
Walmart-backed PhonePe, one of the biggest players in India’s payments market, is now one of the subcontinent’s most valuable private fintech firms with a valuation of US$12 billion following a mammoth US$350 million capital injection. PhonePe’s valuation more than doubled from US$5.5 billion at the end of its previous funding round in December 2020.
Japan is a well-established laggard when it comes to cashless payments in East Asia. South Korea’s cashless payments ratio is an astonishing 94%; China’s is only a slightly less astonishing 83%; Singapore’s is 60% and Japan’s is much lower at 32.5%, according to data compiled by the Payments Japan Association and the Japan Consumer Credit Association. That said, Japan is still on target to reach its modest target of 40% cashless payments by 2025, and could gradually increase the ratio in the following years.
Buy now, pay later (BNPL) is not new to Taiwan. Incumbent banks have offered the service for years through credit cards on certain e-commerce platforms. Instead of paying for a purchase in one go, the buyer chooses 3, 6, 9 or 12 months of interest-free installment payments. Because the banks already are authorized lenders, there is no regulatory problem. Yet in recent years, dedicated BNPL platforms have entered the Taiwan market and begun offering similar services – though they do not call them “lending” or “credit.” They will not be able to operate in this regulatory gray area much longer.
In the days before China’s tech crackdown humbled the country’s largest platform companies, Ant Group seemed intent on building its own cross-border payments ecosystem in Southeast Asia. The idea, though never explicitly stated, was to build a regional payments rail that could replicate at least some of the success of Alipay’s dominant domestic system.
U.S. payments giant Stripe has had its eye on the Asia-Pacific region for a long time, both mature markets like Japan and Australia, and emerging economies in Southeast Asia. It sees enormous potential in the region, despite the intense competition in the payments segments there. However, the global tech slump may force the company to slow the speed of its expansion as it works to cut costs. Earlier this year, Stripe’s US$95 billion valuation reportedly fell 28% after an internal recalculation. Then came the layoffs.
There is a lot of speculation right now about whether India will make good on its promise to cap third-party payment providers’ market share on the United Payments Interface (UPI) at 30%. We argued when the idea was first proposed several years ago that it did not make a lot of sense and would be hard to implement. Now, with December 2022 deadline looming, the National Payments Corporation of India (NPCI), which operates UPI, and the Reserve Bank of India (RBI) are considering extending the deadline.
BNPL, or buy now pay later, is a type of payment option that allows customers to purchase items now and pay for them later in installments. This type of payment option has been gaining popularity in recent years, especially among younger shoppers. In fact, a recent study showed that BNPL usage has increased by 400% among millennials in the past two years.
BNPL first emerged in Asia in 2014 and has since become extremely popular in countries like China, South Korea, and Singapore. In China, for example, the BNPL market is expected to grow from $30 billion in 2020 to $750 billion by 2025. It could be argued that Australia was the epicentre of BNPL in Asia with such previous market leaders including Afterpay and Zip. So, what is driving this massive growth? Let's take a closer look at BNPL in Asia and how it works.
Paytm’s path to profitability has always been a bit convoluted given the company’s labyrinthine business lines and its determination to compete in so many retail segments that require regular subsidizing of customers. That said, it enjoys a scale that few – if any – of its competitors can boast, the backing of some very deep-pocketed investors and the ability to raise cash cheaply on India’s stock exchange.
A commentary in collaboration with Banking Circle.
Cross-border payments are increasingly characterized by a dynamic and challenging market environment. On the one hand, the market is booming and expected to reach US$156 trillion this year. On the other, traditional international correspondent banking networks are shrinking at the same time that alternative rails that execute payments in real time are increasingly common. Thus, financial institutions (FIs) have more choice than ever, but being able to connect seamlessly to all the rails is not straightforward.
Razorpay is the rare fintech unicorn with discipline and focus, as well as a sky-high valuation. Last valued at US$7.5 billion in December 2021, the Bengaluru-based payments gateway is notable for growing through strategic acquisitions and sticking to its B2B focus despite pressure to foray into retail. It is now poised to expand beyond its home market into Southeast Asia.
China’s largest ever tech crackdown has failed to dethrone Alipay and WeChat Pay from their dominance of the country’s fintech sector, even if it has reduced their profitability. For better or worse, the duopoly seems to have staying power, especially in payments, the stickiness of the respective super apps evident. However, there has long been a line of thinking that payments interoperability and the digital renminbi together will pose a threat to the duopoly. Following recent comments by a senior People’s Bank of China (PBoC) official about the need to standardize QR codes, there is renewed speculation that the payments hegemony of China’s fintech juggernauts could be waning.
A commentary in collaboration with Banking Circle.
Cross-border payments in Asia Pacific have made significant strides in recent years, buoyed by strong economic growth and steady digitization of financial services. Estimated by McKinsey & Co. to have grown at 6% annually from 2011-2019, the region’s cross-border payments account for an increasingly large share of a global market expected to reach US$156 trillion globally this year.
Singapore-based B2B payments firm Thunes is stepping up its global expansion. Following its securing of a major payment institution license in France in late 2021, Thunes has continued to grow its global footprint. This has included partnering with Alipay, broad expansion in Greater China and establishing operations in Saudi Arabia.
The National Payment Corporation of India’s (NPCI) United Payment Interface (UPI) payment rail is the most successful initiative of its kind globally, proof that government-led digital financial inclusion efforts can bear fruit when they are implemented well. In the second quarter of the year, UPI recorded over 17.4 billion transactions in volume and Rs 30.4 trillion in terms of value, up 118% and 98% respectively over the same period a year ago. While India remains UPI’s paramount market for now, the company is increasingly targeting global expansion.
