15 August 2018

A long way from cashless: the journey has just begun

But, while digital payments are growing fast, and we see headline-grabbing stories from around the region, it will be some time before cash disappears completely from people’s wallets. This means there is still a significant opportunity for digital and plenty of exciting developments ahead in the journey to a more cashless society.

It is no exaggeration to say that Asia-Pacific has an unrivalled pedigree in cashless payments. The rate of adoption is faster than anywhere else in the world, and this is especially true in emerging Asia where non-cash payments are growing at 22%1. But the region’s more developed economies have also been quick to embrace new ways of paying. For example, in Australia contactless now accounts for two-thirds of credit and debit card point-of-sales payments2.

Using small change to buy an ice cream treat will soon be a thing of the past

Digital wallets that allow users to pay for goods and services within a smartphone app have tended to dominate the discussion of cashless payments in Asia, and particularly for China. However, the types and methods of cashless payments vary highly market by market and there’s no single leader with QR codes, near field technology for bank transfers, and prepaid cards all gaining traction.

The region’s governments have been quick to recognise the need to support and advance these new ways of paying, and in response are creating cutting-edge solutions to meet growing demand. Perhaps one of the most striking examples of government-driven innovation comes from India where the government has set-up the Unified Payments Interface (UPI). The platform allows consumers to use a single smartphone application to make payments through any bank that joins including non-traditional financial institutions such as Indian digital wallet provider Paytm. Since launching in April 2016, UPI has signed up 97 banks and has processed INR270 billion (US$4 billion) worth of transactions3.

In Singapore, cashless payments took a major step forward in 2017 with the introduction of PayNow – a national real-time payment platform. PayNow allows individuals to send payments to each other, across participating banks in Singapore, with just a mobile phone or identity card number. Since its launch, over 1 million Singapore residents used PayNow, and over SGD900 million have been transferred via the platform4.

It doesn’t stop here – Singapore will be implementing a standardised QR code, SG QR, later this year. The government-led initiative requires all service providers, including e-wallet providers, to adopt SG QR for scan-and-pay services. This brings significant convenience to merchants, who now only need to have one QR code to accept payments across all platforms. Coupled with the launch of PayNow Corporate in August 2018, which enables businesses to send and receive payments, soon every departmental store, neighbourhood shop, or charity soliciting for donations, can accept scan-and-pay e-payment5.

Cash is still king

But for all the advances, the region has a long way to go before it can truly be called cashless. Though it can be hard to tell from some of the fevered commentary around digital, cash is still the predominant method of paying for goods in most Asia-Pacific countries with 55% of personal spending processed by cash and cheque. Even in China, this figure is 47%6.

Moreover the lack of uniformity in the types of cashless payments in Asia – it may be easy to pay by QR code in China but you would struggle to find the same option in Australia – underscores how much of the growth until now has been limited to domestic customer bases.

The deployment of cashless technology in Asia still faces the challenge of working across multiple countries and adhering to local regulations, and while the growth in digital wallets in Asia has been phenomenal, only a handful are able to provide users with services in more than one Asian country, let alone on an international basis.

Bright future

But far from being a reason for pessimism, the region’s high cash use shows that the most exciting developments in digital payments are still ahead of us.

New solutions are coming online all the time. Recently, HSBC became the first foreign bank in China to offer customers the ability pay overseas tuition fees using their smartphone. Upcoming innovations include financial institutions delivering credit cards directly to a customer’s digital wallet once approval has been given with no need to wait for a card to arrive in the post.

Being in the most dynamic region in the world for digital payments, can also be a source of opportunity. Companies and service providers with a strong foothold in Asia-Pacific are perfectly positioned to export their technology and capture a global lead, as the challenges of developing systems that can work across borders and currencies are solved.

Governments and regulatory authorities are taking action to speed up the transition to a cashless society. Indonesia, for example, wants to achieve US$130 billion in e-commerce transactions by 20207. Meanwhile, the Australian government has proposed a cap of AU$10,000 (US$7,500) on cash payments for goods or services from July 20198. And the decision by the Indian government in November 2016 to reissue 86% of the cash in circulation at the time9, has encouraged many consumers to consider digital payment options.

Asia-Pacific may have just begun its journey to a cashless society, but given the scale of the future opportunity, the best is yet to come.

A contribution piece by Kevin Martin, Head of Retail Banking and Wealth Management, Asia-Pacific, HSBC, first published in the Business Times Singapore on 14 August 2018.

1 PWC, Emerging Markets: Driving the payments transformation, 2016, https://www.pwc.com/gx/en/financial-services/publications/assets/pwc-emerging-markets-12-July.pdf

2 How Australians Pay: Evidence from the 2016 Consumer Payments Survey, April 2017, https://www.rba.gov.au/publications/rdp/2017/pdf/rdp2017-04.pdf

3 National Payments Corporation of India, https://www.npci.org.in/product-statistics/upi-product-statistics

4 https://www.abs.org.sg/docs/library/abs-announces-the-launch-of-paynow-corporate-a-new-funds-transfer-service-for-businesses-amp-corporates4c29a69f299c69658b7dff00006ed795.pdf

5 http://www.mas.gov.sg/News-and-Publications/Speeches-and-Monetary-Policy-Statements/Speeches/2018/EPayments-for-Everyone.aspx

6 Data provided by Visa. Figures as of end-Q1 2018.

7 https://www.reuters.com/article/indonesia-retail/indonesia-targets-130-bln-in-e-commerce-transactions-by-2020-idUSJ9N14Y02J

8 https://thewest.com.au/business/10000-cash-payments-cap-to-catch-sneaky-tax-dodgers-ng-b88830695z

9 http://www.bbc.com/news/world-asia-india-37974423