In recent years, the payment industry in Southeast Asia has been developing vigorously. Whether it is the innovative development of various businesses in the commercial field, or the construction of various payment infrastructure led or promoted by government agencies, it is showing a trend of a hundred flowers blooming.
In the post-COVID-19 era, the world is gradually re-connected, and the payment industry will surely develop rapidly again and show new opportunities in the transformation. The author takes this opportunity to analyze the current situation of the payment industry in Southeast Asia before and after the epidemic, as well as some characteristics and changes, and hopes to explore new growth points together with industry partners, especially those with Chinese-backed business overseas partners.

Current situation of payment industry in Southeast Asia

Southeast Asia has traditionally been deeply influenced by western developed countries and economies from Northeast Asia, and the payment industry is no exception.
At present, the electronic payment business in Southeast Asia presents the following three characteristics. First, all countries are deeply integrated into the payment systems established by western developed countries, including the payment networks such as Visa and MasterCard, which are familiar to ordinary consumers, and the SWIFT network, which has attracted wide attention recently.
Second, with the rapid rise of China's payment industry, in recent years, Southeast Asian countries have become the target markets for Chinese payment systems and various payment companies.
Third, in the process of their own development, countries have gradually established domestic payment transfer networks and rapid money transfer systems that have flourished in recent years.

Take Visa/MasterCard, a well-known international card organization from the West, as an example. Its business core is the four-party mode of card organization, and its development in the Southeast Asian market is regular. On the whole, it continues the characteristics of Western enterprises focusing on their own core business, that is, it takes the rules of card organization as the core, and develops its business around the two main lines of increasing the number of cards issued and expanding the acceptance area.
In the process of dealing with the changes in the payment industry, it mainly carries out layout by cooperating with, investing in or acquiring upstream and downstream enterprises, and indirectly participates in the field of upstream and downstream partners.

Figure 1: The traditional four-party mode of card organization including card issuer, consumer, collection agency and merchant.

Card organizations: Build payment networks that enable different card issuers-consumers and collection organization-merchants to Interoperability through unified technical and operational interoperability.

Card issuer: According to the rules and regulations of the card organization, issue payment tools to consumers or business users, usually in the form of physical cards or virtual cards.

Collection agency: In accordance with the norms and rules of the card organization, it processes the transactions generated by the payment tools issued by the card issuer used by consumers for merchants, such as offline POS transactions and online e-commerce transactions.

Due to the late start of the development of China's electronic payment industry, payment institutions from China mainly expanded the receipt business of UnionPay to serve the outbound consumption demand of Chinese tourists in the early stage of development in Southeast Asia.
As enterprises such as Alipay and wechat started their business expansion in Southeast Asia in 2015, there was a boom of Chinese payment institutions going overseas to Southeast Asia. In the early stage, they still focused on the receipt business. Before the outbreak of the epidemic, they also showed an active layout of technology output and solutions and other fields.
Compared with the traditional four-party mode, e-wallets such as Alipay and wechat Pay adopt the three-party mode, that is, there is only one card issuer in the network, namely the wallet itself.

When it comes to China's payment institutions going overseas, UnionPay, the pioneer of China's payment industry, has to be mentioned.
As a typical representative of the transformation from a national transfer organization to an international card organization, UnionPay has not only laid a solid foundation for China's payment industry in the Southeast Asian market to some extent, but also provided a large number of outstanding talents for Chinese enterprises in the Southeast Asian market. At present, some managers of Tencent's cross-border payment business and general manager of Ant Financial's Southeast Asian market are all from UnionPay.
Unionpay has been issuing cards in Southeast Asia since 2008. No matter from the traditional card base to the recent mobile e-wallet virtual card business, it mainly serves the payment demand of business travelers in Southeast Asia when they visit China.

On the whole, although Chinese background payment enterprises are aware of the importance of localization and internationalization, they still carry out business around the concept of China, whether it is receipt or card issuance, or new business opportunities presented before and after the epidemic.
Although some innovative payment companies have made bold attempts at inter-regional connectivity, such as Asian Wallet and its regional collection agency partners to subtly realize the inter-connectivity of e-wallet through QR code scanning mode, these innovations and bold attempts are currently dormant due to the impact of the pandemic.

