Consumer spending in various Asian markets has long been dominated by cash, and now the pandemic has forced a shift to digital alternatives. Consumer behaviour has changed and small companies and corporates alike are rethinking how to manage their payments in response to a boom in e-commerce. In fact, the rapid growth in online sales has driven payments innovation in the region, with some companies adapting more quickly than others.
“The pandemic taught the world of business a valuable lesson in consumer behaviour. When the COVID-19 crisis struck, everyone switched into survival mode. They started eating out less, they cut back on non-essentials and shifted their purchasing behaviour online as a matter of safety and convenience. As a result, this had a significant impact on the e-commerce industry – sales skyrocketed,” says Riccardo Capelvenere, Founder and CEO of Currenxie.
In a report entitled ‘The next frontier in Asia payments’, McKinsey gives other examples of how spending behaviour – particularly with discretionary spending – changed dramatically during the pandemic. In India, for example, there were no car sales recorded in April 2020. Meanwhile, in Thailand, foreign tourism dropped year-on-year by 78% in March 2020, and then the next month plummeted to zero.
McKinsey also notes in the report how this booming e-commerce has reinforced the need for digital solutions to cater to the growing number of connected and digitally-savvy consumers. During the pandemic, the report states, the proportion of consumer items purchased online nearly doubled, with approximately 30% to 40% growth rate in online spending.
E-commerce was already on the rise before the pandemic and is now expected to be even bigger business in the future. According to the FIS Global Payments Report 2021, e-commerce in Asia Pacific is projected to grow 13% annually until 2024. In 2020, the region’s total transaction value for e-commerce was over US$2.4trn and is predicted by FIS to reach over US$3.9trn by 2024.
Reet Chaudhuri, Co-Lead, Asia Payments for McKinsey, explains how this shift in e-commerce has affected various sectors: “The bulk of the growth in e-commerce has not been in existing categories. People have not been buying more of the same things; they have been buying different things online,” he says. Chaudhuri gives the example of a large Indonesian e-commerce player, which, before the pandemic typically sold consumer goods such as mobile phones and accessories, and during the pandemic saw a huge shift to groceries and the food and beverage sector.
Other companies have also witnessed a shift in their business mix. For example, ride-hailing platforms saw a decrease in the number of journeys because people were no longer going out, or to the office, but were able to scale up food delivery, for example. Chaudhuri also comments on the emergence of new services, such as online classes like virtual yoga, fitness and foreign-language lessons. “There is now a whole range of educational services that are now being delivered online,” he says.
With this booming online activity, corporates have had to adjust quickly to this changing behaviour. Shirish Wadivkar, Global Head of Payments, Transaction Banking, Standard Chartered, comments how this shift has created more “digital novices” in the market. It has also improved the viability of models that were online anyway, by providing scale, extendibility and competition, he says. “With the need for more resilient and improved reach in distribution chains, the last mile got extended to right-to-the-door fulfilment, spurring new distribution chains – even if nascent – which in turn fuelled more and more people to move their commerce online and which, in itself, became a growth feedback loop,” Wadivkar says.
This has had a knock-on effect on payments, which underpin such a transition. Nagesh Devata, Vice President of Asia, Payoneer, a digital payments company that facilitates e-commerce, comments, “Both consumers and businesses have become better educated on the value that payments solutions bring to their lives. Solutions that were once new and experimental are now accepted as the new normal, or at least our new reality.”
McKinsey’s Chaudhuri also explains how this evolution has had an impact on payments innovation: “Suddenly a lot of players have been forced to accept payments electronically without a face-to-face payments solution.” There are typically two responses to this, he adds. The first is to sign up with an aggregator platform so that it accepts and processes payments on their behalf and credits the funds to their account. On the other hand, many view such platform’s charges as high and instead prefer to manage the online payments themselves. Such businesses, however, find that when they put in place their own website and tie up with an online acquirer, it is not enough and they also need to invest in digital marketing, to grow their business online.
