The payments business is booming in Asia Pacific, but the leading beneficiaries will soon be non-banks such as fintech companies. That’s according to a study conducted by research firm IDC Financial Insights, which projects by the end of this decade, 78 percent of consumer payments in APAC will be handled by non-traditional providers.
John Mitchell, US-based CEO of Episode Six, a payments technology company that sponsored the study, says consumer adoption of digital payments is higher in Asia than in the rest of the world, particularly in markets that lag in traditional financial infrastructure.
IDC says worldwide today, non-banks account for 60 percent of payment transactions, while the figure in Asia is already 67 percent. That lead is thanks to superapps such as Grab, GoTo, Sea Group and Kakao Bank. A new wave of digital banks across Asia promises another huge challenge to incumbents.
Governments in the region have also been supportive of alternative payment methodologies, by promoting the use of QR codes, introducing domestic faster-payment systems, and allowing new players to drive tech-first models such as buy-now pay-later, loyalty points, open banking, and crypto.
The APAC payments industry is booming along with the rise of the region’s digital economy. IDC estimates by 2030 banks worldwide will give up $250 billion of revenues to competitors — of which $201 billion will be lost in Asia Pacific — because of chronic underinvestment in technology or an inability to successfully leverage partnerships with fintechs.
To date, the leading banks in each market have been secure in their market position, thanks to hugely profitable deposit and lending businesses. But even the leaders in a given market are at risk of seeing those deposits slip away.
“Consumers and merchants have adopted on-demand lifestyles,” Mitchell said. “When incumbents lose market share of peripherals [eg facilitating payments], they will start losing deposit accounts. We’ve reached a tipping point.”
The IDC research finds 86 percent of APAC financial service institutions lack payments technology infrastructure equipped for various digital payments for the coming decade, including crypto.
Episode Six is a fintech that benefits from banks reviewing their core systems, so the company has its reasons for wanting to sponsor this research.
Mitchell argues the more that banks focus their tech spend on managing legacy core systems and processes, the more likely they are to be passed by.
Those incumbents that either build embedded-banking models, innovate their tech stacks, or more nimbly integrate with third-party fintechs still have a chance to retain leadership.
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One of Episode Six’s customers is HSBC – the bank’s PayMe app in Hong Kong uses Episode Six’s payments platform.
Leading banks still benefit from a high level of profitability and extensive branding power, while their fintech rivals are usually dependent on venture finance to keep growing.
“I’m surprised more banks aren’t responding as quickly as they should,” Mitchell said. “It often needs an event to get financial institutions to change.”