China’s e-wallet success is an example for Southeast Asia players

Even as Southeast Asia’s ecommerce market heats up, consumers across the region still prefer cash over e-wallets.

Cash on delivery accounted for more than two-thirds of digital purchases in Indonesia in 2017, while credit cards were used for about 20 percent of purchases, according to a report by eMarketer. In 2016, non-cash payments in Indonesia and the Philippines only accounted for 30 percent and 24 percent of transactions, respectively, an Oliver Wyman report shows. Mobile payments were about 0.1 percent or less for both.

Photo credit: Ant Financial

Southeast Asia’s slow adoption of e-wallets may seem odd, given that its neighbor China has perhaps the most robust mobile payments sector in the world. Tech giants Alibaba and Tencent have dominated the field with Alipay and WeChat Pay.

In some ways, the success of e-wallets in China highlights aspects of the Chinese market that would be difficult to recreate elsewhere. But Southeast Asia can pick up some lessons if it hopes to push consumers towards a cash-free world.

1. China’s e-wallet duopoly reaps network effects

After launching Alipay in 2004, Alibaba had a virtual monopoly on China’s e-wallet market for years. Enter Tencent’s WeChat Pay in 2013, and the market really heated up.

As the archrivals went head-to-head to solidify their platforms in the growing consumption economy, other competitors were largely locked out. China got Apple Pay in 2016, but consumers had little reason to be excited about it.

Alibaba and Tencent now control 92 percent of China’s mobile payments market, according to Mary Meeker’s Internet Trends 2018 report from Kleiner Perkins.

While Chinese consumers know they can get virtually anything they want using Alipay or WeChat Pay, options aren’t so simple in surrounding countries.

There are a number of local and regional players in Southeast Asia’s various markets, where the e-wallet race has attracted an eclectic mix of companies.

Two ride-hailing services have their own payment platforms: Indonesia’s Go-Jek has Go-Pay and Singapore’s Grab has GrabPay. Malaysia alone reportedly has 40 e-wallet providers, while Singapore has 27. Vietnam and the Philippines also have their own homegrown solutions.

Having so many options can make it difficult for consumers to choose. However, both Alibaba and Tencent benefited from network effects that gave consumers a reason to use their mobile payment platforms in the first place.

2. Alibaba and Tencent hooked consumers early

Alipay began as a payment platform for Alibaba’s Taobao, China’s largest ecommerce marketplace. By the time it was competing with WeChat Pay, it still enjoyed first-mover advantage. At present, Alipay accounts for 54 percent of mobile payments in the country.

Tencent was able to push its way into mobile payments because it controls WeChat, the largest social network in China. When WeChat added an e-wallet, it became simple for people to send money to all the friends and family members that they were already connected with on the app. Rolling out the red envelopes feature for Chinese New Year in 2014 popularized WeChat Pay by mimicking the age-old tradition of giving physical red envelopes with money inside as gifts.

3. Alibaba and Tencent got the merchants onboard

Going their own way