A mobile payments battle starts in Southeast Asia by Ant Group and Tencent

On July 28, Chinese tech giant Tencent has just made its third-party payment platform WeChat Pay available in Turkey for direct payments by tourists. 

Chinese companies, such as Ant Group and Tencent, have already launched mobile payment competition overseas. Alipay and WeChat Pay have penetrated hundreds of overseas cities, enabling Chinese tourists to make direct purchases without the need to exchange currencies.

But serving only Chinese tourists isn't enough, therefore, the giants like Ant Group and Tencent want to reach more local users overseas, and the first market that they try to grab is Southeast Asian market.

The Internet penetration in Southeast Asia is growing at a high rate, the mobile payment market has great potential, which attracts lots of companies to enter the market. The strategy adopted by Ant Group is to invest in the use of local e-wallet brands, bringing its experience and technology to the local and "copying" Alipay in various Southeast Asian countries. While WeChat Pay has chosen to apply for local payment licenses in Southeast Asian countries to promote mobile payments on its own platform.

After five-year attempt, the war between WeChat Pay and Alipay in Southeast Asia is over, and Europe has become the next battlefield.

 

Quick-access to Southeast Asia market

Ant Group has no plans to offer local currency payment services in overseas markets, instead partnering with local merchants to provide services to Chinese tourists. Meanwhile, it has also set up joint ventures with local partners to provide mobile payment services, with Ant Group exporting its technology and experience to "copy" Alipay in various countries.
 
In fact, since 2015, Ant Group is looking for overseas partners to build a local "Alipay", whose footprint has reached India, Thailand and other places, and gradually formed its "1 + 9" globalization strategy model. Among the nine overseas markets, four countries belong to Southeast Asia.

In July 2016, Ant Group and others participated in the Series D financing of M-Daq, a Singaporean financial technology company.

In April 2017, Ant Group formed a joint venture with Indonesian media group Emtek, and they jointly launched DANA in March 2018, a digital payment product, which provided financial services to BBM, the second largest local chatbot. In the same year, it also simultaneously invested in Mynt, a fintech company owned by Philippine telecom operator Globe, using technology to upgrade Mynt's GCash service.

In September 2017, Ant Group and Kasikorn Bank set up a partnership to promote QR code payments in Thailand. Ant had also previously invested in Thai fintech company Ascend Money in 2016, when it reportedly planned to acquire a 20% stake in Ascend Money.

By September 2018, Ant had put its eyes on the Malaysian market. With the approval of Bank Negara Malaysia, Ant has chosen to form a joint venture with Touch'n Go Sdn Bhd (TNG) to operate and provide mobile payment services. With the Touch'n Go e-wallet, users can scan a QR code into the subway, making Malaysia the second country in the world to support QR codes on mobile phones.

At the end of 2019, Reuters reported that Ant had acquired up to 50% of eMonkey, a Vietnamese e-wallet, which has already received all operating licenses from the State Bank of Vietnam (SBV).

Ant is also moving step by step towards its goal of expanding users in overseas markets. In 2017, the company unveiled its globalization strategy, with plans to serve 2 billion global users in the next 10 years, 60% of which will come from overseas. According to public data at the end of 2019, Ant has more than 1.2 billion active payment users worldwide, and currently has about 300 million overseas users.

For Tencent, WeChat Pay is key to introducing the entire WeChat ecosystem, but in overseas markets, the WeChat Pay business mainly serves Chinese tourists rather than the local.

In 2018, the WeChat Pay team said it would not seek to provide more local payment services to overseas consumers in the next three years, but would focus on serving outbound tourists from China. Yin Jie, the overseas head of WeChat Pay, has also said that WeChat does not have many overseas users, so it is difficult to provide them with payment tools.

However, WeChat Pay is slowly expanding into the local resident market, but they want to rely more on the WeChat brand, and WeChat Pay usually chooses to apply for local licenses to develop their business. Actually, it's not easy to get a license in Southeast Asian countries, and the fact that WeChat Pay has chosen this route to penetrate overseas markets also affects the speed of its coverage.

Under such a strategy, in March 2018, WeChat Pay was granted a third-party payment license in Malaysia. In August 2018, WeChat Pay launched a payment feature called "WeChat Pay My" in Malaysia, the first Asian market outside of China and Hong Kong to be licensed for local payments. So, WeChat Pay can provide local payment services to customers on the platform without the need to exchange currencies.

In January 2020, WeChat Pay received approval from Indonesia's central bank to operate locally. The road to getting the license was not an easy one, and at the end of 2019, Achmad Baiquni, managing director of Bank Negara Indonesia, had also said that there was a strong possibility that it would abandon its partnership with WeChat Pay and Alipay. If they want to do business in Indonesia, the Indonesian government requires both to partner with Bank Indonesia, which is part of the fourth business group.

As an important destination for Chinese tourists in Southeast Asia, Thevaros, a restaurant in Chiang Mai, Thailand, introduced WeChat Pay in early 2016. At the end of 2018, Royal Chen, the vice president in charge of Tencent's financial technology, even said that it would expand WeChat Pay in Thailand, saying, "We are considering which is the best way to roll out the WeChat Pay Thailand, whether to do the payment service itself or join forces with local partners."

 

Competitors are eyeing it up

Unlike the two giants Alipay and WeChat Pay, which dominate the Chinese mobile payment market, the competition from mobile payment providers in Southeast Asia appears more intense. Local banks, tech companies, telecom companies, etc. are involved, and many players have left the game miserably.

