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Payments the bottleneck for digital commerce in Southeast Asia

Credit Suisse analysts say although online and mobile shopping is surging, cash habits are hard to break.

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The growth in Southeast Asian consumer demand for online and mobile purchases could be headed into a golden era of growth – but payments and logistics remain bottlenecks, according to analysts at Credit Suisse.

“We think there is a permanent shift in consumer behavior towards online,” said Varun Ahuja, who covers Asia telecom and internet companies for the bank, speaking at Credit Suisse’s recent annual investor conference. “But payments are complicated.”

He notes that e-wallet operators such as GoPay, Sea and Dana are active in all the major Southeast Asian markets, but cash remains the biggest means of payment. It is just a matter of time before digital means of transacting move to the fore: with the exception of Indonesia, major Southeast Asian markets now have real-time payments networks, and everywhere banks are partnering with governments to improve infrastructure.

Cash economies

The question is how long this will take. Indonesians still prefer to pay through bank transfers or at convenience stores, for example. 

Hazel Tanedo, analyst for Philippines consumer securities, says the country is ripe for adopting e-commerce. Half the population is below the age of 25; 80 percent are mobile users. The economy had bene growing at a steady clip of more than 6 percent per annum for the past decade, not counting a decline in 2020 due to COVID-19.

“Cash-on-delivery remains the favorite mode of payment,” she said.

This reflects challenges with logistics: the country consists of more than 7,000 islands, so people can get what they need at their local shop more quickly than via an online order. But she says the reluctance to shop online is also about a lack of trust, noting that the government has set up a dedicated agency to foster e-commerce.



Similar issues hold true elsewhere. Offline channels dominate Malaysian consumer goods, and Vietnam is just beginning to see modern retailing trends.

Thailand was early to build real-time payments rails. This seems to be proving more conducive to digital payments than the proliferation of e-wallets, including by major Chinese internet companies, says analyst Warayut Luangmettakul.

Faster payments the key

This suggests governments can spur digital payments more quickly by improving their banking infrastructure and connecting these across borders.

Ahuja said, “There are more e-wallets, linked to internet companies or e-commerce sites. But there is little interoperability for transferring money. Over time, as real-time payment networks become more available – particularly to non-bank users – the payments ecosystem will evolve, which will support growth in e-commerce.”

Tanedo says the firm is upbeat about e-commerce and omnichannel sales in Southeast Asia. (Omnichannel refers to merchants that apply a uniform shopping experience across multiple distribution points, including websites, mobile, and physical stores.)

Growth is expected because Southeast Asia is starting at a low base. Online sales account for just 4 percent of retail purchases in Indonesia and the Philippines, and below 5 percent in Malaysia and Thailand. The figure is only 9 percent for Singapore.

She calculates e-commerce sales will reach $88 billion over the next 10 years, driven by COVID-related digital adoption among a young, mobile- and social-media-savvy population with a rising middle class.

Payments, logistics (including the need for 4G and 5G telecom networks), customs controls, foreign-market access, and regulation of e-commerce are slowing momentum even as overall retail spending is trending upward.

COVID surge

Globally, COVID-19 is likely to usher in a big increase in online spending among consumers in emerging markets. Credit Suisse conducts an annual survey that, this year, saw spending plunge.

The pandemic has gravely impacted many people’s incomes, particularly among younger and lower-earning workers – although Southeast Asians have suffered more than people in China and India.

However more consumers are regaining confidence now that vaccines are becoming available, says Richard Kersley, head of global thematic research at Credit Suisse.

The survey found a big jump in online shopping, especially group buying and for purchases of groceries, and with growing mobile use among older people. Online gaming and education are also experiencing upticks, which the firm’s analysts agree is a structural change, not just a temporary change in behavior during COVID lockdowns.


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Payments the bottleneck for digital commerce in Southeast Asia