Mobile wallets have the potential to unlock the growth potential in Southeast Asia

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Despite the concerns surrounding the usage of digital payment methods in the post-Covid era, the market continues to record strong growth in the Southeast Asian region. Notably, the growth in the digital payment ecosystem is largely driven by the broader boom in the digital economy. This has resulted in an accelerated adoption of mobile wallets and prepaid payment instruments across the region.

The growth opportunity for mobile wallet and prepaid payment instrument providers lies in the fact that most consumers are not associated with the traditional banking system. Despite the growing digital economy in the region, especially in Indonesia, the low availability of data on low-income citizens has resulted in low credit usage, because formal banking institutions are unable to run background checks on consumers. Consequently, innovative fintech firms and digital wallet providers have the chance to democratize digital payment options in the region.

Over the next few years, digital wallet penetration is expected to grow at a rapid rate across Southeast Asia. Alongside the growth in mobile wallet adoption, the number of prepaid payment instrument providers has been also seen to grow significantly. Notably, the central banks in the region have handed out several licenses to various fintech firms to drive the digital payment ecosystem growth in Southeast Asia. With more providers, comes more competition, and consequently, players are also raising a funding round to further drive their growth in the region. For instance,

• In September 2022, Instapay Technologies Sdn Bhd, a payment fintech firm that offers e-wallet services, announced that the firm had raised US$4.75 million or MYR 21.5 million in a Series A funding round, which was led by Daiwa ACA APAC Growth I. Notably, the fintech firm started offering mobile wallet services to unbanked migrant workers two years ago. As of September 2022, the firm has recorded strong growth with hundreds of corporates offering payroll accounts to their workers in partnership with the firm. One of the fastest-growing mobile wallet providers in Malaysia, the firm is expected to use the funding round to further accelerate its business growth and scale operations.
• Another mobile wallet provider, TNG Digital, Touch n’ Go Group, announced that the firm had raised US$168.3 million or MYR 750 million in a funding round, which was led by e-commerce giant Lazada. PayMaya and Coins.ph have been among the other digital wallet providers that have raised funding rounds from investors in 2022 amid the growing competition.

While the competition for market share is projected to further intensify among providers over the next three to four years, there are a few challenges that providers need to overcome to exploit the full growth potential of the Southeast Asian digital payments market. For instance,

• In addition to navigating the complex digital payments environment, merchants are facing the growing challenge of consumer preference for convenience. Notably, consumers are seeking faster, cheaper, and local payment options. If the merchant fails to provide this, they risk losing a potential customer, while also limiting their ability to expand into newer markets.
• While the adoption among consumers has continued to increase at a rapid rate in Southeast Asia, digital payment acceptance is relatively low among merchants. According to a report from Boston Consulting Group, 54% of the consumers stated that low acceptance among merchants is a major barrier to greater mobile wallet usage in the region.

Furthermore, there is a growing trend of cross-border shopping across the region. With consumers in Indonesia wanting to shop from merchants in Malaysia, cross-border payment options and a slow settlement period are other challenges hindering the industry's growth. However, there has been a push towards regional cross-border payment collaboration recently. For instance,

• In October 2022, Indonesia and Thailand implemented a QR payment linkage, thereby allowing consumers to scan the QR codes for making merchant payments in either of the countries. This strategic collaboration between the two Southeast Asian countries can further drive the growth of the digital payments landscape in the region, and PayNXT360 expects more such partnerships from the short to medium-term perspective.

With the changing consumer expectations and the ever-evolving shopping trends, regional collaboration between governments and prepaid payment instrument providers will determine the growth rate of the digital payment ecosystem in the Southeast Asian market over the next three to four years. Notably, the demand for digital payment methods is there among consumers and is projected to further increase from the short to medium-term perspective. The strong digital ecosystem across the region is a testament to the growing demand. Thus, the widespread acceptance among merchants as well as the collaboration for seamless cross-border payment facilities will remain a key growth factor going forward in Southeast Asia.

To know more and gain a deeper understanding of the prepaid card industry in Asia Pacific, click here.