The future of Southeast Asia’s mobile wallets

China has long been a leader in the mobile economy, with strong fintech firms enabling almost ubiquitous cashless payments across the country. But in recent years, a new contender has cropped up to challenge the status quo: Southeast Asia.

With its robust economic growth and high smartphone penetration, the region has already outpaced China in embracing the mobile economy, driven largely by the rise of mobile wallets.

Thanks to a host of market players – such as ride-sharing startups, telecommunications companies, banks, remittance firms, and consumer fintech startups – traditionally cash-reliant as well as underbanked or unbanked people in Southeast Asia are gaining greater access to e-wallets, digital remittance, microloans, robo-advisors, and insurtech products via their smartphones.

The rise of mobile wallets

A report by Hootsuite and We Are Social reveals insights on Southeast Asia’s mobile banking reach:

1. Indonesia has the world’s highest mobile ecommerce penetration rate at 76%, beating out even China (74%).
2. Thailand leads in mobile banking penetration with 74%, edging out Sweden (71%), Turkey (68%), South Africa (68%), and South Korea (66%).
3. The percentage of internet users who pay for goods and services using mobile wallets in Thailand (47%), Malaysia (42%), the Philippines (40%), and Vietnam (39%) were higher than the global average of 37%.

These numbers aren’t surprising at all, says Joel Yarbrough, vice president of Asia Pacific at fintech solutions provider Rapyd and formerly the head of product at ride-hailing giant Grab. “An enormous wave of Southeast Asians are moving from the working to the middle class. They used to lack access to traditional banking and credit but are now turning to new digital channels that are democratizing financial access across the region,” he explains.

Tech in Asia also found that fintech players operate in a wider range of verticals now compared to 2015 – offering everything from e-wallets and digital payments for offline businesses to microlending, insurance, and loyalty services. While the top-funded fintech startups in 2015 hailed from Singapore, the picture was different in 2019: larger countries with high mobile penetration as well as unbanked and underbanked populations like Indonesia and Vietnam took the lead.

Mobile payments are on the rise in Southeast Asia / Image credit: Euromonitor International

This change indicates that the prominent driver of mobile wallets in the region is the rapid rise of smartphones and mobile networks. “Four years ago, we were still talking about subsidizing phones for [ride-hailing] drivers who were moving from their old mobile phones – or even none – to smartphones,” says Yarbrough. He adds that the quality of cell networks in markets like Vietnam, Indonesia, and Thailand have drastically improved, with better and more consistent service.

Trends in e-wallet applications

E-wallets are purported to be one of the key technologies that enable people to migrate from paper-based to digital payments over time. This migration usually begins with electronic bill payments: it’s a sensible way for e-wallet providers to acquire and lock in users, as paying for bills is an inconvenient, recurring activity.

Several e-wallets that provide top-up solutions for prepaid services or utility bill payments have sprouted in recent years. Consequently, this offering has become a given in all digital payments platforms and is no longer a differentiator.

For Yarbrough, the next wave of mobile wallet features will be in cross-border remittances and foreign exchange. And to execute these functions, e-wallets need to form partnerships with existing service providers.

“These more complex payments will help plug wallets into larger ecosystems, reduce consumer friction, and directly address stressful or emotionally painful issues – whether that’s moving funds overseas or caring for your family,” he explains.

Image credit: Straits Times

Another proof of this trend: more and more people in the ASEAN region are moving out of their home country for work. For instance, Singapore, Malaysia, and Thailand together take in 6.5 million migrants, typically lower-skilled workers seeking higher wages. Digital remittance services can benefit these people by reducing transaction fees and the time they spend queueing in remittance centers, while helping banks perform compliance checks like the know-your-customer process.

Yarbrough notes that there has been convergence in the space. “You see a collision where services come from very different starting points but are now converging on the same endpoint,” he explains. For example, e-wallet GrabPay recently announced the launch of its remittance service, while mobile app Revolut has also signaled its intent to roll out a “mobile banking alternative“. The two firms made these moves even if they traditionally operate in different sectors.

Challenges ahead

Given the growing competition in the e-wallet space, it’s important for players to be ready for headwinds and adjust appropriately.

For wallet operators, “there is a need to expand practical use cases by creating more ways of getting people to use e-wallets, such as paying in a store and online,” says Yarbrough. “Wallet QR codes can be more alienating than enabling to customers.”

Merchants, on the other hand, face the challenge of keeping up with the influx of digital wallets in the market. Those that don’t want to miss out on potential customers have to integrate several payment options at checkout.

Photo credit: Rapyd

These issues make the payment process fragmented and inconvenience both consumers (who can’t always use their preferred wallet) as well as retailers (which need to balance their books and lower costs).

Individually, each payment solution or service is complicated and absorbs resources. A single local payments network helps firms process transactions across Asia and around the world. As super apps or digital banks scale, a single cloud-based payments platform such as Rapyd can offer far better returns than developing a payment network internally.

According to Yarbrough, the current pace of change in digital payments “dwarfs any former precedent,” and the future of the sector will “match the fastest evolutionary pace ever recorded.”

There’s also a visible shift in the delivery of digital financial services, and it’s apparent that customers are setting the trends in the space. As e-wallet adoption grows, businesses – be they traditional players, ecommerce companies, small businesses, or international retailers – will need to embrace the evolution of payments by going digital or risk losing customers and getting left behind.

Rapyd’s fintech-as-a-service platform provides application programming interfaces that help businesses quickly integrate payments and fintech capabilities into their applications so that they can expand locally and internationally.

Find out more on Rapyd’s website.