Everything is Commerce in Asia Pacific for 2016
Black Friday, Singles Day and the fast approaching Spring Festival—the world is spending billions online for the festive season (Alibaba alone grossing $14.3bn).
Asia Pacific is by far the biggest spender partly due to the sheer scale of the Chinese market, but also due to a boom in eCommerce across the region. Much of this spend is shifting toward mobile as broadband connectivity simply does not have the reach in many countries, while more than 90% of the population has a mobile connection.
If 2015 was the Year of the Goat, a time for contemplation and calmly looking at what lies ahead, 2016 brings in the Year of the Fire Monkey, a wise but at times cheeky animal. For me, the Chinese New Year zodiac sign is an interesting metaphor to prepare for the acceleration in payments innovation in 2016.
The past year was largely for testing strategies and investigating what works. Although there has been a tremendous amount of work around digital payments, much of it felt like putting a toe in the water. Noise rather than true disruption.
The New Year brings huge opportunities, but is also likely to be much more of a battleground. The payments ecosystem is evolving toward new business models, and tensions are rising between the key stakeholders.
Turning Chaos into Clockwork
In 2016, eCommerce will enter its next development phase.
The past 12 to 18 months have been a bit like the wild west (or wild east): hundreds of new fintech start-ups, large giants building ecosystems, everyone thinking about payments, financial services institutions trying to find their place in this turmoil, inefficiencies restricting cross-border trade, consumers finding alternatives to existing payment methods to fulfill their transactions, and finally fraudsters enjoying the chaos and farming the vulnerabilities!
Slowly the cards (or the mobile phones!) are falling into place where commerce, social media, shared services and payments converge to build a hybrid ecosystem. Some analysts already have a word coined for this (roll of drums, please): xCommerce.
This is actually not a new concept and was originally coined by eBay in its aim to merge the Online2Offline customer journey. However, in Asia Pacific this is finally becoming reality even if the O2O piece in not fully realized. Social media platforms are becoming eCommerce outlets for the small and medium businesses of Thailand, Indonesia, India and China.
Furthermore we are all being Uberised! Partnerships are forming between Shared Economy services, commerce and social media platforms.
Increasingly, transactions will be mobile-based and payments will need to be FAST, seamless, secure and efficient, especially for cross-border transfers. This creates a challenge in markets where card adoption remains low.
Financial service providers and regulators have left a void unfilled by proprietary and fragmented digital methods of payment. So social media and eCommerce providers are developing their own mobile payment wallets or partnering with fintech companies to solve the cash or card dilemma of an analogue world.
For real-life examples, look at the latest news from Paytm in India.
What does it all mean? Well if anything, 2016 will be a year for collaboration.
Banks, retailers, telcos, payment service providers and fintech companies NEED to work together, especially as Asian Gen XYZ consumers diversify their payment behaviors [debit card (50.5%), bank transfers (50.0%) and online payment services (52.2%) used equally for online purchases on the desktop for Gen Y] whilst economic growth for businesses depends on faster and more efficient transactions.
From Indistinct to Incomparable
Emerging countries is Asia Pacific are likely to move to mobile-first strategies in 2016.
Winning formulas, unlike those of the past decade, need to ensure that the key characteristics of payments are fulfilled: PORTABILITY and ACCEPTABILITY (so says the wise monkey).
Even more mature economies—where card ownership is high—show pent up demand for mobile payments (60% of Australian consumers would like to use mobile as primary payment method in 2016). This will result in outright war.
No, I am not being overly dramatic, just pragmatic. Cue ApplePay in Australia: the Australian government itself points fingers at the incumbent banks for protecting revenues over customer choice. Can we blame them though?
In the wake of NPP and Initial Convenience Services, mobile payments will be a great opportunity to offer ubiquitous, real-time services. Financial Services Institutions need to safeguard the customer relationship and take an active role in the new xCommerce world. No wonder Australian banks are playing the waiting game.
However, the payment experience will be under scrutiny and will require incomparable delivery and customer centered design.
And from the battle fields of Australia, we move to the “all-out, Star Wars, Battlestar Galactica” markets of India. Unlike many existing mobile wallets that sit on top of an existing credit/debit card network, Indian fintech companies have introduced solutions that are independent from the existing payment rails.
The mobile wallets are usually tied to the user’s mobile phone number as the unique identifier or may use tokenization. 2016 will see an intensification of mobile strategies as Payment Banks continue to roll out onto the “unsuspecting” traditional banking market. To date, there have been 41 applications!
A shift to mobile will of course lead to a huge increase in the number of electronic transactions and many will be micro-payments (since I have started using my mobile wallet to pay for coffees, I am sure I am consuming more coffees by the way!).
The consequences of this are the need to process at scale, in real-time as well as to adapt to changing customer behaviors, especially in analyzing potential payment fraud.
Turning Susceptible into Secure
So what other interesting things will the Fiery Monkey bring for 2016? Well the bad news is that payment fraud (along with cyberfraud in general) will intensify.
A global phenomenon, but as Asia shifts gears toward digital formats, so will the fraudsters shift their focus from west to east. Multiple formats result in multiple fraud entry points from online banking payments to card not present and even fraudulent corporate payment activities.
Real-time platforms bring increased need for profiling and behavioural analysis, SME payment portals bring in new opportunities and will also need to be included in stronger fraud management practices. Many emerging economies are already targets (see Thailand) and will need to rapidly resolve these issues before the trust in digital payment formats suffers.
A supercharged year for payments
So the New Year will be all about commerce and payments, the good the bad and the ugly, and we will be on this road at breakneck speed.
Digital payment formats will continue to evolve and I am sure that toward the end of 2016, we will have more clarity on the role of blockchain in the payment ecosystem, in real practical terms rather than in a proof of concept context.
Just remember, beware of the cheeky monkey!
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