The concept of mobile wallets is not entirely new or a recent innovation. Companies like PayPal have existed since 1999 and have worked hard to become a payment method of choice for many. There are numerous reasons as to why the concept of mobile wallets has not caught up to the speed of time, but is now accelerating. Google and Apple have also entered the field with their offerings, especially during the time of Near Field Communication (NFC), but even that has not been successful globally.
Driven by the COVID-19 Pandemic
It is no secret that when it comes to adopting new-age methods, other than China, many other Asian countries have been actively embarking on the operation. It took some serious efforts from the governing bodies or an actual global emergency to make it happen. The pandemic had a major impact on many Southeast Asian countries causing not only disruption but also a significant impact on card-based businesses.
The majority of the consumers shifted directly from cash payments to mobile wallet-based payments. A substantial amount of resources invested in the promotion of credit cards and similar payment models witnessed surging losses. That is not all; Buy Now Pay Later (BNPL), a credit card concept started to be widely used in mobile wallets and again hit card payment companies.
Today, consumers have been so attracted to mobile wallet-based payments that the latest Fintech offerings are now being funneled to consumers directly into their mobile wallets. The technological opportunity for finance organizations of targeting people individually via their phones provides a substantially higher ROI over any other marketing method. On the other hand, consumers can find all the financial tools and offerings at a single location, thus improving their convenience. This development profoundly impacts market dynamics and consumer habits, bringing millions within the network of a quasi-banking ecosystem across Southeast Asia.
Trends Witnessed in the Mobile Wallet-Based Payments Ecosystem
Boku, in one of its studies, found that Southeast Asia is set to have 2.6 billion users involving over $7 trillion worth of transactions by 2025, and Mastercard estimates that the wallets will contribute to the growth of the Gross Domestic Product (GDP) across Southeast Asia over the next half a decade owing to their active role in financial inclusion, push towards greater business efficiency through a low cash transaction model and boosting consumer spending. Such a strong forecast has also been supported by BCG research that predicted, if the current trends continue, the mobile wallet adoption rate will reach 89% of the urban population within the next three years.
While these are very positive numbers, even today, cash is king in most parts of Southeast Asia. A major reason for this is the economic and lifestyle diversity. Urban populations in these regions have migrated to cashless transactions, and hence readily adopted mobile wallets. The other section which works in agriculture, smaller businesses, etc., does even have a bank account.
Therefore, bringing the entire section within the gambit of financial institutions and then getting familiarized with cashless transactions is a long road ahead. However, industry experts are unfazed with this. They understand that going cashless is the future and everyone will be covered under it. this also presents the current scenario as a major opportunity.
What Factors Are Fueling The Growth of Mobile Wallets Across Southeast Asia?
- One of the main reason is smartphone penetration. The current smartphone penetration statistics in Southeast Asia are the highest after China and India.
- The massive cashless push from China is characterized by the rise of apps like Alipay and WeChat.
- The pandemic-induced disruptions have led to a significant push toward digitalization across every sector, including payments.
- The desperate search for an alternative to conventional banking systems in countries like Indonesia, the Philippines, Thailand, and Vietnam, where millions remain off the banking net.
- Heightened investors’ interest in the Southeast Asian mobile wallets sector and a trend for consolidation as big players enter the ASEAN market, targeting inorganic growth.
- A board-promotes digital banking across the region.
However, despite the significant tailwind, challenges persist for mobile wallet operators. These include: However, despite the significant tailwind, challenges persist for mobile wallet operators. These include:
- Driving a shift in consumer behavior to ensure more board-based adoption of their services across user personas and use cases.
- Improving customer loyalty and ensuring retention.
- Increasing the acceptance of mobile wallets as a mode of payment across sectors.
- Ensuring a settled market post the hype and aggressive acquisition strategy by the current crop of competition.
What Does the Future Store for the Southeast Asian Mobile Wallet Industry?
The future is not only in urban areas but also in rural areas. That is how the direction of mobile wallet penetration will be moving towards. This depends greatly on the opportunities to expand. Moreover, mobile wallets will certainly be more than just a tool for making cashless payments from your phone. The aim for every business is to make money, and just being a facilitator via a service is not going to bring in the revenues that will help the company reach breakeven against the heavy initial spending for consumer education and acquisition.
The solution is monetization. Eventually, all mobile wallets will move in that direction. Their exact direction will depend upon the individual strategies. But expect deep integration with other financial services (credit, lending, investments in global stocks, etc.), in-app shopping (utilities, commodities, fashion and tech, etc.), third-party services marketplaces, and more.
Furthermore, industry experts believe that the logical path for mobile wallet exclusive companies is to convert to full-time financial institutions such as banks. They have provided many services in collaboration with traditional banks as well as new banks. Hence, mobile wallet businesses would rather differentiate their customer service and convenience by bringing all the facilities at their fingertips. After all, this is a matter of specialized focus for mobile wallets, knowing well, how even though banks themselves can also create a mobile wallet, they probably would not as it would entail additional capital investment for creation, customer acquisition, and operations. Mobile Wallets have also recognized the importance of collaborating instead of competing to sustain in a highly competitive space. Hence, cross-compatibility has been enabled, where consumers can make payments between mobile wallets. An interesting case study to consider here is that of India. Post the demonetization and a major push toward digital payments, India introduced the UPI which allowed them to simplify the entire app-based and mobile wallets-based payments. This provided us to leverage even during the pandemic since transactions and spending were not hampered much as compared to Southeast Asian countries.
Mobile wallets have gone from a pure convenience-based idea to becoming a necessity for many. The journey has not been easy given the need for robust infrastructure and all security measures in place, but consumer adoption, albeit influenced by the pandemic, has been overwhelming. Today, they have not limited themselves to payment facilitators, but are redefining the entire landscape to be a marketplace. This shift is why Southeast Asia is witnessing a paradigm shift in consumerism, mainly driven by mobile wallets.
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