Figure 2: Asian Wallet's acceptance sign display in Singapore merchant Fuhua, which has been connected to PromptPay and Doku through its own network.

Due to the fierce competition and the natural characteristics of enterprises, payment institutions with Chinese-funded background tend to more directly participate in or enter the core business of upstream and downstream partners, among which typical attempts include:

1. Payment companies expand business related to card organization.
For example, the thriving Alipay+ wallet network hopes to establish a transfer and clearing network based on electronic wallet.

2. Card organizations directly participate in merchant marketing, user diversion and other work, even directly participate in the transaction of some specific cross-border payment scenarios, beyond the receipt agencies and card issuers.
For example, UnionPay's cross-border B2B product plan almost directly abandoned the traditional order collection agency;

3. Large merchants directly enter the field of receipt or card issuance.
Examples include HelloPay, which Lazada tried to promote years ago, and ShopeePay, which was recently launched.

Crossover itself is not right or wrong. The key point still lies in the grasp of the market, whether the allocation of resources is in place, whether the new business can really play the role of a moat, or even develop into another main business.

On the one hand, Southeast Asian markets welcome the fierce collision and integration of Eastern and Western payment industries here, and on the other hand, they continue to establish and improve local payment related infrastructure.
On the whole, local electronic payment networks have been established in all countries, and the differences are mainly reflected in the penetration rate of electronic payment.
On this basis, recent developments have focused on two directions. First, the connectivity of countries in the region.
The connectivity of payment networks in countries in the region is mainly driven by government-led cooperation, such as the link between Singapore's PayNow and Thailand's PromptPay network.
However, as mentioned above, the regional connectivity attempted by payment companies also includes local payment companies in Southeast Asia. In addition to VIA network of new telecom group, which developed rapidly before the epidemic,
The XNAP network of Liquid Group, another local payment company in Singapore, enables the interconnection of another kind of electronic wallet through the main scanning of QR codes and the traditional card EC transactions.
Second, reduce the cost of electronic payment and increase the penetration rate of electronic payment.
Overall, in order to serve the profit target of the enterprise, the pricing system of the card organization determines that the cost of its payment products is still on the rise, and eventually these costs will be transferred to consumers.
Therefore, effective, cheap and even free local payment tools and networks are becoming more important and more popular with merchants and consumers, and the resulting connectivity is the inevitable trend.
However, it should also be noted that payment is a very important infrastructure, which requires huge investment in construction and maintenance. Finally, all users, including merchants and consumers, should share the corresponding costs of local payment network.

Most markets are dominated by account - based wallets.
Only in Singapore, perhaps due to cost, are pass-through wallets based on traditional bank cards popular.

The evolution of the payments industry before and after the pandemic

In recent years, the electronic payment industry is in the rapid development channel. All parties in the industry take cash payment as the biggest competitor to expand the overall volume of the industry.
Before the epidemic, the Chinese background payment industry as a whole and the local payment networks in Southeast Asia were in the process of rapid development and seizing the market share of the traditional international card group.
Chinese-funded payment institutions basically conduct business in the Southeast Asian market around cross-border payment. First, they provide receipt services mainly for visiting Chinese tourists, especially wechat Pay and Alipay, and invest a lot of resources to support innovative payment enterprises to expand acceptance and carry out various marketing activities in the core markets of Southeast Asia, such as Thailand and Singapore.
The second is to serve the payment needs of Southeast Asian tourists visiting China, from the early UnionPay card issuing business to the once-booming offline wechat Pay wallet recharge service.
The third is the northbound remittance business to mainland China, which rises with a new wave of cross-border remittance business.

