Cofounder and CEO of Choco Up, one of Asia’s leading revenue-based financing and growth platforms.
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As technological and logistical advancements obliterate physical boundaries, cross-border e-commerce gains momentum. Digital merchants across the globe now feel the pressing need to adapt to the borderless world—the capability to accept and process online global payments has become an indispensable one.
Of all regions participating in the global economy, Asia Pacific is by far the most active in the digital payments space. Capgemini estimates that in 2022, the region will oversee some $390.8 billion of non-cash payments, making it the world leader in terms of the volume of cashless transactions.
Against this backdrop, this article explores the opportunities and challenges of cross-border payments in Asia. In particular, I'll discuss forces that shape the Asian payments landscape as well as what digital merchants need to know to overcome the barriers to cross-border e-commerce success.
Three Forces Shaping The Cross-Border Payments Landscape In Asia
Underlying the cross-border payments industry in Asia is the interplay of three key forces: customers, market structure and technology firms. This section looks into each of them and provides insights for digital merchants to inform their business strategies.
1. Customers: Localized Payment Preferences And Heightening Expectations
According to a report by Flow, nearly eight out of 10 online shoppers have made a purchase from outside their home countries. Cross-border e-commerce necessitates the flow of money across geographies, and digital merchants should know about customers' preferences and behavior in this regard.
As you may already know, everyone has their favorite payment method. While card-based payments are popular in many parts of Asia, Chinese users' top picks are digital wallets like WeChat Pay and Alipay. On the other hand, Japan remains a predominantly cash-based country, with more than one-fifth of customers using Konbini—paying cash at convenience stores—to settle online payments.
Understanding consumers' payment preferences is crucial for digital merchants to optimize e-commerce conversion rates and create positive customer experiences. According to a PPRO survey on online shoppers' behavior, 42% of respondents said they'd quit the purchase process if their preferred payment option isn't available, and almost six out of 10 consumers would leave a site if the checkout process is too complicated.
With intense competition propelling ever-increasing standards in the e-commerce space, perhaps it's apt to say that customer expectations have reached an all-time high. Digital merchants must now provide checkout experiences that are quick, frictionless and tailored to individuals' preferences. Otherwise, customers won't stick.
2. Structure: A Fragmented Digital Payments Market In Asia
If one has to describe the Asian payments landscape in one word, there's no better alternative than "fragmented." The region's strong push for cashless transactions, coupled with individuals' widespread adoption of digital payments, has created lucrative opportunities for financial innovation, spawning numerous online payment service providers across the continent.
For example, a McKinsey & Company report notes that in Southeast Asia, more than 150 e-wallet licenses have been issued to date. Debit and credit cards are also popular choices for making payments online, and the options are too plentiful to be named.
While it's gratifying to see our society progress, it pains digital merchants to just think about the plethora of payment methods available. This is because most of these technologies are non-interoperable. Analogously speaking, this means that different payment systems "speak different languages" and can't communicate with each other.
The issue of interoperability can be illustrated with China's leading digital wallet providers, WeChat Pay and Alipay. Since the two e-wallets are non-interoperable, customers can't initiate a payment using their WeChat mobile app and have the money deposited in a merchant's Alipay account.
In other words, for a merchant to accept payments made via WeChat Pay and Alipay, it must have both terminals in place. When hundreds of payment methods are used across Asia, managing cross-border transactions becomes complex and problematic for digital merchants.
3. Technology Firms: Patching A Fragmented Market With Integrated Solutions
The last force underlying the evolving payments landscape is a bunch of technology firms striving to untangle payment complexities in Asia.
Some fintech companies are creating payment solutions that enable digital merchants to accept payments made via different systems, in different currencies and from different locations. Many of these solutions also take care of the security and compliance aspects of managing payments, such as the PCI Data Security Standard for credit card transactions.
The Way Forward
With the rise of cross-border e-commerce, the capability to process global online payments has become a necessity for digital merchants, both large and small.
Experts are, therefore, exploring the possibility of establishing a cross-border payments network across Asia, which would be hugely conducive to facilitating large-scale economic integration and creating seamless cross-border payment experiences in the region.
In fact, an integrated payments infrastructure, called the single euro payments area (SEPA), has been implemented across Europe since 2008. It brings together banks and governments to form a network, enabling individuals, businesses and public bodies from participating countries to make cross-border digital payments in Europe via credit transfers, direct debit or card payments.
That being said, it must be noted that Asia has vastly different features from its Western counterpart. In particular, the absence of a common currency, variation in technical standards and varying levels of digital adoption across the continent pose significant hurdles to the execution of the SEPA ideal in Asia.
Whether a SEPA-like model can be developed in Asia in the long run, is yet to be seen, but from what we've observed thus far, it's clear that businesses must equip themselves with a cross-border mentality and prepare themselves for a borderless world.
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