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As historically popular Asian markets are becoming less supportive towards innovation, South-East Asian countries are emerging as a rapidly growing market with plenty of opportunities.
South-East Asia countries are among some of the fastest-growing payments markets in the world, supported by an innovation-friendly regulatory approach to unlock opportunities and promote digitalisation, panellists said at VIXIO’s webinar titled "Unlocking Growth in New Payments Markets".
“What is really exciting is the sheer amount and speed of innovation we are seeing in these markets, both for fintechs and regulators,” said Prasad Thandapani, a regulatory monitoring associate at VIXIO with expertise in these markets. He added that “there is tremendous growth and plenty of opportunities for payments companies across the region”.
Regulators in many of these jurisdictions are very progressive and are in a digitalisation push. Regulators usually take an open approach to those companies that help them to push their digitalisation agenda forward, Zennon Kapron, founder at Kapronasia, said.
Following changes to regulatory approaches in China and India, Singapore has emerged as the fintech hub of Asia. The country, although small and costly, is "the most straightforward choice for fintechs to gain a foothold in the continent”, Kapron noted, adding: “Malaysia is probably second only to Singapore in terms of clarity around regulations on payments and market entry options.”
Thailand has quickly emerged as one of the most developed markets in the region, and fastest-growing. The 2017 launch of PromptPay was a catalyst for payments growth in the country, with non-cash payments growing from around 50 transactions per capita to nearly 200 between 2016 and 2020, according to VIXIO research. Malaysia too is among the most developed in the region and the launch of new instant payments service DuitNow in 2019 has seen it pioneer an array of innovative services.
Other markets such as Vietnam, Philippines and Indonesia, although significantly behind Thailand and Malaysia in terms of payments usage, represent significant opportunities for growth. For example, if Indonesia, Vietnam and the Philippines were to reach similar levels of market penetration as Thailand has achieved over the past four years, these markets alone could add 74bn new payments, which is equivalent to roughly 8 percent of global payments in 2020, VIXIO research found.
Another trend in the region is the collaboration across different markets to improve cross-border payments. “Several countries in the region have announced the linkage of their payment systems, taking a bottom-up approach to integrating payments in the region,” noted Thandapani.
Local market knowledge key to success
Although South-East Asian countries have tremendous opportunities, they also pose challenges that are unique in the region.
There is a lot happening in South-East Asian markets, including QR code standardisation, real-time payments and open finance: “One coming to this region has to be ready for very-very fast innovation — and to do a little bit of everything”, Camilla Bullock, director general of EPA Asia, said.
“You cannot just take what you have done somewhere else. You have to take it and make it a little bit more domestic,” she explained.
Fintechs entering these markets face huge competitive pressure and an e-money licence “is just table stakes”, Kapron said. E-money is what payments firms need to enter the market and can then innovate on top of that, providing other financial products and services, he explained.
Although regulation is a challenge, as it is anywhere in the world, it “is the least of your challenges when you enter the market”, according to Kapron.
Companies need to be circumspect in how they deal with the regulators but their operations are welcome in these markets if they help the regulators to push their agenda forward. Having an understanding of a market is probably more important than any special way of engaging with the regulators to obtain a licence in these markets, Kapron advised.
In addition to regulation, payments firms, especially small fintechs that aim to provide cross-border payments, are struggling to get access to both payments infrastructure and banks.
There is a huge challenge with “de-risking and de-banking”, which can jeopardise the whole project, Bullock added.
The funding challenge
Looking forward, Thandapani expects more regional cooperation to happen in 2022, while Bullock predicts that, from a regulatory perspective, we may see further developments in real-time payments services, including around the adoption of the ISO 20022 messaging standard, and talks paving the way to open finance.
Taking a more cautionary note, Kapron warned that 2022 could be a time of market correction. He reminded the audience that fintechs have “relied on venture capital money for too long”.
Due to macroeconomic issues, next year may bring a reckoning as to who will remain on the market and who will not.
“The water is going to go out and we are going to see who is wearing clothes.”
