Are e-wallets a flash in the pan?

Government-led payments platforms may make private sector e-wallets obsolete in certain markets

PAYMENT systems in Asia are going through a revolution. In just the span of a decade we have seen not only the increase in credit/debit card use, but also the emergence of e-wallet (electronic wallet) providers, from Momo in Vietnam to Paytm in India.

According to the World Payments Report 2017, there were approximately 43.6 billion non-cash transactions in Asia-Pacific in 2010. This rapidly increased to 100.3 billion in 2015. By 2020 the report predicts that value will be around 276.8 billion transactions – more than six times higher than in 2010.

Despite the estimated increase in non-cash transactions, e-wallets, may soon become a product of the past –at least in some markets – following the establishment of national e-payment systems. In April 2016, the Indian government spearheaded the Unified Payment Interface (UPI), a platform that allows users to directly transfer funds between bank accounts via a mobile device.

Nine months later, Thailand rolled its own national e-payment system PromptPay as a cheaper alternative to the current bank transfer model. More recently, Singapore launched PayNow, a collaboration between seven institutions, including DBS and Standard Chartered, that enables fund transfers with a mobile number and a Singapore identification number.

E-wallets suffer from some disadvantages when compared to national e-payment systems, making e-wallets less relevant in those markets. For instance, e-wallets act as an intermediary between the payor and payee, whereas a national e-payment system allows for direct debit and deposit between bank accounts. In other words, individuals don’t need to worry about topping up their wallet before paying.

E-wallets also generally lack interoperability, i.e., they are not compatible across different systems or products. This becomes problematic in markets where there are a number of e-wallet providers. In Taiwan there are more than 20 mobile payment platforms including LINE Pay and JKo Pay. A national e-payments system such as PromptPay would standardize peer-to-peer transfers and alleviate the problem of having to choose between various e-wallets for transfers.

As the exception to the rule, the future looks bright for e-wallets in China, following the success of the country’s two payment leaders, Alipay and WeChat Pay. Both payment providers account for 86% of the payments volume market share in China, according to data from CICC. In total, both Alipay and WeChat Pay have 1.26 billion active monthly users combined. For everyday Chinese people, e-wallets has become a way of life. Unlike countries such as India, China’s payment revolution has been technology led, developing in an environment without a formal instant payment infrastructure.

As other countries continue to implement their own respective national e-payment frameworks, e-wallets will feel the heat as users start to use government-backed schemes. Late last year, Singapore and Thailand looked to strengthen their payment infrastructure by announcing a future link between PayNow and PromptPay to enable cross-border transfers.

Date

9 Feb 2018

Channel

Treasury

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