Author: Tronserve admin
Friday 30th July 2021 06:16 AM
Credit Cards Fall Behind in Asia's Race to Go Cashless
Credit cards are shedding out to e-payments as Asia rushes to go cashless, with users who are reluctant or unable to shoulder the high fees involving cards opting for mobile alternatives.
Credit card penetration continues at 10% or less in Thailand, Indonesia and Vietnam, while mobile payments are used by 47% to 67% of the population in those countries, according to data from the World Bank, Nomura and Japan's economy ministry. In China, where everyday transactions are generally carried out by smartphone, many people grow up without ever seeing a credit card.
As mobile payment operators continue wooing users and expanding services, credit cards may undertake an uphill battle to regain lost ground in the world's fastest-growing region. "U.S. credit card brands have developed payment networks over the last 30-40 years. But their networks are expensive to access, prompting other companies to develop less expensive and more convenient cashless payment platforms using mobile technology," said Yasuyuki Fuchida, an analyst at Nomura Institute of Capital Markets Research.
Credit card companies face some other headwind, as a growing volume of Asian governments work to develop their own payment platforms and prevent customer data from being transferred to the U.S.
India illustrates both challenges.
The government of Prime Minister Narendra Modi introduced India's own smartphone payment app, BHIM (pronounced "beam"), in 2016. The app allows money transfers between separate banks without going through Visa or MasterCard networks.
The Modi government also has implemented a draft policy requiring e-commerce companies and social media platforms to hold customer data within India. This policy is aspired at businesses like Walmart, which last year took majority control of Indian e-commerce company Flipkart. The Reserve Bank of India, the central bank, has additionally requested that Visa and MasterCard keep customer transaction data within India.
Cashless payments in India are controlled by mobile platforms such as BHIM; Ola Money, which is related with ride-hailing company Ola; and PayTM, affiliated with SoftBank Group. Visa and MasterCard have long been the prominent providers of payment networks for credit and debit card services, accumulating licensing fees from retailers and banks as well as from users in some cases. But now they are being challenged even in the Asian market where their foothold seemed most secure: Japan.
Among those challengers is PayPay, a mobile payment platform endorsed by Yahoo Japan and its parent, SoftBank Group's mobile unit. Seiei Takase, 59, who owns a restaurant in Kasama, a small city north of Tokyo, began accepting PayPay in April as the shop's only cashless payment option. The user opens an account with PayPay and deposits a certain amount of money, making purchases and payments by reading a Quick Response, or QR, code via smartphone. "It is easier to introduce than credit cards, and no fee is charged until October," Takase said. He recently started to use the app himself and has become a fan. "It's so good I just can't stop using it."
The app has 6.66 million users and is accepted by well over 500,000 merchants, according to Yahoo Japan. Generous promo campaigns, for instance 20% rebates on purchases for a set time, helped drive up these numbers. Unfortuitously for Visa and MasterCard, PayPay - like many other mobile payment options - doesn't depend upon on a credit card network for processing transactions.
Japan has hundreds of cash-only shops for mobile payments to tap. A review published in 2017 by the country's Ministry of Economy, Trade and Industry found that only 25% of small-scale restaurants, like for example cafeterias in major tourist spots, accept credit cards. The study even indicated that the 42% of business operators that do not accept credit card payments think the processing fees are too high.
Masayuki Yamamoto, chairman of Yamamoto International Consultants, notes that QR code payments are less expensive than credit cards for merchants in terms of fees and equipment installation costs. Though fees vary depending on each business operator and credit card brand, Yamamoto says credit card giants normally charge merchants 3.25% to 5% of the payment amount. Small-business operators are typically charged a higher rate. "QR code payment has made it easier for business operators to introduce cashless payment," Yamamoto said.
The switch to mobile payments isn't always smooth. Seven & i Holdings' new mobile payment service was compromised just days after its launch, dealing a blow to a key element of the Japanese convenience store operator's digital strategy. PayPay, too, was hit by a spate of unauthorized usage in December. Yet in spite of such setbacks, the Japanese government remains committed to its goal of having the country 40% cashless by the mid-2020s.
In China, the situation is quite different. Many people have never seen - let alone used - a credit card, as mobile platforms such as Alipay, offered by Alibaba Group Holding affiliate Ant Financial, and WeChat Pay, operated by Tencent Holdings, gained traction before credit cards had a chance to catch on. One strength of credit card companies has been their ability to operate across borders. Now Alipay looks to conquer that challenge, too.
"Today, Alipay is not only in China. We have 1 billion consumers altogether in Asia, and these numbers kept increasing drastically year on year," Eric Jing, CEO of Ant Financial Services Group, said during a conference held in Tokyo in May. "I think, every year, we can probably add 200 million more." According to Jing, over 300,000 merchants in Japan now accept Alipay, five times more than in August 2018. Jing stressed that all of Alipay's customers have the potential to become inbound consumers for Japan. "This [is an] area we can work together," he said.
In China itself, credit cards including Visa are usually accepted only in tourist-heavy areas, such as parts of Shanghai. Even China's own debit card system, UnionPay, has come under some pressure from the rise of mobile payments. UnionPay was started in 2002 by Chinese banks under an initiative by China's government. The system has introduced its own app, but Alipay remains far more popular with consumers as it provides a wide range of services including loans, financial investment, online shopping and ride-hailing.
In Indonesia, credit cards have made very little headway, and even card companies' dominance in debit card transaction processing is now under threat. The Indonesian central bank has debuted its own payment network, called the National Payment Gateway, and demands domestic banks to use the new network for local debit card transactions. Banks are in the process of converting Visa- and MasterCard-branded debit cards to comply with the new requirement.
And like in India, private mobile payment platforms are also catching on promptly. Go-Pay is run by Indonesian ride-hailing company Go-Jek, while Singaporean rival Grab offers GrabPay. Go-Pay and GrabPay users can deposit money into their account via bank transfer, at a convenience store or very likely through a cabdriver. And not like applying for a card from Visa or MasterCard, which were created by banks, app users don't need a bank account - just a smartphone.
Go-Jek and Grab started as ride-hailing platforms, but both now "aim at becoming leading players in payments across Southeast Asia," said Kaori Iwasaki, a senior economist at the Japan Research Institute.
Credit card operators are not sitting idle. Visa has launched a contactless card for small transactions, including rides on public transportation. The company also said in June that it will team with Line to connect the chat app operator's mobile payment platform with Visa’s global payment network. But in the case of competing in cashless payments, companies like Grab, Go-Jek and Alipay have one probably key advantage: They don't need to make money from their mobile payment operations. For them, mobile payments are merely an approach to attract users, to whom they can offer fee-based services such as investments, loans and insurance, Nomura's Fuchida said.
And while Asian mobile payment platforms are basically restricted to operating in their home markets, they are investing in other Asian countries, a possible sign that they expect rules on cross-border transactions to be relaxed eventually, according to some analysts. If those expectations developed to be a reality, then the battle between the likes of Alipay and Visa may be just getting started.
Source: NIKKEI ASIAN REVIEW