TNG FinTech Group had a good March. But with Covid-19 on the rampage, living by cross-border payments changes month to month.
Alex Kong, founder of the Hong Kong-based company, says the business processed over 3.5 transactions totaling HK$3.2 billion ($410 million) in the first quarter of 2020. Cross-border remittances accounted for 90% of that.
Q1 represented 30% quarterly growth. Kong expects flows to moderate as more workers lose their jobs and businesses lose their jobs, although he is still projecting TNG revenues to grow by 10% to 15% over the course of 2020.
A lot of the remittance activity in February and March reflected the unfolding Covid-19 pandemic. It suggests a scramble among workers such as domestic helpers to take advantage of a stronger U.S. dollar, as well as a desire to get as much money home to countries like the Philippines and Indonesia as soon as possible.
Migrant workers are also using a Mastercard issued by TNG to access e-commerce stores back home, to help buy and deliver groceries for their families. The majority of activity is for local cash collection at retail chains such as 7-11 and Circle-K. In some cases, Hong Kong employers are resorting to TNG’s wallet to pay their helpers – often with a credit card, an ominous sign as economic conditions worsen.
From B2C to payments backbone
TNG is best known for its consumer payments app in Hong Kong: the business started off servicing the legions of domestic helpers who lacked a local bank account.
Kong says the company is now transforming into something different, with the aim to become the region’s backbone of cross-border payments. TNG is aiming to be an irreplaceable part of flows around ecommerce and other digital money movements.
The first step has been to create its own corridors to support remittance payouts in other markets. In 2018 it acquired Malaysia’s Tranglo, a facilitator of cross-border mobile payments.
Big banks and e-wallets need regulatory clearanceAlex Kong, TNG
With Tranglo, TNG has become a payout provider to other e-wallets around Asia. If a TNG wallet user wants to send money overseas, they can now connect to local markets via domestic counterparts such as Singtel’s Dash, GrabPay or AirAsia’s BigPay. The service also supports transfers to banks.
The latest partner is WeChat Pay in mainland China. Users can already use TNG to send money to WeChat Pay and AliPay in Hong Kong. “There’s a lot of demand to send money to China,” Kong said.
This connection is just another rail, however, or rather, part of a series of rails. E-wallets are closed loops. If a user wants to send money using Grab, she can’t send it to BigPay.
Kong is hoping to solve this by creating an open-loop, interoperable network connecting e-wallets and banks. Last November he made public another TNG initiative, called Global E-Money Alliance. (According to Crunchbase, GEA was set up in 2018 backed by $10 million from TNG FinTech Group.)
The open network can support transfers among e-wallets, banks and non-banks. Kong says about 200 participants have said they would join but only a handful are live. Some of these include domestic e-wallets that TNG acquired, such as WalletKu in Indonesia, while others are joining in a bid for scale, such as Payvil in Korea.
Kong argues that banks will also want to join because SWIFT, which institutions rely on for correspondent banking messaging, does not recognize e-wallets.
So far though getting firms active on the platform has been slow – and Covid-19 has made everything slower. “Big banks and e-wallets need regulatory clearance,” Kong said.
The big picture
TNG is not alone. Other payment players are trying to aggregate payments. The frictions involved in allowing a person to transfer money internationally are still significant. TNG partners with these other firms in an overlapping mesh, in which it is not clear who is paying and who is getting paid.
One such frenemy is Rapyd, which has just released a survey that illuminates what is at stake. It estimates that by 2023, retail ecommerce sales in Asia Pacific will be greater than those in the rest of the world combined. Nearly half of all digital consumer ecommerce sales in Asia occurred over electronic marketplaces, such as Alibaba’s Taobao, Lazada, Rakuten or Flipkart.
There’s a lot of demand to send money to ChinaAlex Kong, TNG
But this growth is at risk due to the difficulty of disbursing funds to merchants or to workers, particularly when the buyer and the seller or the platform are in different places. Wealthy people can rely on credit cards, but the big opportunity is the majority of people who lack them.
Whoever solves this will have a huge competitive advantage, and doing so requires navigating licensing, regulation and payments infrastructure.
Rapyd, which itself is building a global network of local payments operators, along with competitors such as TransferWise, notes that so far marketplaces have had to improvise, creating something of a patchwork of solutions, which continue to keep costs high, even compared to bank transfers or credit cards.
Most of the world is banked, with over 80% globally having an account and a debit card, says Rapyd. Most people report a preference to receive payments (such as salaries) via direct bank transfers, or via cash. Only in wealthy markets such as Singapore do credit cards dominate retail payments.
Walled garden growth
The biggest growth is happening among e-wallets: according to Rapyd, penetration is around 77%, almost on par with bank accounts, with the biggest growth in Asia’s emerging and frontier markets.
E-wallets are all closed loops. This is great business for giant players with vast user bases. And it creates a business opportunity for connectors such as Rapyd, TransferWise, Payoneer and TNG. But it creates a lot of costs, particularly if someone wants to make a payment to a different e-wallet. Even within China, where AliPay and WeChat Pay combined account for 96% of electronic money transfers, the lack of interoperability is a problem, cited by the central bank as the main reason for it to launch a digital renminbi.
Meanwhile companies like TNG FinTech are trying to convince e-wallets and banks that interoperability will provide them with reach while lowering their costs. A Grab or a WeChat Pay seems unlikely to open the gates to their gigantic walled garden, so Kong’s pitch will likely be to myriad smaller players with less to lose. It can create a pan-Asia network of affiliated e-wallets, but can it aggregate enough independent small players to make a difference?
“We’re the only one in the world trying to do this,” Kong said.