?? The Current State of Cashless Payments
This is the second edition of Monthly Asia News, which we started posting last month!
We will be delivering monthly curated news from our perspective as a cross-border investor operating in Japan, Indonesia, Vietnam, and India.
We will share hands-on information from local members in each country, as well as an overview of the current situation in the Asian market.
This month, we’ll cover "The Current State of Cashless Payments in Southeast Asia" and "Japanese HR Giant Mynavi's Active Investments in SEA and India".
Here we go!
The Current State of Cashless Payments in Southeast Asia
When you hear about payments in Southeast Asia, what comes to your mind?
You might think of things like "cashless payments are progressing" or "the possession rate of credit cards seems low."
As you know, Southeast Asia is one of the regions where the growth of digital payments is most promising in the future, attracting the keen interest of big players, including businesses from Japan and China. The payment landscape is rapidly evolving, not only with QR code payments that have advanced with the high penetration of smartphones but also with A2A (Account to Account) payments and BNPL (Buy Now Pay Later), which have been gaining attention in recent years.
Let's organize the digital payment environment in the Southeast Asia region and consider the outlook for the future.
Cash Payment Usage and E-commerce Payment Methods
First, let's look at the current usage rates of various payment methods and the characteristics of each country in Japan, Indonesia, Vietnam, and India (the graphs are quoted from the GPR (The Global Payment Report) 2023 by FIS ).
As you can see, in Japan, the majority of e-commerce payments are made via credit and digital wallet, while the majority of in-store payments are made via cash and credit.
In contrast, in Southeast Asia and India, the majority of e-commerce payments are made via digital wallet and A2A (Account to Account) payments, and the majority of in-store payments are made via cash and digital wallet (while this varies by country, we will generalize the trend across Southeast Asia for this discussion).
It is important to note that in India, the proportion of digital wallet payments is particularly high, thanks to the introduction of the Unified Payments Interface (UPI) led by the government.
Indeed, in emerging countries, the widespread use of smartphones before the establishment of various infrastructures has led to high usage rates of digital wallet.
Keen Attention on Cross-border Payments
Now that we've reviewed the current situation, let's see the "cross-border payments" that we’ve been hearing frequently in recent years.
In Southeast Asia, there is a move to promote financial integration across the entire region due to the active intra-regional movement and the purpose to increase global presence of the Southeast Asian market as a whole.
The ASEAN Economic Community (AEC) Blueprint 2025 , formulated in 2016, sets "a highly integrated economy" as one of its goals. Additionally, according to a JETRO column , the AEC Blueprint for 2026-2045 envisions "a seamlessly connected single market and production base."
The following table is quoted from a report by the Institute for International Monetary Affairs . As you can see, the realization of cross-border payments within Southeast Asia has progressed over the past decade.
The companies that are keenly interested in the financial integration movement within Southeast Asia include those from Japan and China. To build an integrated payment infrastructure with Southeast Asia, where market expansion continues, various companies are planning to enter the market.
For example, China's Tencent group's WeChat Pay and its competitor China's Alibaba group's Alipay are intensifying their efforts. In contrast, Japan's SoftBank group's PayPay is strengthening its collaboration with various payment companies, including the aforementioned Alipay.
Additionally, Japan's Ministry of Economy, Trade and Industry is promoting QR payment integration with ASEAN , aiming to enable QR payments across borders by 2025. The integration of payment interfaces with the Southeast Asian market is an important issue from a diplomatic perspective, as it counters China's increasing influence in Southeast Asia. While payment system advancements in Southeast Asia and China have been led by their governments, Japan, which was lagging, has finally started serious efforts, driven by the demand for payment solutions from inbound tourists.
So far, we have discussed the state of digital payments in various countries from a macro perspective. Now, we would like to look at three key points that you should be aware of.
Key Point 1: BNPL (Buy Now Pay Later)
The following diagram, provided by EUROMONITOR INTERNATIONAL, shows the size of the BNPL (Buy Now Pay Later) market in Southeast Asia. Many of you might think that it is not growing as much as you imagined.
The BNPL market is on the verge of entering a mature stage, and with major credit card companies like Visa already entering the market, it is expected that competition will intensify in the near future.
