Digital Payments in Asia: An Overview of the Top 3 Local Challenges

The Asian continent is known for being proactive in adopting new tech and creating innovative digital solutions across a variety of spheres, including healthcare, education, and finance. While this statement is also true for the local payment scene, many industry analysts agree that it is still only taking its first evolutionary steps.

In this detailed overview, we take a closer look at the key challenges in the Asian digital payments landscape and offer insights into its future development potential. Keep reading to find out all the details!

3 Main Areas of Uncertainty Linked to Payments in Asia

While the Asian payment industry is vast and diverse, and each of its jurisdictions has unique challenges, there are also common region-wide uncertainties that need to be addressed, namely:

1. Digital Wallet Expansion

As a result of this trend, the local market became oversaturated. Therefore, even though some digital wallets became household names, others either faded away or merged into larger entities. Ultimately, three main types of wallets and pseudo-wallets have taken center stage, namely:

• Staged digital wallets like GrabPay, GoPay, and ShopeePay. To use such wallets, people need to start by loading monetary value into them. This can be done via bank transfers, card payments, or physical retail outlets. When a user conducts a payment, the value is then deducted from the pre-loaded sum.
• A2A real-time direct debit. Although this approach refers to banks launching separate wallet apps, they are often used similarly to e-wallets and employ the same standardized QR codes. In essence, it involves linking domestic real-time payment networks directly to a user’s bank account, from where the payments are debited instantly.
• Pass-through wallets like Apple Pay and Samsung Pay. These wallets are directly linked to credit or debit cards. Yet, their prevalence is limited in most Asian markets due to low payment card penetration, with the exception of Singapore and South Korea.

Staged digital wallets are currently prevalent in developing Asian markets due to their accessibility and independence from bank accounts or card ownership. However, they still face slim profit margins from payments. This prompts many of these solutions to join larger super app ecosystems to improve monetization by offering other services.

At the same time, traditional banks, which are often criticized for lagging in technology, have seen plenty of positive feedback after introducing A2A real-time payments in Asia. National real-time payment rails like PayNow (Singapore), DuitNow (Malaysia), or PromptPay (Thailand), allow both consumers and merchants to enjoy lower MDR fees and instant fund receipt.

Due to this, Account-to-Account payments, despite requiring a bank account, pose substantial competition to local staged wallets. This is also intensified by the increasing government emphasis on boosting banking penetration across Asia.

2. Local Adoption of SoftPOS Systems

While the SoftPOS concept is promising and is getting rapidly adopted across the globe, it faces certain practical challenges in Asia. Firstly, the local target market for SoftPOS consists mainly of SMEs and tends to favor transactions involving paper receipts.

Secondly, Android Smart POS devices have been gaining widespread adoption due to their convenience and affordability. These devices now boast enhanced features, including built-in printers, GPS functionality, and even loudspeakers for broadcasting transactions and new orders.

Thus, despite the initial enthusiasm, the adoption of SoftPOS in Asia remains limited. Yet, even though it is unlikely to replace traditional POS hardware on the continent anytime soon, it still plays a role in niche scenarios, such as catering to tourists in luxury boutiques or at airports.

3. Use of Cash Across the Fragmented Market

Despite the efforts to increase the banked population in Thailand, the share of unbanked individuals remains high. Besides, while e-wallets have gained traction, locals still prefer A2A payments via PromptPay, which made up 42% of eCommerce transaction value in 2022. This also aligns with the preference for transactions that resemble cash exchanges with real-time settlements for merchants.

In contrast, Japan’s attachment to cash can be linked to such factors as:

• Aging population
• Extensive ATM network
• High card acceptance fees

What’s more, many small businesses in Japan have historically resisted the shift toward cashless transactions, which makes this tendency somewhat of a cultural phenomenon. As a result, Japan is expected to maintain the highest cash usage rate of 37% by 2026 in spite of the accelerating adoption of digital wallets across the rest of Asia.

Summing Up: How to Tackle Current Challenges?

Despite the uncertainties present in the Asian digital payments landscape, it offers multiple opportunities for local industry players, businesses, and investors.

As a rule of thumb, it is crucial to analyze specific markets within the region and develop custom strategies to address their unique challenges. Such a data-driven and innovative approach will enable players in the Asian digital payments industry to unlock the region’s potential for further advancement.