The local payment business of Southeast Asian countries presents two characteristics. First, the penetration rate of the new generation of local FAST payment system is increasing rapidly. For example, in Singapore market, the PayNow service built on the traditional FAST network starts from the simple service of inter-bank transfer and gradually enters the field of merchant payment.
It has quickly become the preferred payment method for online and offline merchants with almost free payment, even showing a trend of replacing the traditional local debit card transaction network NETS.
Second, the rapid development of local aggregate payment services in various markets, especially the collection agencies or gateways that are equipped to accept both international card organizations and various local payment tools are increasingly popular with merchants.

In terms of localization and regionalization, UnionPay has made good localization progress in terms of the number and diversity of merchants it accepts due to the early launch of the service and the more homogenized products with the traditional international card group products, while the card issuing business has made good localization achievements in Thailand, Laos and other markets.
After entering the battlefield of mobile payment e-wallet, UnionPay continues to adhere to the card group rules and expand the card issuing business of traditional banks and various local e-wallets with virtual card products as the main focus, while Alipay+ and VIA network led by the new telecom Group, which emerged before the epidemic, develop in a more flexible way.
That is, different payment codes can be recognized through the wallet terminal so as to realize interconnection more quickly.
However, the above businesses are difficult to challenge the local payment tools of Southeast Asian countries, and more businesses are promoted from the perspective of cross-border connectivity.

With the outbreak and prolonged fermentation of the epidemic, traditional cross-border payment, an important source of income for the payment industry, has been greatly affected, and the sharp contraction of transaction volume has also brought many unexpected difficulties.
As a result, there have been many new changes. First, the collection business has developed more rapidly to aggregate payment, especially in the aspects of providing local payment tools, BNPL service, etc., while the collection business based on digital currency has also mushroomed.
Second, the rapid development of atypical payment services based on fund collection, cross-border and redistribution.
In the context of the rapid development of China's cross-border e-commerce industry, merchants are located in China and consumers are located overseas, resulting in a special phenomenon that payment schemes are located overseas and the customers of payment companies (namely merchants) are located in China. This kind of business is helping all kinds of innovative payment companies quickly integrate into the payment network of Visa/MasterCard.
And assist it to rapidly expand its business territory and market share in Southeast Asia and even Northeast Asia.
At the level of cross-border and re-distribution of funds, the essence of the business is still dependent on the traditional channels of individual US-funded international banks, and innovative payment companies play the role of retailers.
It can be seen that the payment industry, no matter 2C or 2B business, is still monopolized by western developed countries.
Third, the connectivity of payment networks in Southeast Asian countries is bound to accelerate again and even usher in a golden period of rapid development as Southeast Asian countries gradually realize the "coexistence" with the virus and gradually resume cross-border tourism.

An analysis of payment industry trends in the post-pandemic era

As an important financial infrastructure and service, payment industry has been paid more and more attention by governments and capital in Southeast Asia.
First, recent changes in the global geopolitical situation have made governments more aware of the importance of building their own payment networks and at least striving for connectivity with regional countries.
Secondly, the payment industry, as the most active part in the field of financial innovation, has been listed as one of the key promotion directions in the digital economic transformation by the government agencies of many countries. Meanwhile, the government agencies of various countries also pay more attention to the importance of the standardization of the development of the payment industry and constantly introduce various regulatory measures.
Southeast Asian markets have some characteristics, such as geographical proximity, cultural interconnectedness, vast area and young population, which make Southeast Asian countries become the preferred markets for more and more Chinese enterprises to go overseas, and the payment industry is no exception.
However, the characteristics of the traditional payment industry, such as large initial investment and poor profitability, are a major problem in the process of rapid and healthy development of the industry.

In the post-pandemic era, the following trends in the payment industry may be worth paying attention to.