Southeast Asian countries have for several years been interested in establishing a regional cross-border payments system. Full payments interoperability could be possible in Southeast Asia as early as November 2022, Fitch Solutions Risk and Industry Research said in a recent research note, citing comments made by Southeast Asian central bankers in July. Yet if we take a closer look, we find that the linkages are predominantly bilateral and there are still some kinks to be ironed out before a truly multilateral system of real-time retail payment rails can be established.
We remember a time, before China’s tech crackdown, when Ant Group seemed keen on building its own cross-border payments ecosystem in Southeast Asia. The Chinese fintech giant’s shopping spree took it to nearly every Asean country, while it has also rolled out wholly-owned digital banks in the Asian financial centers of Hong Kong and Singapore. Then, as now, the question was always how Ant could connect the disparate components of its non-mainland China ecosystem. If it cannot, the whole will never amount to a sum greater than the individual parts.
It has been a long time since we heard anything from Dana, the Indonesian Ant Group-backed e-wallet. In the past few years as many big Asian tech firms have invested in incumbent Indonesian banks, intending to refashion them as digital lenders, standalone e-wallets, lacking banking licenses, have been at a disadvantage. Yet Dana may be able to carve out a niche within the ecosystem of Alibaba and the local conglomerate Sinar Mas following the purchase by Lazada of US$304.5 million worth of its shares from existing shareholder Emtek Group and its receipt of a fresh US$250 million investment from Sinar Mas.
For the past few years, the biggest credit story in India has been buy now, pay later (BNPL). Tremendous demand for credit has driven the BNPL boom in the subcontinent, but tighter regulation and slower growth are both now inevitable. After all, you cannot act as a credit provider without being regulated like one forever. As BNPL slows down in India, there may be an opportunity for the overlooked – but better regulated and steadily growing – credit card segment to build market share.
Can you think of any Western fintech firms that are dominant in Asia Pacific? Somewhat dominant? Neither can we. That may be because the region has no shortage of homegrown fintech options, especially in the ultra-competitive payments segment. That is not deterring Stripe though. As one of the most valuable startups in history, the U.S. payments giant thinks big, and sees significant market opportunities across the APAC region, including through strategic partnerships.
Paytm is in high spirits. Its stock has risen 45% over the past three months, making it an outlier among fintechs. Paytm is even feeling pretty good about losing 6.44 billion rupees (US$81 million) in the first quarter of FY2023, an increase of 70% from a loss of 3.8 billion rupees a year earlier. Paytm attributed the higher loss to increased operating costs and said it is on track to reach operating profitability by the second quarter of the fiscal year.
Looking at the recent earnings statement of Australia’s Zip, we have to give the company credit for being able to put a positive spin on a troubled story. As a buy now, pay later (BNPL) firm that overextended itself, Zip now faces double trouble: a problematic business model and resources that are stretched too thin. But the fourth fiscal quarter earnings statement (April to June) highlights Zip’s revenue rising 27% year-on-year to AU$160.1 million and a 20% increase in transaction volume. Losses, however, represented 2.7% of the value of transactions.
India’s fintech unicorn club has a new member, the credit provider OneCard. In mid-July, OneCard announced it had raised US$100 million in fresh funding at a valuation of US$1.4 billion, nearly double its January valuation of US$750 million. Leading the round was Singapore’s Temasek. Other key participating investors existing backers QED, Sequoia Capital India and Hummingbird Ventures. To date, OneCard has raised US$225 million and says it has over 250,000 customers spending about US$60 million with its cards each month.
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India’s UPI real-time payments platform has achieved impressive growth since its inception just over six years ago, with expansion being especially turbo-charged during the long coronavirus pandemic. The acceleration of India’s overall digital economy over the past 2.5 years has helped UPI become the most dominant platform of its kind on the subcontinent and even begin nascent international expansion: to the UAE, Bhutan, Singapore, Nepal and now France. The question now is if UPI can build meaningful market share outside of its home country, where it enjoys some inherent advantages.
What goes up, must come down, especially in fintech. We know that buy now, pay later (BNPL) firms have grown organically at a torrid pace in India due to low credit card penetration and strong demand for credit products, and we also know they could not have grown so fast if they had been properly regulated. At the same time, there is a certain systemic financial risk that comes with the possibility of bad consumer debt accruing fast, a likely scenario when BNPL is allowed free rein. With that in mind, the Reserve Bank of India’s (RBI) recent decision to ban nonbanks from loading prepaid instruments (PPI) — digital wallets, or stored-value cards — using credit lines does not come as a big surprise.
Walmart-backed PhonePe is one of the most prominent payment firms in India. It holds the largest share of India’s paramount UPI payments platform of any company, with 47% of the market compared to Google Pay’s 34%. PhonePe says it has 380 million registered users, which means that one in four Indians use its services. The company also serves 30 million offline merchants. With pressure to achieve profitability increasing and investors eager for a successful exit, speculation is mounting about when PhonePe will decide to go public.
We would say that the gravy train has been derailed for Australia’s cash-incinerating buy now, pay later (BNPL) firms, but they may not be exactly right. After all, “gravy train” implies making easy money and most of these companies never made money in the first place – if our key metric is profitability. The problems for these firms are manifest, from intense competition – and especially the arrival of deep-pocketed incumbents and tech firms to the market – to looming regulation and widening losses.