Daniel Kornitzer will be speaking about fighting payments fraud at Money 2020 Asia in Singapore on Tuesday, March 13 at 15.30. Find out more here.
While Europe and North America discuss the inevitability of a cashless future and speculate about what it could look like, large swathes of Asia-Pacific are already there.
In China, people don’t ask merchants if they take card payments. They ask them if they take WeChat or Alipay. South Koreans can make bank transfers using Samsung Pay. And, even in traditionally cash-loving India, mobile wallet transactions more than doubled in value between 2016 and 2017.
Advanced infrastructure and some of the highest digital payment adoption rates in the world have placed Asia-Pacific at the leading edge of the market. So what are the key trends that are shaping the future of digital payments in the region? And how could they influence the landscape in other parts of the world?
By 2021, 200 million Chinese citizens will travel abroad. And the vast majority will insist on paying using their favourite mobile wallet. We can therefore expect WeChat and Alipay, which together handle 94% of China’s US$5 trillion mobile wallet transactions, to become more widely available throughout the West.
Case in point, last August Caesars Entertainment became the first operator on the Las Vegas strip to accept WeChat. By their own admission, their inability to accept this preferred payment option was leading to lost sales from Chinese tourists, which make up a big part of their business.
WeChat and Alipay also set their sights on other regions throughout 2017. WeChat inked a deal that will see it accepted by merchants across Europe. And Alipay, which has had a European presence since 2016, launched in Australia and South Africa.
As China’s outbound tourism market continues to grow, it will be critical for more Western economies to start accepting WeChat and Alipay. A country’s ability to accept these forms of payment could well start impacting the volume of tourists they get.
That said, while Chinese tourists will continue helping WeChat and Alipay enter new markets, whether this expanding global presence will also drive adoption amongst the local customer base remains to be seen. So far, both companies’ efforts to win market share outside of mainland China have been hit or miss, despite big ambitions and a huge marketing push.
Beyond mobile wallets: smiles, selfies and hands-free payments
Chinese fintech companies — and other companies in the Asia-Pacific region — are also pushing ahead with innovations that could eliminate the need for a smartphone at payment stage.
Alipay made headlines when it trialled “smile to pay” at a KFC in the Chinese city of Hangzhou. Once signed up to the app, the system uses facial recognition and a “liveness detector” to authorise payments without the need to scan a phone. Similarly, HSBC has enabled mobile payments using selfie technology, in which users can make payment by blinking at their phone’s camera.
Less sensational but equally impressive is South Korea’s TPay, which leverages mobile carrier data to authorise payments of up to US$435 a month without the need for any financial details. The app communicates with point of sale units using bluetooth technology, allowing consumers to pay without having to touch their phones. A 7-Eleven outlet is also testing payments using palm-vein authentication technology.
In the West, we’re also seeing a wave of innovation in biometric payments such as the London Costcutter store that recently trialled finger-vein pattern authentication. However, these innovations are opening a Pandora’s Box of privacy and security issues. For many consumers, the prospect of giving up their biometric data raises the spectre of Big Brother and intrusive mass surveillance. And while you can replace a lost or stolen card, what happens if someone steals your fingerprint?
The growing currency of QR Codes
Invented in Japan and popularised by WeChat and Alipay, QR codes are so popular in China that Union Pay, the state-controlled card payments monopoly, has had to launch its own QR code e-wallet. Similarly, in Singapore, a consortium which includes MasterCard, Diners Club and Union Pay is working on an interoperable framework that’ll allow merchants to accept payments via QR codes from both local and international cards and digital wallets.
In India, the Bharat QR Code is considered the world’s first inter-operable payment acceptance solution according to the Reserve Bank of India (RBI). Bharat QR code aims at standardising the QR code payment method through the country. Payment networks such as MasterCard, American Express and Visa have collaborated with National Payment Corporation of India (NPCI) to launch and promote the Bharat QR payment method.
Apple recently added QR support to its built-in camera, which means it’s no longer necessary to download a third party app to read them. And, in July 2017, EMVCo, an association that facilitates worldwide interoperability standards, released one of the first globally interoperable technical solutions for QR code payment.
QR codes have yet to gain traction in Europe and North America. However, this may change in the coming years as companies including Facebook, Pinterest and Danske Bank’s MobilePay app — Denmark’s second most popular mobile payment app — are also now experimenting with QR codes.
Making cashless pay: demonetisation and other incentives
One of the more unique features of the Asia-Pacific payments landscape is that governments are actively pursuing policies that incentivise cashless payments.
In 2016, India made 500 and 1000 rupee notes illegal — a move that single-handedly took 86% of the country’s physical cash out of circulation. The government also launched a series of other initiatives, including discounts of up to 10% on payments made via digital wallets.
South Korea, which is aiming to go completely cashless by 2020, has also adopted a similar albeit less drastic policy. Their plan involves phasing out coins by giving shoppers who pay in cash a prepaid card instead of change.
In the UK, US and Canada, we’re yet to see such government policies and regulations gain ground, probably because, as our own research shows consumers are the main driving force behind the adoption of digital payment methods. That said, in the UK the £30 limit on Apple Pay and Android Pay transactions has recently been lifted but retained for contactless card payments. It remains to be seen if this provides mobile wallets with an advantage over card payment options.
The Asia-Pacific payments landscape opens a window onto an increasingly fast-moving future. One in which physical notes and coins are a thing of the past, and where payment can be made automatically and effortlessly without the need to even take a device out of our pocket.
But while these developments may — and to some extent will — influence the way we pay on a global scale, divergence is inevitable and, indeed, necessary. Ultimately, payments are like languages. And what’s working in China, South Korea and other countries in Asia-Pacific won’t necessarily work everywhere else.