Payment is an integral part of our daily lives but the way we are making payments is changing. Society is gradually moving from the use of fiat currencies to virtual ones. Many people who used to pay for their favourite cup of coffee using banknotes or coins are now swiping debit or credit cards. But a growing number of people are neglecting physical objects entirely in favour of smartphone-based applications. A barcode in an e-wallet is tapped, and the transaction is completed within a few seconds.
As one of the fastest-growing regions in the world, Asia is witnessing the growing trend of cashless payment with an increasing array of services. China and South Korea are heading toward the cashless society at a faster pace than others due to high internet speeds and penetration rates, as well as a critical mass of smartphone ownership. A survey by Pew Research Centre in 2015 revealed that 65% of adults in China and 94% in South Korea had access to the internet, while smartphone ownership was 58% and 88% of the population, respectively.
In China, consumers have adapted rapidly to mobile payment and many are now addicted to it. A global survey by KPMG shows that 85% of Chinese respondents are willing to use mobile wallets, compared with 66% of those polled worldwide. The Beijing-based consultancy iResearch also reveals that mobile payments in China accounted for around 40% of all retail transactions or US$5.5 trillion in 2016, dominated by Alibaba's Alipay and Tencent Holdings' WeChat Pay. Additionally, the investment firm CLSA predicts that e-payments in China will surge to $45 trillion by 2021.
To meet consumers' enthusiasm for mobile payment and e-wallets, businesses in China are offering increasing convenience, accessibility and attractive incentives. Businesses from sidewalk vendors and convenience stores to fine-dining restaurants accept e-payments while others, such as bike sharing, do not accept cash payment at all. Several even offer superior benefits to encourage consumers to use mobile payments.
Alibaba's online money market fund Yu'e Bao provides attractive interest rates to clients who invest and spend with Alipay. This strategy turned Yu'e Bao into the world's largest money market fund with assets of $233 billion as of November 2017.
In South Korea, debit and credit cards, e-wallets and mobile payments have become the preferred choices when making transactions. The Bank of Korea reports that only 20% of all payments in the country are now made with cash. E-payments began top gain popularity in South Korea back in 2004 with the launch of T-money, in which public transport fares are paid for with a stored-value card.
T-money offers users many incentives and convenience such as fare deduction, discounts at participating stores and restaurants, and a modified chip that fits mobile phone SIM cards, as well as the more traditional debit and credit cards.
The success of T-money, the popularity of smartphones, and easing of financial regulations in 2015 prompted a new wave of financial technology developments in South Korea. Tech giants such as Naver, Kakao and Samsung are investing to develop their mobile payment platforms with the aim of capturing the behaviour of modern consumers.
Moreover, the central bank is now pursuing an aspiration to have a cashless society by 2020, beginning with phasing out largely worthless coins. This is not only because the cost of minting coins now exceeds their face value, but also because many people simply do not want to carry coins anymore.
However, while China and South Korea represent success stories for mobile and e-payment, other Asian countries with well-established payment infrastructure have a surprisingly low adoption rates of non-cash payments. Although there are plenty of e-wallet choices in Japan, such as Suica, Pasmo and Icoca, the Bank of Japan reveals that value of e-money transactions in 2016 was around ¥5.1 trillion, accounting for only 4% of total retail sales.
In addition, a study by the insurer Meiji Yasuda reveals that 70% of Japanese consumers of all ages still prefer cash. This may be the consequence of two decades of economic stagnation that have left Japanese consumers very careful in their spending habits. In this sense, cash is a physical object that can be seen and controlled.
Moreover, the low crime rate in Japan makes people feel safe in carrying cash while, at the same time, there are concerns over data security and privacy when money becomes virtual.
In Singapore, KPMG reveals that 60% of respondents still prefer cash to non-cash payment. The explanation given is that cash is more readily accessible via a large network of ATMs. According to a government report, the number of ATMs in Singapore has increased by 65% within the past decade, and 90% of residents can reach cash machines within 500 metres from their homes. Moreover, cash-back services are available in convenience stores throughout the city-state. These are possible reasons why consumers in Singapore are more reliant on fiat money.
Furthermore, cash is a preferred payment method for merchants in Singapore, especially SMEs, because they don't want to bear the costs of e-payment adoption. In reality, transaction fees are normally charged by e-wallet developers, as well as the credit card issuers. Meanwhile, a point-of-sale terminal is not always a free lunch.
Moreover, e-payment systems tend to be incompatible with each other. Thus, consumers have to sign up with different mobile applications, while merchants have to install additional devices to settle payments with different parties.
In learning from the above cases, it is evident that while new technologies for payment are available, they are not always embraced by consumers and merchants alike. Thus, the key challenge lies in how to attract consumers and merchants to accept new forms of payment, whether through accessibility, convenience, incentive or a combination of factors. This is an important consideration, as payment technology is evolving continuously.
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