Beyond digital payment

Consumers and businesses alike are starting to discover many more uses for the platforms that underpin new payment systems. By Tanyatorn Tongwaranan in Singapore

The way we pay for things has evolved rapidly in recent years. Even carrying a physical wallet containing cash and cards is no longer essential when a smartphone or biometric recognition can be used to complete a transaction.

As payment technologies become more convenient and ubiquitous, the long-awaited cashless world is just around the corner, advocates for secure and seamless digital cash tell us.

Ever-increasing smartphone penetration and the spread of high-speed internet are already making a difference. Tens of millions of underbanked people now have access to financial products and services they could only dream of just a few years ago.

"Now is a very exciting time for Asia as consumers and merchants are ready to embrace and adopt alternative ways to pay," Donald Ong, country manager for Thailand and Myanmar with Mastercard, told Asia Focus.

One of the biggest challenges when consumers make payments is queuing and waiting. We all know what it's like to stand in line, wait for goods to be scanned, pull out our wallets, have the cashier swipe a card, while we wait for a paper receipt to be printed out to sign, said Mr Ong.

"That is a lot of friction for something that should take just one second. With emerging technologies, merchants can start to introduce alternative ways of payments, remove the friction and deliver better shopping experience," he said.

"Consumers are now using their phones, QR codes, mobile wallets and wearables to make payment."

In 2017, the e-commerce giant Amazon opened a futuristic convenience store called Amazon Go, a cashless, cashierless store that uses sensors and cameras to track customers, allowing them to grab items off the shelves. They are then charged azutomatically upon their exit.

Amazon Go, which operates in nine locations today, has proven to be a huge success. According to the global investment bank RBC Capital Markets, the shops bring in about 50% more revenue on average than typical convenience stores.

RBC analysts estimate that the typical basket size at a Go store is around US$10 with about 550 visitors per day. This adds up to about $1.5 million in revenue a year, compared with $1 million for traditional convenience stores.


"The most exciting technologies emerging are the ones that not only remove those little speed bumps we encounter when making payments, but the ones that change the shopping experience altogether," added Elliott Goldenberg, head of digital payments with Mastercard UK.

While consumers are becoming less patient and more demanding of hassle-free checkout, safety and security are still critical. Granting permission for payment has always been the biggest speed bump.

The Ikea Place augmented reality app allows a user to superimpose virtual images over real-life settings. It allows shoppers to see how furniture will look in their home before buying it.

However, this process is now being expedited, say experts, thanks to the precision and accuracy of biometrics and the proliferation of connected devices via the Internet of Things (IoT).

Biometric verification in particular has made great strides and is now available through the likes of Apple Pay, Samsung Pay, Apple Facial ID or Mastercard Selfie Pay.

For Jacob Morgan, a senior analyst with the US-based research firm Forrester, the real excitement in payment technologies lies in the convergence of artificial intelligence and voice commands, where virtual assistants such as Siri, Alexa and Google Assistant can remind users when to make payments and pay upon our command.

As the technology becomes more mature and secure, WiFi-connected devices or "smart" devices such as refrigerators, televisions and even cars will able to automatically make payments on our behalf as users grant them permission, Mr Morgan explained.

Bill Gajda, head of innovative and strategic partnerships with Visa, is striven to put Visa technology inside new vehicles and deliver seamless on-the-go transactions.

"In essence, vehicles will become an extension of a consumer's payment card, integrating their accounts with other advanced auto technologies, including geolocation and 4G cellular connectivity," he said.

"We are seeing a future where authentication could move from PIN codes to facial, voice and hand-movement recognition on your phone," Sulabh Agarwal, payments lead with Accenture UK, told CNET earlier in an interview.

Beyond payment, the evolution of technology is enabling companies to innovate in other ways as they aim to deliver a better experience to their consumers.

The Swedish furniture giant Ikea, for instance, has found success with its Ikea Place app, an augmented-reality (AR) program that allows customers to see realistically and accurately how Ikea furniture items would look and fit in their homes.

"We found out through research that some customers weren't confident about buying, so this is aimed at making that experience easier for them," said Michael Valdsgaard, the leader of digital transformation at Inter Ikea Systems BV.

Ultimately, Ikea will combine the Place app with its other applications to allow users to browse its catalogue, virtually decorate their homes and plan store visits.


Of course, technology has always played a very important role in payments and the banking system, notes Pieter Franken, senior adviser to Japan-based Monex Group, an online financial services provider.

"Technology has been driving a lot of innovation, but the very important aspect that sets current new technology apart from the past is the accessibility of technology and the cost of entry," he said.

