Payment Diversity: The Key to eCommerce in Southeast Asia
Seize Southeast Asia’s eCommerce potential with diverse payment options
Discover Southeast Asia’s booming eCommerce and payment trends, where digital wallets and QR codes are reshaping the market. Joaquin Moreno of dLocal explains why diversifying payment options is crucial for success.
For those keeping a close eye on emerging payment trends in Asia, the southeast portion of the region is emerging as a particularly exciting hub for eCommerce and payment companies alike. As electronic money (eMoney) transactions continue to trend upward in Asia, eCommerce merchants must provide acceptance for multiple payment forms, like QR codes and digital wallets, as this shift from cash continues to gain momentum.
While cash-on-delivery (COD) options remain important, expanding acceptance of multiple electronic payment options (card or eWallet-based) is imperative. International merchants need to ensure their third-party payment partners can assist them with enabling all local possibilities to take advantage of the change in buyer behavior.
Southeast Asia Leads the Way for Interoperability
In July 2022, Bank Indonesia (BI), Bank Negara Malaysia (BNM), Bangko Sentral ng Pilipinas (BSP), Monetary Authority of Singapore (MAS), and Bank of Thailand (BOT) announced their goal of linking payment systems across the region to support faster, affordable, more transparent and inclusive cross-border payments. A Memorandum of Understanding for this initiative was signed in November 2022.
The hope is this will strengthen trade and make travel within the area as seamless as possible – for tourists and locals. Hopefully, this payment connectivity initiative could be expanded to include other countries in the ASEAN region and potentially other partner countries.
So far, Malaysia has activated cross-border payment links via QR with Singapore, Indonesia, and Thailand.
Indonesia’s Current Payments Landscape
In 2021, Indonesia’s eCommerce market became the ninth largest in the world, valued at $43 billion, almost six times its value in 2018. By 2025, analysts forecast that eCommerce transactions will reach $137 billion, the highest in the Asia Pacific, making up 59% of the region’s accumulated value.
eWallets are the leading payment method in Indonesia’s eCommerce market, garnering 39% of the total transaction value in 2022. However, half of the population of 279 million remains unbanked and underserved, causing 9% of eCommerce payments to remain in cash.
Bank Indonesia launched the Bank Indonesia Fast Payment (BI-FAST) system in 2021. BI-FAST is a payment infrastructure system that one can access through payment industry applications. Its purpose is to make retail transactions easier for the public. It is part of the Indonesian Payment System Blueprint 2025 (BSPI), a five-step vision for the direction and digitization of payments taking place in Indonesia.
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Thailand’s Current Payments Landscape
In 2022, 56% of point-of-sale (POS) transactions were cash, the highest percentage in the Asia-Pacific region. However, digital wallets are gaining popularity, with eWallets accounting for 25% of digital retail transactions and 23% of POS payments. A few factors have fueled Thailand’s digital payments growth. The first is government-driven projects (Thailand 4.0) and the increased availability of smartphones. Mobile payments increased by 85% in 2020.
Thailand 4.0 aims to improve the country’s digital infrastructure and assist with technological progress. In 2017, the Thai government rolled out PromptPay, a money transfer service using mobile numbers or national IDs. In February 2023, it processed 1.42 billion transactions, supporting many services: eCommerce payments, income tax refunds, standardized QR codes, and payee confirmation.
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The Philippines’ Current Payments Landscape
As Philippine citizens adopt eMoney payments, albeit slowly, the country’s government is working behind the scenes to update this infrastructure. The Bangko Sentral ng Pilipinas’s grand goal is to achieve 50% of all payments to be done digitally by the end of 2023. The government has started implementing benefits for merchants who adopt digital payments to achieve this goal, and it hopes to bring 70% of adults into the financial system.
The emergence of real-time interbank transfers and QR code standardization will affect eCommerce merchants by making existing setups redundant or offering a one-stop solution for merchants to accept payments.
By 1 July, all banks had been ordered to standardize their QR codes for payment services, switching to the interoperable standard. This change in standard will hopefully see more Filipinos enabled to use this mode of payment. Currently, the BSP and local government units are encouraging the traditionally informal sectors, such as market vendors and trike drivers, to accept payments through standardized QR codes.
Challenges To Be Aware Of
As consumer preferences shift, eCommerce merchants must be aware of current and future challenges within the payment trends in these countries. While cash-on-delivery will remain a popular payment option for the foreseeable future, it does carry risks and the potential for fraud and delivery refusals. Both can be costly for sellers needing more proper means and logistics to process returns.
Indonesia and the Philippines comprise thousands of inhabited islands, causing a logistical challenge for merchants to cover each payment application of all the under-banked and unbanked. The goal of making payments in countries across Southeast Asia interoperable is important.
Because of this challenge, products can take over a week to arrive after a transaction — compelling merchants to accept multiple payments in a single order. Additionally, payment cards may have a pre-authorization period of up to 14 days. For pre-orders, eCommerce stores may require consumers to pay a 10% deposit, with the remaining balance only due upon the product’s arrival.
The Future of eCommerce and Payments in Southeast Asia
With Indonesia, Thailand, and the Philippines further adopting digital and interoperable payments, now is the time for eCommerce merchants to fortify their acceptance measures. Digital or electronic wallets have become mainstream recently, especially in the Philippines. Even though more or less 56% of Filipinos in 2022 have bank accounts, this is lower than the global account ownership level of 76%.
eCommerce merchants in all industries currently operating in Indonesia, the Philippines, or Thailand or seeking massive opportunities to take advantage of this shift by working with third parties that understand the market, regulations, and buyer habits intimately. The ability to accept various payment options, including cash, will help US-based eCommerce merchants succeed and open up more opportunities in Southeast Asia and beyond.
What steps have you followed to elevate your eCommerce strategy? Let us know on Facebook, X, and LinkedIn. We’d love to hear from you!
Image Source: Shutterstock
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