In Focus

SEA e-money market soars as tech disruptors spur adoption

Ride hailing and e-commerce firms are driving the e-payments revolution, eroding banks’ hold.

Electronic money payments have notedly grown in Southeast Asia’s largest markets amidst soaring popularity of reloadable wallets offered by popular e-commerce platforms and ride-hailing firms, reports S&P Global Ratings.

E-money payments in the region, excluding the Philippines, almost doubled to $26b in 2019 from only $15b in 2018. During this time, Indonesia surpassed Thailand as the largest e-money market in the region, racking up $10b in e-payments or more than a third of the total.

Thailand closely followed with $9b, whilst Malaysia and Singapore registered $4b and $2b in e-payments, respectively.

And in 2020, amidst a time of health concerns and social distancing brought about by the raging pandemic, these values were estimated to had grown even more—particularly in Indonesia, Malaysia, and Thailand.

Notably, popular technology firms with varied business interests in the region are investing in e-wallets, according to S&P fintech analyst Sampath Sharma Nariyanuri, CPA.

“The low penetration of traditional cashless instruments makes it imperative for firms to provide consumers with access to a viable instrument to perform digital transactions. Provision of payments and other financial services have thus become central to their customer acquisition efforts,” he noted.

Nonbanks account for most e-money license holders in Indonesia, Malaysia and Thailand, primarily offering e-wallets, he added.

The rise of digital payments in the region coincides with the consumption of online services such as ride-hailing and e-commerce, observes Nariyanuri.

“Unlike in the US, where payments-focused technology firms such as PayPal Holdings and Square are becoming gateways to online and offline commerce, payment processing in the Southeast Asian region is largely an extension of ride-hailing, e-commerce and other digital services,” he said, adding that large ride-hailers and e-commerce firms in the region are functioning like financial technology companies."

Amongst firms, ride-hailing app Grab Holdings, e-commerce platform Shopee parent Sea Ltd., and Chinese fintech giant Ant Group are amongst the e-money companies with the largest geographical footprint, offering payments in at least six countries in Southeast Asia. These three notably have e-money licenses to operate payments in most of these countries.

Sea has e-money licenses in Malaysia, Thailand, Indonesia, Philippines, and Vietnam. Meanwhile, Grab works with domestic e-money partners in Thailand, Indonesia and Vietnam, whilst it has e-money licenses in Thailand, Malaysia, and Philippines. In Singapore, they enjoy a temporary exemption from holding payments licenses.

All three platforms were part of entities or consortiums that make up three of the four winners of banking licenses in Singapore.

Nariyanuri further noted that for technology firms, e-money provides an attractive entry point into financial services without the burden of bank-like regulations. “The dominance of nonbanks as e-money issuers across the region makes e-money a good proxy for fintech payments.”

Indonesia is key
Even amongst countries in Southeast Asia, Indonesia is noted for being a key market for growth of e-money servicing. The country’s e-money market is growing faster than that of other large Southeast Asian countries, says Nariyanuri.

On the flip side, the scope for replacing cash is far greater in Indonesia than in Singapore, Malaysia, and Thailand. As a result of the slow pace of credit card issuance in the, Indonesia's cashless payments will likely tilt in favor of stored-value wallets.

Historically, banks have dominated payments in the country offering prepaid cards to a largely unbanked population. In fact, in 2018, PT Bank Central Asia Tbk—the largest bank by market capitalization—and state-owned banks PT Bank Mandiri (Persero) Tbk and PT Bank Rakyat Indonesia (Persero) Tbk accounted for most of the e-money transactions.

However, traditional banks failed to capitalize on the growing adoption of mobile phones, and  failed to extend their lead in prepaid cards to mobile payments. In a span of one year, nonbanks increased their market share to account for 54% of the outstanding value of funds in e-money accounts—up from 36% at the end of 2018, according to Bank Indonesia's data.

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