The number of players in the eWallet and ePayments industry has been steadily increasing across Southeast Asia, with platforms coming from different backgrounds ranging from banking/finance to telecoms and Government. We attribute this to the rise of digital networks and growing popularity of smartphones, supported by a wave of innovation and an injection of VC money. However, adoption and usage rates vary extensively across different countries, as seen in Exhibit 1:
Regional players therefore face a conundrum: leaving population size differences aside, developed markets like Singapore are axiomatically going to be more lucrative: higher incomes encourage higher spending volumes, which translates to higher transaction fees for eWallet platforms, but low adoption rates mean that the bulk of these fees go to established incumbents like credit card companies. However, the question remains – why are adoption rates so different across SEA? Apart from convenience (handling paper money and coins is obviously less convenient than tapping a button), we have identified several drivers of and barriers to adoption: We have identified various drivers of Adoption Some drivers arise due to the unique circumstances faced by consumers in developing countries, and may affect the popularity of eWallets as countries develop: Safety and Security Crime rates tend to be higher in developing countries; carrying cash and cards are perceived as less safe. Mobile wallets are seen as a more attractive alternative – people have to carry their mobiles anyway, but they can reduce risk by not carrying cash in addition to their mobiles. Banking the Unbanked Developing countries tend to have more unbanked/underbanked consumers, who do not have access to credit / debit cards. On the other hand, smartphone penetration rate is relatively high across most countries – mobile wallets are again attractive ‘pseudo cards’ for those with no access to such facilities. Of course, some drivers are common across all countries: Discounts for using eWallets New eWallet platforms tend to use discounts as a consumer acquisition strategy, heavily subsiding spending at popular stores; discounts appeal to everyone Network effects As eWallets become more prevalent, they become the de-facto currency, preferred even over cash. China is a key example: WeChat and Alipay are accepted almost everywhere, to the extent that even panhandlers accept these eWallets. We have also identified a set of barriers that hampers mass adoption: Lack of awareness eWallets may not be properly marketed to the masses – consumers are unaware of the benefits and use cases, and thus decide to stick with tried-and-tested methods of payment. Lack of utility Some eWallets are implemented to ‘keep up with the Joneses’ – they do not actually have much utility over cash / cards (and may in fact be a hindrance), and therefore do not see much use. Lack of acceptance Merchants may not be willing to accept eWallets as a method of payment, which obviously stunts adoption rates Security concerns Security and privacy are growing increasingly important to consumers. The potential for an eWallet being hacked or for a security breach to occur is too great for some to stomach. Although some of these drivers are unique to developing countries, eWallets should capitalise on them while it remains possible to do so, and leverage on an established userbase as the country transits towards ‘developed’ status. At the same time, eWallets must also seek to overcome consumer perceptions / technophobia, both in developed and developing countries, in order to become widely accepted. Pioneer Consulting APAC has authored a comprehensive report on digital banking and eWallets in Dec 2019. Check it out here!