This year the Asia-Pacific wide trend towards going cashless and achieving “Cashless Societies” seemed closer to reality than ever before. Over the past two years, momentum in the market had driven industry regulators to take positive steps in the right direction resulting in progress.
Government drivers and initiatives have been put into place. An increasing number of companies are going cashless. The pace is quickening but worryingly, there seems to be imbalance and misalignment. What we have is a host of companies cramming the market place with local first “me too” payment solutions but not a lot of companies working towards enabling 100% cashless.
Indeed, our much needed trump card has yet to arrive. There is still potential to disrupt the payments landscape and so much more that we as representatives of industry can achieve even with just a few minor tweaks.
I reiterate that if the end goal is to achieve “cashless societies”, which by definition means 100% cashless, industry focus needs to shift from e-money/credit/debit cards to mobile payments as an enabling solution. I concede only that it may take a while longer if enabling solutions need connectivity to become faster and cheaper, locally and globally.
Until now, key drivers have been the cost effective use of app solutions and developments in digital identities in a fragmented region developing at different paces. Indeed, if cash were one day completely removed from circulation, smartphones could be the common denominator across Asia-Pacific but only if connected (globally when required) and paired with solutions incorporating tokenization, biometrics and use of digital identities. The exception would be in countries where cards are mandated to replace cash but even the simple act of going cashless with cards will act as a catalyst for mobile payments.
Payment providers must think bigger
The real challenge we are facing today is the fact that cash is seen as a permanent payment option and that solution providers aren’t developing mobile payments solutions that truly disrupt the payments ecosystem. Most companies embark on local first campaigns taking solo approaches with few industry partnerships.
Payment solutions need a local flavor and presence with global acceptance (if required) in a similar manner to how banks have operated their cards business for over 20 years. There is not enough emphasis today on solutions that offer global acceptance while focusing on addressing local behavior, needs and preferences. The closest that we have is Alipay, which has global acceptance pinned down and has partnered for local presence. Unless we are in less developed markets where people are more home bound and travel less, this will continue to be a bottleneck for the payments industry. We need companies to think bigger, to think global.
There is also not enough of an emphasis on getting the fundamentals right. The one failing of the payments industry lies in getting the fundamentals right. After all, what would life be like today if cards were not limited to only a subset of the population? A critical success factor for a payment solution is product strategy. It is not just about having a ready convertible base. Getting the product strategy right would be key to achieving scale and achieving scale is critical to ensuring viability of a payments business model. Successful seamless, comprehensive solutions did not start from scratch, addressed a gap in the market, offered more than just payments, offered a clear value proposition and had the support of regulations for cross-border regional and global growth. It also incentivizes users in addition to making their life easier. This is where today’s “me too” payments solutions are not adequately addressing market needs.
Finding the right strategy
The right product strategy as well as regulatory and industry alignment, across Asia-Pacific and globally, will be critical for mobile payments to hit mainstream adoption. Today, there isn’t a universal, global alternative payment method accessible to all that can replace cash. Lessening dependence on cash can be expedited but drastic measures to replace cash can only take place if there were a universal, global alternative payment method accessible to all that can replace cash.
To achieve this, we need more global first solution providers and we need local first solutions providers to partner locally, regionally and globally with interoperability as a central theme while at the same time catering to local behavior, needs and preferences.
An interesting concept would be Alipay as a global merchant acquirer for a global e-money scheme. Indeed, some semblance of this concept is already alive in the form of TNG’s global e-wallet alliance - albeit with single partners in each market and through use of a common currency i.e. bitcoin, to reduce exchange risk for its users.
The use of mobile biometrics and addressing data protection will address inhibitions to use of mobile payments. Global drivers namely the implementation of General Data Protection Regulation (GDPR), the mandate to use stronger customer authentication via the revised payment system directive (PSD2) in Europe and Mastercard’s implementation of biometrics identification including fingerprint and facial recognition, by April 2019 for its customers will give Asia Pacific mobile payments the much needed boost.
Likewise, local drivers need to align globally. For example, Malaysia’s newly minted minimum standard for mobile payments needs to quickly align globally for it to be effective in replacing cash. With 5G all set to transform industry, our future ecosystem will become more and more intelligent and very much connected. There is tremendous potential for growth in the payments industry, particularly alongside the rapid growth of connected devices in Internet of Things but the solutions have to be cashless and mobile.
In summing up, the future mobile payments needs to be global first, interoperable and secure. Intentional or not, cash and cards are global solutions. Multiple global e-money schemes might be what the industry needs but for sure, we need to think bigger from now and start thinking global. It is not just the solutions that need to be global, connectivity too.
Quah Mei Lee is an Industry Principal at Frost & Sullivan