While COVID-19 helped increase digital payment adoption, 2021 will be the critical year to retain these users by demonstrating the convenience of digital payment solutions.
The world paused in 2020. What started as a localized outbreak in Wuhan grew into a global health crisis. In a blink of the eye, COVID-19 became a pandemic. In an attempt to stop the pandemic from claiming more lives, governments in different countries issued restrictions on people’s movement. By April 2020, over half of the world’s population was under mandatory lockdowns imposed by more than 90 governments worldwide. As of November 2020, there were more than 60 million COVID-19 cases across 218 countries and territories.
During the crisis, what seems to be the saving grace is technology. As offices and schools closed, people began to conduct their daily activities at home. At the center of this shift was the internet, which enabled various digital services, ranging from productivity tools and communication platforms to online learning management systems. To accommodate this change, some telecommunications companies leveraged technology, including artificial intelligence (AI) and 5G, to quickly respond to the spike in demand for broadband in residential areas and healthcare facilities.
Despite many companies going digital and shifting their business activities online, the COVID-19 pandemic has inevitably left a dent in economies. The International Monetary Fund (IMF) in October 2020 estimated that the region’s economy would contract by 2.2% in 2020. Through this ordeal, the role of local governments has become increasingly crucial. Economists called out the importance of increasing government spending, which can be done in multiple ways, including disbursements of social welfare payments facilitated by digital payment services providers.
In June 2020, the Malaysian government announced its economic stimulus package, the Short Term Economic Recovery Plan (PENJANA). PENJANA consists of 40 initiatives, one of which is the disbursement of MYR 50 to eligible Malaysians aged 18 years and older through eWallet services providers. To qualify, applicants need to have an annual income of less than MYR 100,000 and have installed the MySejahtera application, the government’s mobile application for contact tracing. Malaysia’s key eWallet services providers, Boost, GrabPay, and Touch ‘N Go, participated in this initiative.
In Indonesia, the country’s pre-employment card program was designed to improve the skills and productivity of the Indonesian workforce. Participants are given IDR 1 million to take online courses of their choice. After they finish a course, the government transfers monthly post-training incentives worth IDR 600,000 for four months. The government also provides an additional IDR 150,000 incentive for filling out three online surveys. As COVID-19 resulted in many workers being laid-off, the program was swiftly redirected to prioritize those affected by the pandemic. Participants can receive these incentives through Bank Negara Indonesia (BNI) bank accounts or eWallets, e.g., GoPay, OVO, and LinkAja.
Digital remittance is also benefiting from the use of eWallet services providers. In Fiji, remittances represented 5% of its GDP in 2019. According to the United Nation’s Pacific Financial Inclusion Programme (PFIP), Fiji has seen a drastic growth in digitally-enabled remittances during the COVID-19 pandemic. In particular, the number and value of remittances sent through a mobile money application increased by 400% between February and August 2020. The mobile money application likely used was M-PAiSA, which announced in May 2020 that it would waive remittance fees on its platform for two months to aid the economic recovery of families impacted by the pandemic.
A similar initiative was launched in the Philippines, where remittances represented nearly 10% of its GDP in 2019. The majority of these remittances originated from Overseas Filipino Workers (OFWs), who regularly send money to their families back home. According to a survey conducted by the Philippine Statistics Authority, there were 2.2 million OFWs in 2019. GCash, a leading mobile payment services provider in the country, established remittance services prior to COVID-19 by partnering with traditional players such as Western Union and MoneyGram. During the pandemic, GCash enabled verified users to receive remittances on its mobile platform for free.
The COVID-19 pandemic also triggered a shift in consumer behavior. News related to COVID-19 instilled a sense of wariness among people as they consciously minimized contact with each other. This shift increased people’s reliance on eCommerce. Frost & Sullivan’s survey in June 2020 discovered that 53% of consumers in Asia-Pacific were shopping online more often than before COVID-19. In particular, 54% of consumers in Thailand, 57% of consumers in Singapore, and 68% of consumers in Malaysia are shopping online more often compared to the period prior to COVID-19.
Along with the increasing take-up of eCommerce platforms, there is increasing use of digital payment services. MasterCard Impact Studies in 2020 found that 46% of consumers in Asia-Pacific plan to use cash less often. Also, 75% of consumers in Asia-Pacific expressed that they would continue using contactless payment methods after the pandemic. Additionally, some countries have seen rapid adoption of Buy Now, Pay Later (BNPL) services. Often advertised with “zero-interest,” BNPL services enable users to make payments in scheduled periodic installments.
In Singapore, approximately 1.1 million people, or 38% of the total population, have used BNPL services. One BNPL services provider, Hoolah, has seen 700% transaction volume growth since the start of this year. Hoolah was launched in 2018 as a BNPL solution for eCommerce platforms. Recently, the company extended its BNPL solutions to offline merchants, as it saw an opportunity amidst the drastically declining retail sales in the country. The company is also expanding to other countries, including Malaysia and Hong Kong.
As COVID-19 continued to spread, digital payment services providers expanded their role to support economies. Digital payment services enabled populations to receive social welfare payments and remittances easily. In return, digital payment services providers enjoyed higher transaction volumes in use cases such as eCommerce, triggered by the growing wariness of contracting the virus through physical interactions.
What’s next?
COVID-19 has triggered increased use of digital payment services among consumers. Frost & Sullivan’s recent survey in June 2020 found that 82% of consumers in the Asia-Pacific region plan to start or increase digital payment usage to avoid physical contact. However, this reason will eventually fade into the background as pharmaceutical companies develop and commercialize COVID-19 vaccines. Instead, it is worth noting that the survey also found that 83% of consumers in Asia-Pacific plan to start or increase digital payment usage for convenience.
It is no secret that most digital payment services providers acquire their customers using aggressive promotion strategies—such as cashbacks and discounts—which can be costly. For Lippo Group in Indonesia, which previously owned 100% stakes in OVO, the huge expense of these promotion strategies is one of the main reasons it divested 70% of its stakes in 2019. Hence, it is now a priority to begin building organic user bases; organic users will continue to use payment services, even without promotions.
Frost & Sullivan recommends the following action steps in 2021 to ramp up the acquisition of organic users:
- Continue to build use cases
Cash is a global payment method that provides unmatched convenience in terms of use cases and acceptance points. To dethrone cash, digital payment services providers need to build strong digital payment ecosystems that offer value add to users, as demonstrated in countries like Sweden and China. For example, Alipay in China has successfully built demand for eCommerce, insurance, investments, ride-hailing services and more. On top of that, Alipay also enables its users to conduct cross-border payments in other countries such as Singapore, Thailand, the United Kingdom and Australia.
- Match the technological pace and preference of consumers
Technology can enable new and exciting payment experiences for consumers. However, it is important to match the pace of innovation with users’ tech-savviness to ensure the best user experience. For instance, mobile money services providers in Fiji, Bangladesh, and Pakistan still run agent networks to support their mobile money applications. This is important as many people in these countries still require support in opening accounts and conducting transactions.
- Work hand in hand with governments’ initiatives
Japan’s government offers rebates for using digital payments to ease the impact of the sales tax increase in 2019. According to a survey in January 2020, more than 86% of the Japanese plan to continue making cashless purchases even when the rebate program ends. Again, convenience is cited as the main driver for this decision. Government initiatives can provide an opportunity for digital payment services providers to convince consumers that digital payments are convenient.
COVID-19 has triggered disruption in the digital payment services industry. It is time for digital payment services providers to leverage this momentum to retain their users and transition them into the new “cashless” normal. Cashless societies will be the future. COVID-19 just made it an unavoidable reality sooner.
