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!
Related Blog Posts
How to be a Payments Trailblazer – The Seven Habits of Highly Innovative Organizations
The new Culture of Innovation Index from Ovum and ACI identified segments—from banks to intermediaries to merchants to corporates—at the cutting edge (of innovation) across the payments ecosystem. But what is most notable about those segments that have reached ‘trailblazing’ status is the apparent lack of commonality between them. No one segment, nor one region fosters better innovation. In fact, what’s driving these segments/organizations to be best of breed is their own culture of excellence. The only thing they have in common is their attitude.
How Italian Banks and Processors Can Capitalize on Digital Transformation
The European payments landscape is in an era of significant change thanks to PSD2 and other macro factors, but there is more than one way to deliver real-time and open payments to meet PSD2 requirements and its technical standards. Banks and processors must manage this alongside their own set of domestic challenges and opportunities.
SWIFT gpi: Leveraging Cross-Border Payments for the Real-Time World
SWIFT gpi represents the evolution of business done over the SWIFT network, bringing correspondent banking into the digital era.
I’ve covered this topic before, but with gpi now reaching the two-year milestone, it’s a good chance to reassess the progress that has been made – and what is needed to drive further adoption.
Instant Payments in Italy – And Beyond: Lessons from Il Salone dei Pagamenti
ACI was invited back to Il Salone dei Pagamenti – Italy’s premier payments event organized by the Italian Banking Association (ABI) – to participate in a panel, “SEPA Inst – the Future.” As expected, the session was packed with stats and advice for a more efficient roll out of instant payments – in Italy and beyond.
Dedicated Followers of Fintech: Why Transaction Banking Never Goes Out of Fashion
Taking part in a panel at a recent corporate treasury conference, I was introduced as a ‘consumer payments expert’ – not an obvious qualification for sharing stage-time with serious corporate liquidity and cash management folk, but as the talk track was on mobile wallets and Open Banking, I had some reasonably safe and relevant content on which to fall back.
Sibos Preview: The Five Trends Transforming Real-Time Payments
Real-time is now a reality, with more than 30 schemes live around the world. And real-time is in the spotlight as banks and financial service providers make their way to Sydney for Sibos 2018. What better time to look ahead at the key trends that are going to shape the ongoing development of real-time payments.
API Management: The Reason Digital Open Banking Can Fly
When it comes to thinking about the different roles that an API Manager can play for an organization, I personally think that an airport provides the perfect analogy. The customer is the passenger, the third-party organizations using a bank’s APIs are the airlines and the airport itself is the bank. I also think this analogy helps to visualize the variety of API management capabilities – including the role of an API gateway.
Can Corporate Banking be as Easy as Ordering Pizza?
ACI recently hosted Greenwich Associates on a webinar to discuss corporate banking. While not a topic that would usually make attendees salivate, the discussion turned toward ordering pizza (maybe, because it was close to lunchtime) and Greenwich highlighted how corporate banking should be as easy as ordering pizza.
Instant + Open Payments = A Winning Combination
I recently joined a panel discussion at EBAday 2018, alongside representatives from across the payments ecosystem, and the clear consensus was that real-time payments will be the new normal. This was evidenced by some of the interactive polls carried out.
Maintain Vs. Invest: What the Digital Era Ushers in for Banks
Taking place this week in Brussels, the European Credit Research Institute (ECRI) will host a high-level debate on how policymakers can build on the process of digitalisation of banks to raise competitiveness in light of increased competition from fintech start-ups and tech giants.