Cash is dead, long live cash!
Coins and notes are on the way out the world over and it feels like there’s not a government on the planet that doesn’t want to create a cashless society. To give an extreme example, Sweden is set to ban cash as a means of payment from 2023. With physical representations of wealth so last millennium in the era of Bitcoin and NFTs, something has to fill the void.
Step forward, e-wallets.
Also known as digital wallets, e-wallets perform much the same function as the traditional leather wallet but with software. The software stores users’ payment information and passwords so they can pay for goods and services without having to carry around cash or credit cards. Typically an e-wallet is accessed using an app on a smartphone or is offered as an embedded payment option on other apps.
E-wallet companies in Southeast Asia have enjoyed “phenomenal growth” in recent years, according to research from Smartkarma, and digital payments in the region are expected to top US$1 trillion in gross transaction value by 2025.
To give but one example, a survey by Decision Lab found 59% of Vietnamese respondents had used e-wallets in the last three months. Even more telling, e-wallets were the most popular payment method for online purchases above even cash on delivery, a milestone for a society as in love with cash as Vietnam is. Just two years ago, only a shade over 11% of payments in the country were cashless.
So why has the region proven such fertile ground for e-wallets? And what does this mean for eCommerce players hoping to cash in on the cashless boom?
First of all, it’s important to nail down our definition of what an e-wallet is, partly because doing so is a little tricky as interpretations vary from country to country.
Investopedia has a pretty broad definition that we can use to start with:
“A digital wallet (or e-wallet) is a software-based system that securely stores users' payment information and passwords for numerous payment methods and websites. By using a digital wallet, users can complete purchases easily and quickly with near-field communications technology. They can also create stronger passwords without worrying about whether they will be able to remember them later.”
All well and good in the abstract, but how do they actually work in the wild?
ShopeePay is available in Singapore, Indonesia, Malaysia, Thailand and Vietnam, and in Singapore at least it can be used to pay for anything on Shopee itself, on the company’s partner platforms, with some offline merchants, and to transfer money between users.
Similarly, regional ride-hailing and delivery app Grab is partnered with e-wallet company Moca in Vietnam. The Grab website has an explainer of how customers can use Moca via the Grab app to pay for rides and food, as well as transfer money to other users, pay household bills, transfer money, top-up their mobile phones, and make in-store purchases via QR codes.
We know what e-wallets are and we know what they can be used for, but why exactly have they become so popular in Southeast Asia? Let’s look at three key reasons.
There are an estimated 290 million unbanked or underbanked people in Southeast Asia, according to Fitch Ratings, while Smartkarma estimates that of the 400 million adults in the region, just 104 million are “fully banked”. As the barrier for entry for e-wallet access is lower than traditional banking, the unbanked population comes into play.
The opportunities that e-wallets provide to bring people previously excluded from financial services are being eagerly snapped up. The benefits are obvious for the financial services providers too, as they get the chance to access a previously untapped swathe of potential customers. Governments also love this aspect of e-wallet use as it makes levying taxes easier.
There are more mobile connections than people in Southeast Asia according to some counts, while Statista reckons smartphone penetration will hit 80% in four years. This combined with the large unbanked population makes for a perfect recipe for e-wallet adoption, as a vast number of potential users already own a device needed to use an e-wallet.
Smartphone ubiquity may also go some way to explaining why e-wallets are such a popular payment method for eCommerce specifically. Decision Lab’s survey found e-wallets were the most popular payment method for online purchases in Vietnam at 38%, just ahead of cash on delivery. Unsurprisingly, the survey found e-wallets were more popular for online purchases in urban areas as opposed to rural places.
A Grab passenger who likely used an e-wallet to pay for the ride.
It feels like just yesterday Apple rolled out its “there’s an app for that” advertising campaign (it was actually more than a decade ago) to introduce the unwitting public to the wonders of apps. Now, we’re living in the age of the “super app”. The concept is one app acts as a one-stop-shop for whatever a person may need, with Grab in the example above providing everything from transportation to utility bill payment.
The super app is uber convenient for the consumer and a huge opportunity for merchants if they team up with the right app. They also allow for vast amounts of customer data to be harvested as in theory, purchases of all kinds of goods and services will be tracked through the app.
To paraphrase a well-known proverb, what’s good for the e-wallet is good for eCommerce. E-wallets and eCommerce are a natural fit for a number of reasons. Let’s get into some.
For a start, 63% of consumers in the Decision Lab study said they chose e-wallets over other payment methods due to their speed and convenience for online payments. In addition, some 66% said online shopping was a key driver for their use of e-wallets. It’s not just Vietnam though, as a JP Morgan report in 2019 found digital wallets were used to pay for 23 percent of eCommerce transactions in Thailand.
As some studies have found that almost a fifth of cart abandonments are due to complex or lengthy payment processes, the benefits of e-wallets are obvious. E-wallet users choose this payment method for its convenience when paying online and the chance to shop online also drives their e-wallet use. It’s a virtuous cycle.
Yes, many e-wallets are linked to bank accounts and credit cards, but if both the consumer and the merchant are interacting via the e-wallet, banks play less of a middle-man role. If a customer isn’t using a bank card to pay, then the bank is essentially left out of the payment loop, so transaction fees will reduce.
You can save on bank transaction fees by accepting e-wallet payments.
In addition, you won’t have to worry about credit card data being stolen from you after e-wallet transactions, as you won’t have any data to steal! E-wallets use much more secure transaction technology, so your liabilities decrease as you chalk up more e-wallet payments. Digital wallets can also be protected with the state-of-the-art biometric technology that SmartOSC Fintech partner Facetec provides.
Everybody loves a bonus point and a loyalty program, and e-wallets make running them that much easier. As well as offering customers faster online payments via their e-wallets, you can encourage their use by offering reward points or even cash back, all the while boosting their engagement with your brand.
Grab, the super app with an in-app e-wallet, offers points for everything a customer purchases that add up to discounts on future purchases, encouraging customers to keep coming back.
Now we know why e-wallet use is soaring in Southeast Asia and why that’s a good thing for eCommerce, so what next for the budding merchant looking to put another nail in the coffin of cash?
First comes choosing which e-wallet to offer payments in. This should be relatively straightforward, just look at where you get most of your sales from and pick the most popular e-wallet in that country, as long as it can be integrated with your eCommerce platform. The research from Smartkarma first mentioned above is a good guide for Southeast Asia.
To actually integrate an e-wallet with your platform, you’ll most likely be using some API software. You’ll probably need help from your technology partner at this point.
SmartOSC Fintech has plenty of experience with all things financial technology and the ability to innovate for your needs, including in the e-wallet space.
Get in touch with SmartOSC Fintech for advice on all things e-wallets, digital payments, and the financial technologies that are changing the modern eCommerce landscape.
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