Asia Pacific Is the Engine of the World’s Cashless Payments Future Growth, Fueled by These Four Key Payments Trends

Asia Pacific Is the Engine of the World’s Cashless Payments Future Growth, Fueled by These Four Key Payments Trends

by November 10, 2022

Two years on from the digitalisation spree spurred on by the COVID-19 pandemic, Asia Pacific’s burgeoning digital payments market continues to grow. The embrace of mobile money, e-wallets, and QR codes by consumers, businesses, and regulators alike means the region will be exploring newer payments trends in-depth in 2023 and beyond.

PwC sees global cashless payment volumes increasing by more than 80% to almost 1.9 trillion transactions by 2025. Asia Pacific is forecasted to account for the bulk of this growth spurt, with 1.03 trillion transactions by 2025, up 109% from 494 billion transactions in 2020.

Number of cashless transactions in billions

Cashless transaction volume will more than double by 2030 , PWC

Certain jurisdictions, like Vietnam, are spurred on by regulator support. In November 2021, the Vietnamese government approved a project on the development of cashless payment in the 2021-2025 period. To help promote cashless payments in public services, The National Payment Corporation of Vietnam (NAPAS) has connected payment infrastructure between 45 localities and 15 ministries, departments, and agencies that provide public services.

With expected slower global growth forecasted in the coming years, picking the right verticals that align with payments providers’ business goals is vital to success and survival. Here are four key trends that will shape the Asia Pacific payments space in 2023 and 2024: cross-border payments, digital currencies, buy now, pay later (BNPL), and the rise of neobanks.

Investments in instant cross-border settlements

Regulators and payments players alike in Asia Pacific are reinventing cross-border payments, driven by consumers’ demand for instant, low-cost payments.

While PwC expects global payments standardisation to enable cross-border connectivity of domestic instant solutions, regional solutions and global nonbank solutions based on cryptocurrency and digital wallets are emerging to address the payments gap.

Within Southeast Asia, regulators are making efforts to create cross-border linkages, inking a number of bilateral and multilateral arrangements. These include memorandum of understanding (MoU) signed between Southeast Asian payments system operators NETS, PayNet, as well as National ITMX (ITMX) of Thailand, Vietnam’s NAPAS and PT Rintis Sejahtera (Rintis) of Indonesia, to enable real-time cross-border payments by connecting their respective payments infrastructures.

These operators are members of the Asian Payment Network (APN), which is envisioned to begin in ASEAN countries and eventually grow to include more nations across Asia Pacific.

Fintechs and apps themselves are tying up with infrastructure providers to support their cross-border ambitions. In September 2022, Vietnamese e-commerce platform player Buy2Sell partnered with Mastercard to enable multiple payment types via single connection. Tinkoff, one of the world’s largest digital-only banks serving 18.5 million customers, selected Finastra Fusion Essence Cloud core banking solution to power its planned expansion into the Philippines.

Regulators embrace digital currencies

With the accelerated digitalization brought on by COVID-19 lockdowns, central banks in Asia Pacific have been exploring issuing digital tokens that are pegged to their own fiat money. These are called central bank digital currencies (CBDCs): digital dollars that have the same value as cash or paper dollars.

There are two types of CBDCs: wholesale and retail. Wholesale CBDCs are intended for the settlement of interbank transfers and related wholesale transactions. They serve the same purpose as reserves held at the central bank but with additional functionality.

Meanwhile, retail CBDCs make central bank digital money available to the general public, just as cash is available to the general public as a direct claim on the central bank.

In June 2022, Japanese fintech Soramitsu and the Japanese Ministry of Economic Trade and Industry were conducting a feasibility study on introducing a CBDC across the Asia Pacific region. The project involves the central banks of Vietnam, Fiji, and the Philippines. Soramitsu had previously built Cambodia’s CBDC, bakong.

Separately, the State Bank of Vietnam is carrying out a pilot implementation for cryptocurrency based on blockchain in the 2021-2023 period. This follows an April 2020 decision by the Ministry of Finance to study virtual assets and cryptocurrencies.

China became the world’s first major economy to pilot a digital currency (e-yuan or e-CNY) in the middle of the pandemic in April 2020. As of September 2022, e-CNY boasts over 1.2 billion users.

Meanwhile, the Reserve Bank of India (RBI) is set to pilot the e-rupee digital currency. In an October 2022 concept note, the e-rupee CBDC will be released in two forms: wholesale for interbank settlements and retail for the public.

More trust in BNPL

Mastercard’s New Payments Index (NPI) published in August 2022, found that Asia Pacific is ahead of the curve with BNPL, as 50% of consumers across the region are comfortable using BNPL.

Asia Pacific consumers typically tap on BNPL offerings for their low/no interest payments, in times of emergency and when they want to expedite bigger purchases. Looking ahead, 55% of the region’s consumers are likely to use BNPL in 2021.

The region is home to one of the world’s largest BNPL players in Australia’s Afterpay (acquired by Square for $29 billion), as well as India’s Pine Labs ($7 billion valuation), Japan’s Paidy (acquired by Paypal for $2.7 billion), Singapore’s Atome ($2 billion valuation), and Indonesia’s Akulaku ($1 billion).

Even brick-and-mortar businesses have been drawn to the BNPL game. In Vietnam, consumer finance company Home Credit plans to invest VND200 billion (US$8.35 million) into building its own BNPL service.

However, while consumer demand is high, BNPL firms are typically running on a loss. An April 2022 report projects that the region’s BNPL players will face a combined loss of US$5.2 billion by 2025.

Mastercard New Payments Index

Mastercard New Payments Index 2022

Neobanks and super apps ramping up

A January 2022 report found that Asia Pacific was home to 68 neobanks – that number has definitely grown now. India leads the region with 14 neobanks, with Hong Kong boasting 12. Conversely, China, which claims 220 million neobank customers, is only home to four neobanks.

At the same time, more Asia Pacific super apps are wading into the neobanking and digital banking space.

In Vietnam where there isn’t a separate licensing regime, aspiring digital banks have to either partner with or function as a unit of licensed incumbent banks. That is the route taken by unicorn and super app MoMo, which bought a 49% stake in Credit Viet Securities in June 2022. Other local digital banks include Timo and TNEX.

As the Asia Pacific payments space continues to grow, banks and fintechs alike need a flexible infrastructure solution that can fulfil all their payment hub needs, while accelerating cross-border payments, accepting digital currencies, and delivering new, innovative solutions via a modern API-enabled architecture.

Finastra’s Fusion Global PAYplus (Fusion GPP) is a payment hub solution that helps payments providers respond to market challenges while maintaining compliance, being responsive to change, and catalysing their payments transformation. It offers the deepest suite of payment services — spanning high-value payments, mass payments with immediate payments and alternative payments rails such as Visa-Direct — in a single solution.

Based on a modern API- and microservice-enabled platform with an ISO20022 native data model, Fusion GPP can be easily, quickly and predictably integrated with a financial institution’s existing technology infrastructure, enabling consolidation of silos of legacy payment operations into a single platform that can be deployed globally yet controlled locally— thus reducing risks, simplifying administration, and reducing operating costs.


Featured image credit: Edited from Freepik