Asia-Pacific’s e-commerce boom has given rise to a vibrant digital payments landscape, yet the race for attention and customer retention is bleeding companies dry. To sustainably realize our cashless future, payment providers must learn to embrace their “frenemies”.
The region is on a giddying growth trajectory. By 2025, digital payments in Southeast Asia are projected to cross US$1 trillion in transactional value. High smartphone adoption and accessible digital wallets empower underbanked populations to shop online. Meanwhile, convenient use, reward systems and potential savings encourage cash-free payments offline.
Competition for digital payments flourishes in these circumstances. Malaysia’s central bank lists 47 e-money issuers in the nation, accounting for 13.8 billion Malaysian ringgit ($3.3 billion) worth of transactions in the January-October 2019 period. International giants such as Alipay and WeChat Pay import their expertise from a mature Chinese ecosystem, while local players rise to the challenge with branding, marketing and investor-lined pockets.
But having deep pockets doesn’t necessarily translate into a winning strategy. It’ll give companies the legs to outrun a saturated market — where mergers, acquisitions and closures are inevitable — but it won’t shield them from the pressures of rapid scaling and its associated costs.
A few weeks back, Lippo Group divested a 70 percent stake in OVO, one of two dominant e-wallet providers in Indonesia, after reportedly burning $50 million a month on it. The country’s playing field already resembles that of Africa and China, where the e-wallet fight has boiled down to the last two companies standing — it’s a situation just shy of breaching antitrust laws. A DS Research report states that OVO commands greater awareness (99.5 percent), yet more respondents were using competing GoPay instead (83.3 percent). That in itself reverses an earlier study where OVO was in the lead, reflective of the ongoing cashless tug-of-war.
Losses are stacking up in burgeoning markets. The Philippines is on the cusp of rapid cash-free adoption, with beneficial conditions and fresh legislation put in place. However, e-wallets such as GCash and PayMaya have already burned through millions of dollars on incentive and reward programs. Elsewhere, Vietnam’s MoMo has similarly dropped millions on promotional campaigns. It’s a never-ending cycle of loss-making incentives built on appealing to consumer habits and expectations.
Such approaches mirror e-commerce, ride-hailing and other businesses — dump money to build infrastructure and a loyal user base, only to reap the rewards after — but is it really the best way forward considering OVO’s turn of events? How long can a battle of incentives last, when the end result is merely users that flock to wherever the better deals are? Let us not forget the incumbent financial institutions who are investing significantly in technology to stave off fintech dominance.
There is no silver bullet for growing an e-wallet business sustainably, but players can preserve their fighting chances through collaboration. By viewing their direct competitors as frenemies, not as opponents to crush at all costs, e-wallet providers can increase their brand value through better user experiences. After all, accessibility and convenience are critical to the digital payments wave.
The idea of being frenemies, or “coopetition”, isn’t rare in the business world. It reduces the incessant rush for new features despite them not being market-ready. It also pools knowledge, distributes risk, and culls wasted research and development. Ford and Toyota joined forces to build a hybrid truck system. Samsung supplies screens, while Sony provides phone camera tech to Apple’s smartphones. And this year, Microsoft and Sony agreed to collaborate on cloud solutions for game and content streaming.
A significant challenge facing any fintech company breaking into Asia-Pacific is penetration. The region is home to plenty of successful local payment platforms that service unique needs, spread across territories differentiated by language, cultural habits and spending power — sometimes within the same country. The conventional approach is money: buying out a smaller provider to swiftly capture market share. Should this not work, payment providers may look at mergers to create greater economies of scale. Yet doing so presents its own set of risks and challenges, bringing us back to the old conundrum of companies spending too much, growing too fast and puttering out when they exhaust all their capital.
The better answer lies in strategic partnerships that optimize spend, utilize existing groundwork, and promote innovation with customers in mind. Platforms such as PPRO serve that need by connecting businesses with over 150 local payment methods on one platform, simplifying how international and domestic digital payments are processed. For Asia, it quickly opens the global door to giants such as Alipay, GrabPay and WeChat.
Coopetition works with legacy payment systems too. In October, GrabPay partnered with Mastercard to launch a numberless card in Singapore, with a Philippines launch coming in early 2020. It can facilitate secure e-wallet transactions with nearly 53 million merchants worldwide, building a compelling use case for travellers shuttling around the region. The partnership has thus enabled Grab to sharpen its ability to carve a larger volume of digital payments across countries.
As more winners and challengers emerge from Asia-Pacific’s cashless transformation, this collaborative approach is increasingly necessary for fintech’s success and stability. The differentiating factor then becomes how they improve the digital payments ecosystem and push us all forward. A landscape as diverse as Southeast Asia presents many opportunities to do so. For the unbanked, providers can work with governments to responsibly introduce digital payments. The underbanked can expect exciting new ways of mobile-savvy accessibility. For the banked audiences, they can supply more reasons to ditch ATMs and card-based payments in favour of e-wallets.
Promotional campaigns may attract users and their merchants, but it’s not enough to convince them to stay. Partnerships that develop long-term customer value will. The question of whether a payment provider can grow sustainably then hinges on their ability to address current or future challenges, not the depth of their pockets. For if promotions and discounts are all that a payments service can offer, then there’s no stopping the exodus when those incentives finally run out.
Global head of payment networks at PPRO
Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.