Credit card penetration keeps at 10% or less in Thailand, Indonesia and Vietnam, while mobile payments are used by 47% to 67% of the population in those countries, as indicated by data from the World Bank, Nomura and Japan's economy ministry. In China, where everyday transactions are basically carried out by smartphone, so many people grow up without ever seeing a credit card.

 

As mobile payment operators maintain wooing users and expanding services, credit cards will probably face an uphill battle to regain lost ground in the world's fastest-growing region. 'U.S. credit card brands have developed payment networks over the last 30-40 years. But their networks are expensive to access, prompting other companies to develop less expensive and more convenient cashless payment platforms using mobile technology,' said Yasuyuki Fuchida, an analyst at Nomura Institute of Capital Markets Research.

 

Credit card companies face yet another headwind, as a rising volume of Asian governments work to develop their own payment platforms and prevent customer data from being transferred to the U.S.

 

India illustrates both challenges.

 

The government of Prime Minister Narendra Modi introduced India's own smartphone payment app, BHIM (pronounced 'beam'), in 2016. The app permits money transfers between a variety of banks without going through Visa or MasterCard networks.

 

The Modi government also has adopted a draft policy requiring e-commerce companies and social media platforms to maintain customer data within India. This policy is aimed at businesses like Walmart, which last year took majority control of Indian e-commerce company Flipkart. The Reserve Bank of India, the central bank, has also asked that Visa and MasterCard keep customer transaction data within India.

 

Cashless payments in India are ruled by mobile platforms such as BHIM; Ola Money, which is linked with ride-hailing company Ola; and PayTM, affiliated with SoftBank Group. Visa and MasterCard have long been the dominant providers of payment networks for credit and debit card services, obtaining licensing fees from retailers and banks as well as from users in some cases. But now they are being competed even in the Asian market where their foothold seemed most secure: Japan.

 

One of the challengers is PayPay, a mobile payment platform endorsed by Yahoo Japan and its parent, SoftBank Group's mobile unit. Seiei Takase, 59, who owns a restaurant in Kasama, a small city north of Tokyo, started accepting PayPay in April as the shop's only cashless payment option. The user opens an account with PayPay and deposits a particular amount of money, making purchases and payments by reading a Quick Response, or QR, code via smartphone. 'It is easier to introduce than credit cards, and no fee is charged until October,' Takase said. He recently started to use the app himself and has become a fan. 'It's so good I just can't stop using it.'

 

The app has 6.66 million users and is accepted by well over 500,000 merchants, according to Yahoo Japan. Generous promo campaigns, just like 20% rebates on purchases for a limited time, helped drive up these numbers. Sadly for Visa and MasterCard, PayPay - like many mobile payment options - does not rely on a credit card network for processing transactions.

 

Japan has a great number of cash-only shops for mobile payments to tap. A review published in 2017 by the country's Ministry of Economy, Trade and Industry found that only 25% of small-scale restaurants, such as for instance cafeterias in major tourist spots, accept credit cards. The survey even indicated that the 42% of business operators that do not accept credit card payments think the processing fees are too high.

 

Masayuki Yamamoto, chairman of Yamamoto International Consultants, notes that QR code payments are cheaper than credit cards for merchants in terms of fees and equipment installation costs. Though fees differ dependent on each business operator and credit card brand, Yamamoto says credit card giants customarily charge merchants 3.25% to 5% of the payment amount. Small-business operators are regularly charged a higher rate. 'QR code payment has made it easier for business operators to introduce cashless payment,' Yamamoto said.

 

The switch to mobile payments isn't always smooth. Seven & i Holdings' new mobile payment service was hacked just days after its launch, dealing a blow to a key element of the Japanese convenience store operator's digital strategy. PayPay, too, was hit by a spate of unauthorized usage in December. Yet besides such setbacks, the Japanese government remains committed to its goal of having the country 40% cashless by the mid-2020s.

 

In China, the situation is pretty different. Many people have never seen - let alone used - a credit card, as mobile platforms just like Alipay, offered by Alibaba Group Holding affiliate Ant Financial, and WeChat Pay, operated by Tencent Holdings, gained traction before credit cards had a chance to catch on. One strength of credit card companies has been their ability to operate across borders. Now Alipay looks to conquer that challenge, too.

 

'Today, Alipay just isn't only in China. We have 1 billion users altogether in Asia, and these numbers kept growing greatly year on year,' Eric Jing, CEO of Ant Financial Services Group, said during a conference held in Tokyo in May. 'I think, every year, we can probably add 200 million more.' According to Jing, over 300,000 merchants in Japan now accept Alipay, five times more than in August 2018. Jing stressed that all of Alipay's customers have the potential to become inbound consumers for Japan. 'This [is an] area we can work together,' he said.

 

In China itself, credit cards like Visa are in general accepted only in tourist-heavy areas, including parts of Shanghai. Even China's own debit card system, UnionPay, has come under some pressure from the rise of mobile payments. UnionPay was established in 2002 by Chinese banks under an initiative by China's government. The system has introduced its own app, but Alipay remains far more popular with consumers as it provides a wide range of services including loans, financial investment, online shopping and ride-hailing.

 

In Indonesia, credit cards have made slight headway, and even card companies' dominance in debit card transaction processing is already under threat. The Indonesian central bank has debuted its own payment network, called the National Payment Gateway, and requires domestic banks to use the new network for local debit card transactions. Banks are in the process of converting Visa- and MasterCard-branded debit cards to comply with the new requirement.

 

And as in India, private mobile payment platforms are also catching on fast. Go-Pay is run by Indonesian ride-hailing company Go-Jek, while Singaporean rival Grab offers GrabPay. Go-Pay and GrabPay users can deposit money into their account via bank transfer, at a convenience store or rather more likely through a cabdriver. And in contrast to applying for a card from Visa or MasterCard, which were created by banks, app users do not need a bank account - just a smartphone.

 

Go-Jek and Grab established as ride-hailing platforms, but both now 'aim at becoming leading players in payments across Southeast Asia,' said Kaori Iwasaki, a senior economist at the Japan Research Institute.

 

Credit card operators are not sitting idle. Visa has launched a contactless card for smaller transactions, including rides on public transportation. The company also said in June that it will team with Line to link the chat app operator's mobile payment platform with Visa’s global payment network. But in the case of competing in cashless payments, companies like Grab, Go-Jek and Alipay have one possibly key advantage: They do not need to make money from their mobile payment operations. For them, mobile payments are only a way to attract users, to whom they can offer fee-based services such as investments, loans and insurance, Nomura's Fuchida said.

 

And while Asian mobile payment platforms are mostly limited to operating in their home markets, they are investing in other Asian countries, a possible sign that they expect rules on cross-border transactions to be relaxed eventually, according to some analysts. If those expectations end up a reality, then the battle between the likes of Alipay and Visa may be just getting begun.

 

Source: TRONSERVE