A number of banks have offered to help clients navigate accepting payments, particularly for businesses that had to quickly adapt to accepting payments online. For example, banks created partnerships with fintech players in order to offer their clients such e-commerce solutions. In Singapore, for example, the OCBC Bank created an alliance with Shopify, an e-commerce company, to help merchants build their online presence. OCBC encouraged its customers to set up online businesses and offered free subscriptions to get started with the software they would need.
“Partnerships are a good example of how companies can expand their payments offerings to adapt to the changing landscape and needs of customers and we are seeing an increased appreciation and understanding of the value that an established payments partner brings to the table,” says Devata. He explains how Payoneer, for example, was brought onboard by eBay to expand and manage payouts for eBay sellers from Greater China. “This was driven by a demand for an expanded reach, faster access to funds and the need for greater flexibility managing multi-currency payments,” he says.
With so many companies and payments providers adapting to this new environment, there are still no clear winners in the region. Chaudhuri notes that so far there are no clear dominant players in the e-commerce payments space since the pandemic. “There is no regional leader – it is country specific,” he says. Players such as Lazada and Shoppee are active in multiple countries in South East Asia, Chaudhuri points out, but this was already the case pre-pandemic.
Wadivkar at Standard Chartered comments on how specifically companies have been thinking about their payments: “The focus has been on automation – not just the connections to their banks, but from human intensive processes to application programming interfaces (APIs) that execute payments machine to machine,” he says. Wadivkar notes, companies have also had to rethink their accounts payable and accounts receivable workflows: with nearly all employees working remotely, processes had to catch up with this new digital reality. “One such example is document signing, and the acceptance of e-signatures in the workflow – internally and externally,” he says.
Wadivkar comments that the other area of forced change in the management of payables has been in traditional supplier or counterparty payments. “With a lot of gig workers effectively delivering the last-mile, there is a need to better manage the payment traceability and payment fulfilment that involves online confirmations of service delivery. Payments that actually execute based on open world stimuli – escrow arrangements – are fast becoming de rigueur,” he comments.
These changes in e-commerce are part of a broader trend of the shift to a digital economy. This, Balaji Natarajan, Head of Payments and Cash Management, Asia for ANZ, explains, is much broader than consumers merely buying things on Amazon, for example. “The digital economy is really beginning to be a significant part of the corporates’ way of doing business,” he says.
Corporates now need to operate in an online and an offline mode, and it is unsustainable for businesses to not be digital. “If you do not have an online mode, someone else could sell to your customers,” says Natarajan. “There has been a big shift in thinking. In the past it was thought that having a physical presence was necessary to have a relationship with a customer,” he adds.
“The digital economy is a primary driving force of the entire business model,” says Natarajan. And this economic transformation to the digital economy is facilitated by payments. In fact, it has pushed treasurers to rethink how they receive, make, and process payments.
This trend is facilitated by a number of developments, such as increased self-service, greater interoperability with standards such as ISO 20022 being adopted and the use of virtual accounts, says Natarajan. Also, he notes, there have been advances with enterprise resource planning (ERP) systems so that treasurers have more flexibility and control in how they consume raw data, connecting in real-time to banks through APIs.
Capelvenere at Currenxie – a company that offers payment solutions for SMEs and corporates – comments that this kind of digital transformation that the industry has been seeing with e-commerce and payments was expected to take years, if not decades. “Businesses of all sizes are being forced to reset their strategies and pivot their business models while transforming operations to meet the new digital expectations that have emerged as a result of the pandemic.”
Now that the business world is finally adapting to this new digital reality, Wadivkar comments on where corporates could go next: “Ideally innovation should get multi-threaded from here, building on data, services and new franchise models. Banks also need to think how they can safely scale and support such on-demand interconnected payments, as commerce moves with the speed of light. This is the real challenge in the post-pandemic era,” he says.