First, the connectivity of payment networks in Southeast Asia is an inevitable trend.
Pre-pandemic connectivity projects led by central banks and industry-initiated cross-border payment networks will be tested once cross-border travel resumes.
However, most of the current solutions are connected in a one-to-one way. Due to different situations in different countries, different solutions may be derived from this connection in the future. It may be better in the land crossings with frequent traffic (such as the border between Singapore and Malaysia, the border between Thailand and Laos, etc.), as well as the areas where tourists are concentrated, such as airports and shopping areas.
The ultimate goal of intra-regional connectivity may be to integrate local payment tools of different countries into a unified network, or to abandon the traditional centralized network and realize business integration in the way of many-to-many interconnection.
In this process, the landing of front-end business is more dependent on local payment institutions, while the liquidation and clearing of back-end business, as a key technology, may be a more noteworthy business point.
Take ATM5, one of the local ATM switching networks in Singapore, as an example. The switching system behind it is provided by mastercard. Although ATM5 itself is not a typical business category of card organization, the technical advantages of traditional card groups in the switching network can be reflected.
Before the epidemic, UnionPay also made active attempts in the construction of transit networks in Southeast Asian countries, such as Thailand's TPN network and Laos' LAPNet network.
With the rise of electronic wallet connectivity services, perhaps the transfer system related technology output and services, even equity cooperation, etc. will be more commercial value and strategic significance for overseas payment institutions than competing for front-end users.

The second is to find new profit points in the payment industry.
The profit of traditional payment business itself is very thin, in fact, it also relies on the flow of the economy to get the opportunity to flourish.
No matter the construction of a perfect regional interconnected payment network or the construction of a payment ecosystem in a certain scene, it often means a large amount of investment in the early stage. The familiar regional wallet network has suspended all the expansion activities in the course of the epidemic and even has the possibility to stop completely.
Payments themselves are part of the service industry, so getting back to the basics and combining a practical payment solution with a reliable application area to service B2C or B2B-related capital flows may be a good way forward.
Recently, the new round of financing of Coda, a payment company, has attracted great attention from the industry. Its business is deeply bound to the game payment business.
The familiar GrabPay platform charge of Singapore $0.3 per ride in the Singapore market, if simply translated into merchant MDR, is a very significant amount of revenue.
Other good practice cases in the industry include ShopeePay relying on the rapid development of Shopee platform users, and Ctrip financial subsidiary TripLink relying on its huge advantages in the air travel industry to rapidly expand the B2B payment business based on virtual cards.

Third, technology and operation services are the core competitiveness of the payment industry.
It is believed that most people working in the payment industry have experienced being "stuck" by technology development or operational support.
In fact, e-payment itself is a part of the technology industry. Sales, price wars and even strategic resources on the front end can only be a temporary hero. The ultimate winner is the organization with superior technology and service, and this is clear by looking at the leading organization in the field of online receipt.

Fourth, look for business opportunities within the region.
A review of the development process of Southeast Asia's payment industry before and after the epidemic shows that a large part of the business is closely related to the Chinese market, from the collection service for tourists to the collection and payment service for China's cross-border e-commerce.
After years of talking about localization and regionalization of business, the payment demand in Southeast Asia, a market of nearly 700 million people, is itself full of imagination.
I believe you have noticed the rapid growth of Vietnam's total import and export volume recently. In fact, Lianlian Pay, the leader of cross-border e-commerce service, has been vigorously expanding its market to serve local sellers in Vietnam, which may be just one of the growth points shown in Southeast Asia.

Fifth, the trend of combining daily payment demand with digital currency.
The Monetary Authority of Singapore has issued three Digital Payment Token (DPT) licences and several more DPT licences have been approved in principle.
The trend to integrate daily payment needs with digital currencies in a compliant and efficient manner is becoming clear, and many attempts have been made by licensed and compliant payment companies, with more applications likely to emerge in the future.
Take Triple A, a payment company in Singapore that has been approved by MAS in principle, for example, its merchant side acceptance scheme has been put into commercial use.

Although there are still many uncertainties in the development of the novel coronavirus, what is certain is that all countries in the world have opened their doors and are running on the road to recovery after the epidemic, and Southeast Asian countries are no exception.
Payment, as an essential part of business and daily life, will certainly continue its development, innovation and redevelopment.
We believe that all parties in the payment industry can find their own positions in the tide of recovery and continue to jointly promote the rapid development of the payment industry in Southeast Asia.