Measures to prevent over-indebtedness are being considered in Singapore, and in 2022, the Singapore FinTech Association began developing an industry framework .
Many current BNPL companies rely on fee revenue from partner merchants, and the recent rise in interest rates has increased borrowing costs, forcing a reorganization of their business models. For example, Indonesia's BNPL provider Kredivo Indonesia acquired Bank Bisnis through its parent company FinAccel in 2022 and started its own digital banking business .
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When considering the future of BNPL, it is necessary to move away from a business model that depends on fees and aim for the healthy development of the industry.
Key Point 2: A2A Payment
Have you heard the term "A2A payment," which has been attracting attention in recent years?
A2A (Account to Account) payments are a payment method that allows direct transfers from one user’s account to another’s without intermediaries, offering advantages such as lower fees for users, increased security, and the possibility of real-time payments. In emerging markets, the development of Fintech and the advancement of open banking, facilitated by the opening of bank APIs, have promoted the spread of A2A payments.
This payment method poses a threat to existing payment companies like VISA, and major international payment networks such as VISA have invested in A2A payment providers like Form3 and Tarabut Gateway. Recently, the adoption of A2A payments has rapidly expanded overseas, with significant progress in the P2B (Peer to Business) payment domain. Last May, WhatsApp enabled personal-to-business payments in Singapore , capturing public interest as an intriguing news story.
As mentioned earlier with BNPL, the trend of shrinking payment fees is expected to accelerate further, requiring payment providers to adopt forward-looking strategies. In India, where the government-led digital payment infrastructure UPI (Unified Payment Interface) is prevalent, Fintech players that cannot rely on payment fees are seeking new revenue sources.
PhonePe:
Paytm:
In emerging markets where A2A payments have become widespread, Fintech players are developing diverse revenue models that do not rely on payment fees, aiming for sustainable business. These initiatives represent strategic steps to adapt to the rapidly changing financial environment and continue to provide added value to customers.
Key Point 3: Sharia Finance
Finally, let's discuss Sharia finance.
By 2030, Muslims are predicted to make up about 26% of the world's population, and by 2100, they are expected to surpass Christianity to become the world's largest religion . As you know, Islam has its own unique set of rules under Sharia law.
According to a report on Sharia finance by Mitsubishi UFJ Trust and Banking Corporation , the main principles of Sharia finance include: (1) prohibition of interest (riba), (2) prohibition of speculative transactions (gharar), (3) prohibition of uncertain transactions (maisir), and (4) prohibition of haram activities. In the world of Sharia finance, financial transactions such as loans and investments are carried out through various schemes designed to comply with these principles.
However, despite the majority of the population in Indonesia being Muslim, the development of Sharia finance has struggled . There are many challenges to overcome, including a lack of experts, delayed digitalization, and the need to promote public understanding, which has hindered the rollout of services.
However, is there sufficient potential demand for Sharia finance?
Among Muslims, the extent to which they adhere to Sharia law varies from person to person. Currently, in major cities like Jakarta, religious devotion is relatively lower, while in rural areas, it is relatively higher. Generally, it is believed that younger generations are increasingly moving away from religion. However, since 2018, Indonesia has seen the spread of the Hijrah Movement, which calls for a lifestyle more in accordance with Sharia law .
Overall, considering the population growth in the Islamic world, it is safe to say that there is a solid demand for Islamic finance, as long as there is no dramatic decline in religious devotion.
Japanese HR Giant Mynavi invests actively in SEA and India
Japan's leading human resources company, Mynavi, is actively investing in and acquiring startups in Asia. In April this year, they acquired a majority stake in Awign , a company operating a job platform in India. Additionally, in May, they invested in WeCare247 , a provider of personal care services for the sick and elderly in Vietnam.
Mynavi has previously invested in and acquired various human resource services and healthcare services overseas. The background of these activities includes not only enhancing their presence in the HR industry in overseas markets but also addressing the structural factor of labor shortages due to Japan's declining birthrate and aging population.
In fact, there are over 10,000 workers in Vietnam's caregiving industry, of which about 2,000 are working under the Japan-Vietnam EPA (Economic Partnership Agreement). It is expected that the number of workers under the Japan-Vietnam EPA will continue to increase as an irreversible trend.
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