The focus for corporates should not just be on the payments themselves, but how they can be supplemented and used to drive ease of settlement from their clients, Wadivkar adds. Also, this will reduce the overall time and effort taken to collect and reconcile, in order to convert the cash receipts to cash application.
Wadivkar notes that in Asia card penetration is low, and while that is changing – thanks to the pandemic – companies need to leverage on the one market innovation where Asia is leading: immediate payments. The spread of these immediate, or faster, payment networks are built on cutting-edge technology, he notes. This includes data standard harmonisation and the use of smart common aliases such as email and mobile numbers to address payer and payees. Wadivkar adds that the always-on nature of these payments – 24 hours a day, seven days a week, for 365 days a year – is no longer the novelty nor the critical selling feature.
Capelvenere points to other trends in payments innovation: “While cash still dominates most parts of Asia, since the pandemic hit there’s been a monumental increase in the use of contactless payment methods like digital wallets, mobile apps and contactless cards. So much so that it’s overtaken the growth of debit and credit cards.” He adds, “There’s also been a rise in Asian consumers taking advantage of peer-to-peer – P2P – payment apps to send money to one another, as well as using quick response (QR) codes to make payments and place orders. We’ve also seen an uptick in the number of businesses allowing customers to Buy Now, Pay Later, a trend that started gaining traction in Singapore and is now popular throughout Asia.
The challenges for corporates in adapting to this new environment depend on the vertical, says McKinsey’s Chaudhuri. But broadly, he notes, corporates have to assume that consumer payment behaviour has changed, and they need to adapt accordingly. For example, they need to focus on providing an omnichannel experience where a customer can seamlessly switch between the physical and the digital world. They could order goods online, for example, and then take them into the store for a refund. The payment solution needs to link up to both the offline and online systems so that the refund in-store can be processed efficiently.
Devata at Payoneer also comments on how the physical and the digital experiences need to coexist: “The COVID-19 pandemic has normalised the digitalisation of daily occurrences, ie digital check-out, the utilisation of digital platforms and e-commerce, and other elements of a contactless experience. As a result, the adoption of digital payments has grown exponentially. As the rest of the decade unfolds, I anticipate that these digital trends will remain as cultural mainstays and we will see both physical and digital experiences work to complement each other,” he says.
Capelvenere at Currenxie describes the pandemic as a ‘digital accelerant’ and companies, in order to stay relevant, had to embrace digital disruption and introduce new innovative payment technologies into their day-to-day operations. “In a world where cash is no longer king, digital payments come with the promise of faster, cost-effective operations that are essentially more ‘hygienic’. They’re no longer just a perk but a customer-driven expectation,” says Capelvenere.
“Businesses who encourage their customers to use low-touch or no-touch forms of payment are the ones most likely to prevent a loss — as are e-commerce sellers who offer their customers payment gateways on their online stores,” Capelvenere adds.
What all this means for the future is still open for debate. One of the questions since the pandemic, says Chaudhuri, is whether the changes in consumer behaviour is a one-off and consumers will go back offline once the pandemic is over. He points to McKinsey research that finds that some behaviours will not revert to pre-pandemic levels. For instance, there will be some parts of the workforce that will continue to work from home. There is also a heightened focus on health and wellbeing, and increased consumption at-home entertainment. Chaudhuri adds that there has also been a structural change in business travel, which he does not expect to return to the levels of before the crisis in the near to medium term. “If you are a treasurer you have to consider what implications this has for your business,” he says.
Capelvenere argues that corporates should be asking themselves how they can make their customers’ lives easier whilst also benefiting their business. He comments that although we don’t know what the lasting effects of the pandemic will be on society, “If there’s one thing that is certain, it’s that the impact it left on the digital world will be a long-lasting one. Now is the time for companies to embrace digital disruption and new innovative technologies. It’s not the time to be complacent. You don’t want to be left behind.”