In Thailand, for example, local banks have launched their own mobile financial technology apps, like SCB Easy of Siam Commercial Bank, K Plus of Kasikornbank and PromptPay of Bank of Thailand. TrueMoney, a fintech company that started out of Bangkok in 2003, is also providing mobile payment services to Southeast Asia.

Not only banks and fintech companies, but also Southeast Asian taxi companies, overseas social media platforms, local e-commerce companies, game makers and others are deploying payments. In March 2016, LINE, the Japanese social app giant, entered into a partnership with Rabbit, an offline electronic payment smart card provider for Thailand's public transport and retail sectors, to launch Rabbit Line Pay to open up the offline consumer scene.

Southeast Asia's Sea Group owns e-commerce Shopee and gaming agency platform Garena, while the group's e-wallet AirPay was originally launched in 2014 just to facilitate online transactions for Garena gaming users. As one of Garena's largest markets in the region, the first country where AirPay is available is Thailand.

In the Malaysian market, taxi-hailing app Grab also launched GrabPay in late 2016 and by 2018, it became one of the largest mobile payment platforms in Southeast Asia. Currently, GrabPay can be used in six countries, meanwhile, Indonesian super app Gojek has also laid out payments, launching GoPay in 2015.

Even state-owned companies have started to lay out the mobile payment business, and in July 2019, a number of Indonesian state-owned companies co-funded the launch of LinkAja, a payment platform that aims to become the largest digital payment provider in the region.

Indonesian payment unicorn OVO, founded in 2017, is the leading local digital payment provider based on transaction volume.

However, among the Southeast Asian mobile payment market, there are a number of players that have no choice but to exit the market. Mobile payment service provider Digi's Vcash, one of the first e-wallets in Malaysia, was launched just two years ago and ended its service at the end of November 2019.

In March 2018, mPay, a payment product from AIS, one of Thailand's three major telecommunications operators, and Rabbit Line Pay entered into a joint venture agreement.AIS aims to have Rabbit Line Pay within three years to become Thailand's number one mobile payment provider.
Competition in the Southeast Asian payments market is brutal, and there are payments giants that want to bring in competitors so that they can capture the largest market share in the region. In March 2018, mPay and Rabbit Line Pay entered into a joint venture agreement. AIS aims to make Rabbit LINE Pay the number one mobile payment provider in Thailand within three years.

In the payments field, there has also been a link-up between different countries in Southeast Asia. In 2017, as part of an initiative to advance the Smart Nation agenda, the Monetary Authority of Singapore (MAS) agreed to a partnership between local PayNow and the Bank of Thailand's PromptPay so that nationals of both countries will be able to use their mobile phone numbers to make remittances in each other's countries.

 

Fierce competition in Southeast Asia's mobile payment market

In Southeast Asia, the penetration of credit card is lower than Europe and the United States, and people generally use cash and bank transfers, which has also contributed to the development of payment methods such as online banking and e-wallets. According to PwC's Global Consumer Insights Survey in 2019, Southeast Asian countries account for six of the 10 regions with the highest mobile payment penetration rates.

High smartphone penetration is one of the conditions driving the growth of mobile payments. According to British research firm Euromonitor, the percentage of the population using smartphones in six Southeast Asian countries is expected to surpass 70% by 2021, approaching 80% saturation that Japan and the US have reached.

The local mobile payment market also has great potential. Google, Temasek and Bain have predicted that the Southeast Asian digital payments market will more than quintuple to $114 billion in total transactions between 2019 and 2025. And Internet payments have also expanded, with the number and value of transactions made via mobile payments increasing by nearly 200% and 22% respectively in January this year, compared to the same period last year.

However, as cash consumption intensifies, e-wallets without healthy ecosystems and retention strategies are likely to face survival issues.

Investors are now unlikely to tolerate long-term losses and will put pressure on e-wallet operators to merge or exit. The number of licensed e-wallets in the Philippines and Thailand, as well as e-currency operators, has declined since the end of 2019.

Competition also remains fierce. Some e-wallet players have received government supports and have gained a head start. On January 14 this year, Malaysia launched its e-Tunai Rakyat scheme to encourage the use of e-wallets, with the government setting aside 450 million ringgit (about $105 million) to provide free credit to eligible citizens to kick-start the nascent digital payments industry. Nearly three million Malaysians have signed up for the scheme, with a total of about 66 million ringgit being disbursed in January.

According to Malaysia's central bank, the government chose Grab, Boost and Touch 'n Go from among dozens of licensed e-wallet providers in the country, undoubtedly giving these companies a head start in the local market.

According to the State Bank of Vietnam, the cashless payment policy implemented during the epidemic has contributed to the rapid growth of non-cash transactions in the first four months of this year.

The two Chinese internet giants are also likely to hit a wall in Southeast Asia, where platforms backed by Grab and Gojek are exerting pressure on Alibaba and Tencent in the region.

Indonesia, the largest economy in Southeast Asia, rules the market with its Gojek-dominated GoPay e-wallet. And with new investments from Facebook and mobile payments group PayPal, it's harder to shake its dominant position.

In October 2019, it was also reported that Grab is in discussions to merge its investments in Indonesian mobile payments company OVO and Ant Group's DANA, which would help it become more dominant in the payments market and change the local mobile payment landscape. The merger is expected to overtake GoPay's size and grab its dominant position in Indonesia.

In addition, governments in Southeast Asia are trying to promote economic digitization and financial inclusion,which want to foster local players to dominate the entire ecosystem.

This is an article from WeChat official accounts The Passage (ID: passagegroup), written by Liu Diqing, translated by Chris Yuan.