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Sales staff accept payment by credit card at a department store in Bangkok, Thailand.   © Reuters
FT Confidential Research

Mobile payments sideswipe credit cards in Southeast Asia

Platforms such as GrabPay and Go-Pay gain enthusiastic users, FTCR survey finds

FT Confidential Research found more Asean consumers owned credit cards in 2017 than in the previous year. Our Asean Credit Card Ownership Index increased on the back of accelerated economic growth (see chart).

Despite the rise, ownership has yet to return to its level in 2013, when we first ran the survey. We think the wider use of mobile payment platforms is challenging the role credit cards play in the region.

Credit cards elbowed aside by digital payments

Our 2017 survey showed that credit cards were among the three most popular cashless payment methods in the Philippines and Vietnam, where digital or mobile payments lag. But in Indonesia, Malaysia and Thailand, where bank-issued mobile payment apps as well as various payment platforms such as GrabPay and Go-Pay are being used with increasing enthusiasm, credit cards did not make the list (see chart).

The results differ from those in 2016, when we ran a slightly different survey asking Asean consumers which their preferred payment method was for online purchases. Then, credit cards were among the most popular payment methods in all the Asean-5 countries except Indonesia.

FTCR recently visited a bazaar on the outskirts of Kuala Lumpur and noted how popular mobile payments were. In a typical transaction, the buyer would electronically transfer money from his or her bank account to the seller's using a smartphone app, usually maintained either by CIMB or Maybank, Malaysia's two largest banks by assets.

The vendors at the bazaar did not accept credit cards. When asked why they preferred mobile payment, they said it was because they didn't have to pay card fees. The same apps are also making ATM transfers obsolete in Malaysia, while these remain popular in Indonesia and Vietnam.

Credit card ownership involves credit checks and strict regulations, so only a minority of Asean consumers use them. Credit card penetration rates in Indonesia, the Philippines and Vietnam were all below 5 per cent as of 2014, according to the World Bank. In Malaysia, the rate was 20 per cent, well behind the UK's 62 per cent and Japan's 66 per cent (see chart).

Mobile payments don't require the same credit checks or regulations, making them the easiest path for consumers to migrate to cashless payments. The steady rise of smartphone use in the Asean region increases the use of mobile payment. In Indonesia, Asean's largest economy, it appears people are skipping credit cards altogether and going straight to mobile payments.

Despite the competition, mobile payment apps and credit cards can be complementary. Payment systems such as the one operated by Southeast Asian ride-sharing company Grab integrate credit cards so their use expands as the platform does.

Unite and conquer

Before mobile payments can further marginalize credit cards they must overcome their fragmented nature. There are many mobile payment operators in each country and, with the exception of the bank-operated apps, no single payment platform can facilitate transactions beyond its own network.

Credit cards suffer less from this problem because the Asean market is controlled by the duopoly of Visa and MasterCard (see chart). American Express is a distant third in all countries except Vietnam, where third place is held by JCB, a Japanese company. Many vendors accept multiple credit card networks, whereas they can only choose one of the various mobile payment platforms.

The digital fragmentation across Asean will persist for now, but Indonesia is experimenting with a solution, as is Malaysia. The Malaysian central bank plans to implement this year a system called the real-time retail payment platform, in which all bank and non-bank entities operating any kind of digital payment platform will be obliged to participate. The system will enable interoperability across all payment networks, potentially ending digital fragmentation in the country. Indonesia is implementing something similar called the National Payment Gateway, also expected this year.

This article was first published by FT Confidential Research.

FT Confidential Research is an independent research service from the Financial Times, providing in-depth analysis of and statistical insight into China and Southeast Asia. A team of researchers in these key markets combine findings from proprietary surveys with on-the-ground research to provide predictive analysis for investors.

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