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The East West road to the cashless economy: part-two

June 22, 2021

Jonathan Bennett, Chief Commercial Officer

Jonathan Bennett

Chief Commercial Officer

The second part of our blog analysing GlobalData’s most recent Cashless World report focuses on trends in the Asia Pacific region, which has moved at a different speed to the West regarding contactless payment adoption and declining cash usage.

Based on its analysis of eight APAC countries (Japan, China, Australia and New Zealand, South Korea, Hong Kong, Singapore and Taiwan), GlobalData concludes that mobile wallets have worked well in facilitating access to banking and payments in these markets. These economies rely heavily on fast, reliable Internet infrastructure to deliver financial inclusion to those citizens, increasing the rate of cashless payments.

In some countries, the adoption of cashless payments is driven by a “bottom-up” transition orchestrated by consumers themselves. In contrast, financial service industry incentives and government policies have caused wide adoption. In almost every market, East and West, merchants are usually the last segment of the payment space to be persuaded. Generally, they need the most encouragement and assistance in making the transition.

Japan stills display a strong preference for cash

While consumers in the West display a continuing preference for payment cards (read the more detailed analysis in our blog The East-West road to the cashless economy: part one) many of their counterparts in the Asia Pacific are leapfrogging from cash directly to mobile payments. Even so, the level of cash use varies significantly between different countries in the region.

Japan, for example, is one of the most technologically advanced and Internet savvy nations on earth, yet GlobalData notes that its citizens still display a strong preference for cash. Almost three quarters (74%) of transactions in 2020 used physical currency, for example, despite Japan having robust Internet infrastructure and extremely high levels of smartphone penetration.

Culture and tradition also play a significant role in maintaining Japan’s preference for cash. Cash gifts are favoured for important events like weddings, christenings and New Year celebrations. At the same time, consumers show their respect to merchants by paying for goods in notes which are in perfect condition and receiving their change in the same way. As Japan has one of the highest proportion of ATMs per population amongst any APAC country, access to cash is also easy and convenient.

The comparatively slow transition to mobile payments may be partly due to fintechs and payment companies like PayPay only starting to promote their services in Japan in 2019. The Japanese government is doing its bit with the Cashless Week promotion in the same year. Progress is evident, albeit gradual. GlobalData suggests that the use of payment cards and payment card-linked transactions such as eWallets expanded at a compound annual growth rate (CAGR) of 10.6% between 2010 and 2020, more than doubling the volume of transactions from 5.4bn to 14.8bn in the process.

Alipay and WeChat Pay drive Chinese revolution

China is the world’s largest payment market, having generated US$18.8tn of combined cash and payment card transactions in 2020, according to GlobalData. Large sections of the Chinese population have largely bypassed payment card ownership and moved directly from cash to mobile payments. In contrast, the cost of accepting mobile payments for merchants able to use their smartphones as POS terminals is lower than it is from payment cards.

Reliable mobile networks and high levels of smartphone penetration have played their part. They have the emergence of two “Super Apps” – Alipay and WeChat Pay – which helped mobile payment transactions increase from 3.8bn in 2013 to 775bn in 2020. Both apps have evolved beyond payments to allow their users to book taxis, event tickets, restaurants, movies, flights, rail tickets, and hotels, such as paying their utility bills. Estimates suggest that Alipay now has around one bn active users in China and accounts for 55% of the country’s mobile payment market (WeChat Pay accounts for 40%).

More recently, the relaxation of government restrictions has also allowed tourists to link foreign-issued credit/debit cards to Alipay and WeChat Pay, further reducing the volume of cash transactions in the country. Just under 30% of all transactions in China were conducted using cash in 2020, but they accounted for only 10% of the total value. In other words (and similar to other APAC countries), Chinese consumers tend to use the physical currency to fund smaller, less expensive purchases.

Though older Chinese citizens remain loyal to cash for the moment, the introduction of the Digital Yuan by the Chinese government is now expected to accelerate the decline of cash usage in the country. The blockchain-based currency issued by the central bank was trialled extensively in 2020 and will facilitate digital transactions across China with or without Internet connectivity in the future.

Chinese success influencing take-up in Southeast Asia

China’s progress in fast-tracking mobile payments adoption and simultaneously helping financially underserved segments of its population engage in the digital economy appears to inspire neighbouring countries in Southeast Asia to take the same route.

Though not as far advanced, South Korea is well on the road to becoming cashless, with less than half (49%) of transactions conducted using the physical currency in 2020, representing just 21% of the total value. Again, it is the country’s older citizens staying loyal to cash, with a dense network of ATMs in its cities, making access quick and convenient.

The use of cash is still comparatively high in Hong Kong (where 70% of transactions in 2020 were made using cash), Singapore (52%) and Taiwan (74%) however despite high smartphone penetration and good mobile network infrastructure. In all cases, the value of cash transactions as a percentage value of the total is much lower because the citizens of those territories typically make less expensive purchases using physical currency.

Hong Kong, Singapore and Taiwan are similar in hosting large numbers of small businesses packed into small geographic areas with high population densities. That makes competition for customers extremely fierce, with merchants doing their best to keep prices down and profits up by avoiding the cost of non-cash payment methods where they can. Third-party providers in the mobile space have capitalised on that trend by bringing in more efficient payment processes that lower the cost of acceptance for merchants and drive up merchant adoption of smartphone-based transactions.

Government incentives link up payment systems to drive growth

Singapore has also participated in the VIA Alliance, a collaboration with other countries in the region (Thailand, Malaysia and Japan, for example), which makes it easier for citizens and visitors from each territory to conduct cross-border mobile payments. That initiative was helped by the Monetary Authority of Singapore unifying the islands’ QR code-based payment services into a single platform (the Singapore Quick Response Code, or SGQR) designed to integrate mobile wallets from other countries making compatible smartphone transactions much easier to conduct.

The ambition now is for Singapore and Thailand to link their respective real-time payment networks – PayNow and PromptPay – to offer fast, cheap transaction settlement across both markets supported by existing ASEAN trade agreements and extendable to other countries region soon.

With those countries still at such an early stage of their adoption, incentives like these are crucial to accelerating consumer and merchant take-up of mobile payments and further reducing their economies reliance on cash.

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