Across the Asia-Pacific region, governments and regulators are already implementing new strategies to digitise their economies and boost social inclusion. Faster payment networks are spreading, facilitating the adoption of mobile payments and the development of open banking. With mobile payment infrastructure and services already embedded in major economies, Asia-Pacific banks are looking to the next challenge. Digital technology regulations lag other regions but are under review (37% of respondents believe that emerging data regulation will have a major impact on the banking sector) as Asia looks to modernise, diversify and dilute its dependence on international trade.
The race is on
In markets where mobile payments have already taken root, banks and payment processors are battling tech companies on two fronts. They are working to retain their own retail card and current-account customers and attract new users to their apps and e-wallets. They also need to get and keep merchants on their side if they are to reap the economies of scale from a high-volume, low-margin sector.
Competition is intensifying between payment solutions based on application programming interfaces (APIs) and pre-loaded and credit card e-wallets. That may explain why survey respondents see an immediate need to master digital engagement and marketing (37% for 2020) to pull in users and merchants. They also need to be able to respond quickly when Alipay, WeChat Pay, Google and WhatsApp introduce new features (31% for 2020).
In India, app providers are already offering cashbacks, discount vouchers and other features to gain and retain market share. This may leave the smaller players vulnerable, particularly when all that is required to switch services is downloading an app. It is therefore likely that consolidation of this sector will follow. As Vijay Shekhar Sharma, founder and chief executive of Paytm, has pointed out, payments are merely the moat around other, more profitable services. The players with deep pockets will outlive their weaker competitors.
The Monetary Authority of Singapore was met with similar concerns that disruptors would leave the banks unprofitable when it first suggested the introduction of open banking. When the regulator pointed out that tech and fintech firms could already offer faster, simpler and cheaper transaction services, the banks agreed to collaborate on upgrading the banking system, providing all stakeholders operated within the same regulatory environment.
Singapore is set to follow Hong Kong with virtual bank licences; ride-hailing app giant Grab is likely to be among the first applicants. That may worry established banks, but the question remains whether the big tech providers have the capacity to tie up capital in establishing their own bank operations. It is also not clear if they really want to expose themselves to the reputational risks that service interruptions or bad service present if they are the sole provider of such services. Grab already offers loans through a Japanese bank and recently signed up with Citibank to offer branded credit cards.2 If either of those services fail to deliver to consumers, the banks, not Grab, face the wrath of consumers and regulatory authorities.
Yet all Asian regulators are acutely aware of how Alipay and WeChat Pay were able to create an effective duopoly in an unregulated market. Chinese authorities are now bringing in new laws to level the playing field. Other authorities want to lay down the rules first, before such corrective action needs to be taken. As a result, the Chinese payment giants may find new markets tougher to crack when they must operate under tighter licensing and data protection rules.
As Steve Weston, co-founder of Australia’s Volt Bank, says of the Australian Prudential Regulation Authority: “The regulators are focused on ensuring that all banks, including new entrants, are operating in a prudent manner.”
