Though digital economy is growing quickly across Asia Pacific (AP), the digital payment infrastructure has not penetrated all customer segments yet. As of 2018, 55% of the population in AP have a smartphone, which indicates there is still a significant number of consumers who don’t have access to digital payment. But even with digital customers, the ones who have a smartphone, adopting and using digital retail payments is not as natural as using cash or cards. In other words, driving usage of a new payment system is hard. Payments are emotional, with a complex value chain involving customers, banks, acquirers, clearinghouses, card schemes, regulators, and merchants. Trust plays a huge part in the success of any new payment system, and any friction can create obstacles. In Asia Pacific, our research shows that there are three key challenges to overcome:
- Lack of differentiated value for customers. In terms of customer value, just providing convenience will never be good enough. The new payment system should also be more secure than existing, familiar means of payment. In Hong Kong, 35% of consumers who have not used digital payments worry that digital payment methods are not as secure as traditional ones. Awareness of and familiarity with payment brands is another critical, required value. In Japan and Australia, about 30% of online adults who haven’t used a digital payment method say they don’t know enough about digital payments.
- Fragmented standards. The lack of a unified standard will create heavy barriers for scaling digital retail payments and impede ubiquitous merchant acceptance. For example, there are more than 10 payment services in Japan — each one using its own QR code standard. Participating merchants need to install separate payment apps or readers for each service, which has kept merchants away from digital retail payments. Not until recently has the regulator put a unified QR code in place to drive merchant and consumer acceptance.
- Fragmented digital retail payment ecosystems. Some AP markets have dozens or even hundreds of payment brands, which can confuse consumers. This makes it difficult for a digital retail payment method or brand to penetrate the local market or expand to other markets quickly. A clearer regulatory framework to streamline the market and protect customers from unlicensed or unregulated digital payment players needs to be in place to bring greater transparency and trust.
While the usage of digital retail payments is rising across Asia Pacific, individual geographies vary significantly in their digital payment maturity. Specific local characteristics like consumer behaviors, payment ecosystems, and financial regulations make this a very diverse market. For more information on the individual markets’ digital retail payment landscape and recommendations to banks and fintechs, Forrester clients can read the report, “The State Of Digital Retail Payments In Asia Pacific,” which analyzes six markets in AP: Australia, mainland China, Hong Kong, India, Japan, and South Korea. You can also schedule an inquiry with me at email@example.com.
This is the second post in a series about digital retail payment trends in Asia Pacific in 2020. Click here to access the first post detailing the four catalysts driving adoption in AP.