"The old financial technology was not only expensive to build, but the regulation surrounding it also made it difficult for new players to enter into business. At present, technology is being democratised and becoming open source, where most parts of the world now have access to smartphones and the internet.

"This is the big key to the door that has been missing in the financial technology sector."

John Lepore, general counsel for policy and advocacy with Mastercard, observed that technology is ubiquitous but we can see how it is being used differently in different parts of the world.

"It is the market demand and regulatory environment that drives the uptake of technology," he said. "The baseline is whether the products and services can address the pain points for consumers. When you see that happen, we often see a rapid transformational uptake in the use of such products and services."

Experts agree that the key drivers of growth for digital payment services are the increasing population coverage of 3G and 4G networks, more affordable smartphones and data tariffs.

The number of mobile internet users is projected to increase by 1.75 billion from 2017-25, reaching 61% of the global population. The increase is driven by new users in China (350 million), India (330 million) and Sub-Saharan Africa (280 million), according to the GSM Association (GSMA), a UK-based trade body that represents more than 800 mobile network operators.

Smartphone adoption will grow by 20% in the same period, accounting for 75% of mobile connections globally, it noted.

Given the highly saturated smartphone markets in most developed countries, the new addressable markets for mobile internet, e-commerce, content and digitally delivered services such as payments are in the developing world.

China overtook the United States as the world's largest smartphone market in 2012. Four years later, India also overtook the US, and Indonesia and Brazil are also picking up fast.

"Over the last eight to 10 years, there has been a huge change in payment technology," said Vijay Chandok, executive director of ICICI Bank of India. "It is driven not only by access and availability, but also in the speed and cost that is coming down. This starts to change the way consumers, commercial providers and enterprises are engaging, making transactions and behaving.

"There has been a convergence in the space of payment technology. While consumers are demanding alternative ways of payment, technology is emerging as a solution toward a frictionless payment process. It is even providing solutions that are beyond the needs of consumers, but when they see it, they want to have it," he said.

Bénédicte Nolens, head of regulatory affairs for Asia and Europe and chief compliance officer with Circle Internet Financial Ltd, added that smartphones today have enormous computing ability which allows more people, especially the underbanked, to be included in financial services.

"Across the world in both developed and developing countries, the underbanked population still remains an issue. These people are underserved and have no credit," she said. "Technology in the financial space is a whole new opportunity where financial inclusion and the continuation of working toward interoperability must be the goal."

She gave an example of 1.3 billion smartphones in China where apps led by WeChat Pay and Alipay have quickly gained momentum and became the main cashless payment method for small daily transactions. Their success has been driven particularly by the needs of the underbanked population

Statistics from the Payment and Clearing Association of China show that from 2013 to 2016, the number of transactions made through non-banking mobile apps increased from 3.7 billion to 97 billion, with a compound annual growth rate of over 195%.

"The future of payment is to be engaged with all the digital players across industries," said Rama Sridhar, executive vice-president for digital and emerging partnerships in Asia Pacific with Mastercard.

Te new focus on creating much more participation in domestic transactions and going deeper into markets is widening the spectrum of opportunities for financial inclusion, she explained.

"Particularly in the context of Southeast Asia, it is a region ripe with opportunities," she told Asia Focus. "A lot of innovation is happening and consumers are willing to adopt, while telecommunication companies are increasing data bandwidth. All of this together creates the right ecosystem for digital adoption in the region."

For example, Mastercard has embarked on a partnership with Southeast Asia's leading offline-to-online (O2O) platform Grab, allowing over 400 million underbanked people across the region to make payments through their e-wallets and collect reward points with merchants globally.

Through virtual and physical prepaid cards, users can top up their cards in cash and spend at any merchant around the world that accepts Mastercard.

"Southeast Asian populations are very mobile," she said. "A consumer is not likely to seek a wallet just for the market they are living in. They probably want to use the same products for wherever they travel. We want to facilitate seamless transfer experience across markets and multiple currencies."

Mastercard's Mr Ong added that payment systems traditionally concentrated on partnering with financial institutions. Going forward, there will be a lot more non-bank players such as Grab.

"The landscape will be a lot more vibrant with more benefits for customers," he said.

The challenges, however, rest upon the interoperability of the systems and global standards to ensure safety and security.

"A common standard to ensure interoperability is very critical," he said. "While consumers today have more ways to pay and merchants can introduce new payment methods to reduce friction, what's more important is making sure that everything is on a global standard so that it's a consistent consumer experience and it is safe and secure."


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