Cash is still king across Southeast Asia. The US pays by credit card and China uses e-wallets, but from Thailand to Indonesia cash is the common method of payment. However, that’s changing fast: we expect digital payments in the region to triple to USD1.5 trillion by 2030.

The 10 ASEAN countries – the Association of South-East Asian Nations – have similar characteristics to mainland China just before it rapidly transformed into a digital economy. The region has a large base of under-banked consumers without credit cards but high smartphone and internet penetration plus shops that accept the QR code payment method.

Hygiene concerns resulting from COVID-19 have boosted cashless payments but cash remains the predominant method of offline payment across Southeast Asia, ranging from 37 per cent in Singapore to 85 per cent in Vietnam. In the US it is just 15 per cent.

Even for online purchases, cash-on-delivery is common in ASEAN markets including Vietnam, the Philippines and Thailand.

The region’s payment process is thus ripe for disruption, but will it follow the US in adopting credit or debit cards, or go straight to e-wallets, like mainland China?

The key drivers for digital payments are internet and smartphone penetration, which in most of ASEAN are higher than card usage.

Not only are e-wallets convenient, especially for ride-hailing and e-commerce, the region’s vast rural population on low disposable incomes is expensive to tap for traditional financial-service companies. E-wallet players are well placed to serve this unbanked segment.

Further, some e-wallet operators have used promotions, subsidies or cash-backs to increase user adoption, and some governments give financial support. Malaysia’s government provided a one-off USD12 e-wallet credit to every eligible citizen.

We expect the share of transactions involving cash to fall from 65 per cent to 34 per cent over the next decade while e-wallet total payments surge to USD550 billion by 2030 – lifting their share from 6 per cent to 24 per cent. Indonesia’s e-wallet use could be 28 per cent but Vietnam’s just 20 per cent as preference for cash remains strongest there.

Mainland China has 750m to 800m e-wallet users – up to 85 per cent of its working-age population – and they account for about two-thirds of digital payments. For the ASEAN countries we expect more than 150m users – 40 per cent of workers – spending USD570 billion in 2030.

But while the e-wallet industry in mainland China is dominated by two major companies, in ASEAN it is highly fragmented with telecom operators, financial firms, e-commerce retailers, ride-hailing operators and fintechs in individual countries but no regional market leader.

Ride-hailing and e-commerce apps appear well positioned to gain share given their large consumer bases and high level of engagement with users and merchants, while telecom-driven platforms have large distribution networks that can reach unbanked or under-banked users. But several ASEAN e-wallet operators are backed by Chinese tech firms.

First published 14 October 2020.

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