SE Asia Turns to QR Digital Wallets, Ditches Cash, and Cares Less About Cards
SE Asia is making the "cashless" leap just like China did.
Southeast Asia is transitioning, with digital wallets taking over from cash payments at an alarming rate! (see below).
What makes this transition so interesting is that SE Asia is leaving cards, favored by the West, out in the cold. Watch as the world is divided between card payments in the West and QR digital wallets in Asia!
Who do you think will get better payments?
Cash use throughout SE Asia continues its decline. Cash use dropped 40-50% during this period depending on the country.
👉TAKEAWAYS:
#1. Cash still plays a pivotal role in POS payments
Cash use is declining throughout SE Asia, though it still plays an important role. While the report calls this a “parallel rather than a replacement trend” I see the gradual decline in cash as unstoppable and part of going “cashless,” just as it was in neighboring China.
#2. eCommerce growth continues to drive digital wallet adoption
eCommerce is aspirational, in that it brings goods and services to people who never had access to them before. This is a driver for wallet adoption. Who would want to be left out?
#3. Consumer loyalty to digital wallets remains low but an ecosystem approach can help address this
There is no wallet loyalty and across SE Asia, rewards such as cashback and points drive digital wallet usage. As to the ecosystem, this is why many digital wallets are trying to build superapps.
#4. Sachet / micro-payments economy spending habits influence features in payment and financial services
A sachet economy refers to the practice of buying small packets of shampoo and soap to keep costs down. Digital wallets in mirror this by having no minimum top-up and allowing micro-payments.
👊STRAIGHT TALK👊
SE Asia is transitioning to QR-code payment should come as a surprise to no one. What is a surprise is how fast it is occurring with cash use dropping some 40-50% between 2017 and 2022.
Let’s make it clear what is at play here. Traditional financial services in SE Asia left the majority of people in poorer nations unbanked. This is why most of the region could care less about cards. What they do care about is making their life better, and a cellphone with digital payments and savings can do that.
To most of the newer mobile payment users in SE Asia, their cellphone is the first time they have ever used digital payment or had any financial service provided to them. This isn’t unique, it is a repeat performance of China’s rural poor adoption of mobile payment. Sure the nations are different but being poor and unbanked isn’t.
One major difference between China and SE Asia digital wallets is that so far in SE Asia BNPL is the primary form of lending. SE Asia has not yet adopted the big data underwriting pioneered by Alipay. Underwritten credit generally represents a better deal for the borrower and I wouldn’t be surprised to see one of the bigger SE Asian digital wallets roll it out.
Watch as the world is split between a card-based West and a digital wallet-based Asia!
Which do you think will be better served for payments?
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Well, is not much clear to me the real advantage of digital wallet vs card (except for the merchant that pays lower interchange fees)
If a client is not eligible for a charge card, he\she can always get a debit card which works exactly as a standard card, accepted worldwide, reliable, etc…with the only difference that must be charged at first
A digital wallet works like a debit card in the sense that the wallet must be charged… unless… the digital wallet issuer or the bank or any other entity takes the credit risk (i.e.: for the BNPL)… but to take the risk the client needs to be assessed and if he\she is not eligible for a charge card is also not eligible for a BNPL
So to cut the story short, looks like to me that a digital wallet only brings benefit to merchants as, we know, they will pay a lower acquiring fee… this is the reason why in Italy all merchants push the client to pay with Satispay (now on the hype in our country) … nothing else
This whole story of BNPL reminds me the 2007\2008 subprime scandal… if you grant money to people who are not eligible sooner or later it will come back to you in the shape of a gigantic sh.t-storm!
Love this Rich. I feel like SEA isn't talked about enough.
It's like the region is skipping the card/cash stage and going straight for the digital wallet, but is maybe running before it can walk? I worry that it might end badly, especially if it becomes a gold rush for predatory companies.
I wrote a white paper on this exact effect against the forex industry, if you find it useful let me know!
https://www2.paysafe.com/l/929453/2023-09-19/km6h6/929453/1695138312FZikDqZs/Whitepaper_Paysafe_Retail_forex_development_in_Southeast_Asia.pdf