Sunday, 2024 June 23

Six Takeaways From the FIS Global Payment Report 2023

Making payments is no longer just a simple transfer of cash from consumer to merchant. As our world becomes increasingly digitized, consumers are now demanding safety, efficiency, and the ability to be rewarded whenever they make a purchase.

The variety of payment methods that are now on offer can be overwhelming, with the likes of digital wallets, credit cards, account-to-account (A2A) payments, and buy now pay later (BNPL) methods all vying for consumers to utilize them.

FIS aims to break them all down with the release of the Global Payment Report 2023. This report studies consumers’ behaviors when they are checking out both in-store (POS) and online (e-commerce).

Here are the six main takeaways of the payments industry, with a focus on insights derived from the Asia-Pacific (APAC) region.

1. E-commerce is set to experience high growth in APAC

The COVID-19 pandemic has resulted in a transition of sales from physical (POS) to online e-commerce stores.

Growth in e-commerce transaction value has started to slow down compared to the explosive growth experienced during the first 2 years of the pandemic. Nevertheless, e-commerce still grew 10% year-on-year from 2021 to 2022, and it is projected to grow at a 9% compounded annual growth rate (CAGR) from 2022 to 2026.

Emerging economies in the APAC region — including the Philippines, Indonesia, India, Malaysia, and Vietnam — are projected to lead e-commerce growth in APAC during this time period. Most notably, the Philippines is expected to experience a CAGR of 18%, from USD 10 billion to 19 billion.

2. Digital wallets are the leading payment method for e-commerce in 35% of APAC markets studied

Among the 14 APAC countries that were included in the report, digital wallets are the leading e-commerce payment in five countries, including China, India, Indonesia, the Philippines, and Vietnam.

China is a global leader in this space, where 81% of e-commerce transaction value originated from digital wallets in 2022. The rest of APAC is not too far behind, and dramatic growth is predicted (from 12% in 2018 to 36% in 2026) for digital wallets in the e-commerce market.

The digital wallet space is highly competitive as wallet providers can arise from any sector of the economy, resulting in each APAC country having its own unique ecosystem of digital wallets.

While global wallet providers operate across APAC including AliPay, WeChat Pay, and Apple Pay, some local wallets are dominant in their country of origin. These include GrabPay in Singapore, MoMo in Vietnam, GoPay in Indonesia, and GCash in the Philippines.

3. Cash is slowly losing its relevance, but it still has its role in transferring value

As the transition continues from cash to digital wallets, cash is no longer the main mode of transfer. Ever since the COVID-19 pandemic, this has transformed how cash is used in economies, as governments are starting to push for the adoption of digital payment methods.

The use of cash in APAC is projected to drop by half between 2021 and 2026 — from 16% to 8% of the total transaction value at the Point Of Sale (POS). Some countries have experienced a radical transformation from cash-based to digital payments. For example, Vietnam experienced a dramatic decrease in POS transaction value using cash from 85% in 2019 to 42% in 2022. A further drop of 11% CAGR is expected for cash through 2026 in the country.

Interestingly, not all APAC countries follow this same trend. The Japanese still maintain a strong attachment to cash, as it accounts for 51% of the POS transaction value in 2022. This could be attributed to Japan’s aging population, which could have hindered the adoption of digital wallets.

Malaysia is another country where cash is still the leading payment method at POS. However, this may change in the coming years as the Malaysian government is looking to launch a series of initiatives to drive the country towards a cashless society.

4. BNPL has emerged as a leading alternative form of credit

The APAC region is ideal for the buy now pay later (BNPL) industry to excel, due to factors like a comparatively low credit card penetration, and a high percentage of unbanked consumers.

In 2022, BNPL accounted for over USD 1 billion of APAC’s e-commerce transaction value. Australia is the leader in this market, with 20 local providers accounting for 14% of total e-commerce transaction value in 2022.

However, challenges are emerging, particularly in the form of regulations, in this flourishing space. Australia has started to gather feedback for three regulatory options: strengthening the BNPL Industry Code plus an affordability test, limited BNPL regulation under the National Credit Act, or full regulation of BNPL under the Credit Act. Regardless of the outcome, BNPL providers in Australia may need to change the way they assess the suitability of their customers before providing any short-term financing services.

Indonesia is another country that could experience tremendous growth for BNPL providers due to its low credit card penetration, and this was realized by both local providers (Akulaku, Traveloka PayLater), and foreign companies (SPayLater from Shopee and Atome).

5. APAC continues to thrive as a real-time payment provider

APAC has established itself as a global leader in real-time payments (RTP), which can be attributed to the interlinked nature of these RTP schemes among the different central banks.

In July 2022, the central bank governors of five ASEAN central banks (Indonesia, Malaysia, the Philippines, Singapore, and Thailand) committed to achieving inclusive cross-border interoperability among their real-time payment systems to promote regional economic recovery.

Singapore’s PayNow — which is running on top of its Fast and Secure Transfers (FAST) intrabank service — has linked with both Malaysia’s DuitNow and Thailand’s PromptPay. Furthermore, Singapore plans to connect with India’s Unified Payments Interface (UPI) later this year.

Another key partnership worth monitoring is the upcoming bilateral arrangement between Thailand’s PromptPay and Hong Kong’s Faster Payment System (FPS).

India’s UPI platform has achieved tremendous success as it provides an immediate transfer of funds via mobile devices 24/7/365 with a single click. UPI is also set to be available to Indian non-residents of ten countries, including the UK and the US, paving the way to establish itself as a global remittance network.

6. Cryptocurrencies have yet to make an impact on P2B transactions

While cryptocurrencies are perceived to be an investment vehicle, most consumers have not used them as a mode of payment. 77% of respondents surveyed by FIS indicated that they buy cryptocurrencies for investment, while only 18% purchase cryptocurrencies to pay for goods and services.

The lack of adoption as a person-to-business (P2B) payment method could be due to the volatility of cryptocurrencies, along with concerns consumers have about keeping their funds in a custodial exchange after the collapse of the FTX exchange.

Nevertheless, FIS has identified cryptocurrency payments to have a potential for growth in adoption, even though they only accounted for less than 0.2% of e-commerce transaction value in 2022.

Some benefits of using cryptocurrencies as payment for goods and services include faster settlement times and lower transaction fees.

China’s central bank — the People’s Bank of China (PBC) — has been actively trialing its central bank digital currency, the e-CNY. This currency accounted for USD 14 billion in transaction value between January and October 2022, which is a fraction of China’s economy. The PBC will be extending the trial to four major provinces in 2023, which could spur greater adoption and higher transaction volumes.

This summary was adapted from The Global Payments Report by FIS, a leading provider of technology solutions for financial institutions and businesses. For the full report, please visit here.

Gideon Ng
Gideon Ng
I excel in simplifying difficult concepts into in-depth, long-form articles, particularly for my passions in life (finance, cryptocurrencies, and football). I strongly believe in educating the masses on cryptocurrencies to shorten the learning curve as more people make the shift from Web2 to Web3.

Related Read