Money Matters

Cashing in on cashless

04:10 SGT August 17, 2017
Emerging cashless payment modes can be potentially beneficial for restaurants and consumers

Technology rules nearly all the mundane aspects of our life. And
the few that it still does not will soon be usurped too. While we may be comfortable sharing personal pictures, thoughts, ideas and conversations via gadgets, are we fully ready to let them creep into our wallets and bank accounts too?

The answer is yes. Online banking and secure account access over the Internet have eased the banking chores greatly in the recent past. Although scepticism surrounded the use of Net banking and banking apps at the beginning, it has become an inevitable part of the modern, fast-paced life. With the emergence of mobile wallets and easing conditions for credit cards, going fully cashless is not a surprise anymore. While some western countries transitioned from cash to cards to digital payments, a lot of growing Asian counterparts went straight from cash to phone or digital payments.

Even before these evolved payment technologies made way, countries such as Hong Kong and Singapore had moved to cashless payments with Octopus and EZ-Link stored value cards, respectively. Going cashless is said to not only save time and prevent the risk of carrying a lot of money for the consumer, but also streamlines the retail experience and heightens accountability.

In 2016, China’s mobile payments hit US$5.5 trillion, roughly 50 times the size of the $112-billion US market, according to consulting firm iResearch. The nonexistence of Facebook and Google gave a chance to the innate, QR-code-based WeChat to gain ground.

The European Central Bank said it will phase out the €500 (US$585) note by 2018, a move reminiscent of the US Federal Reserve stopping US$500, $1,000, $5,000 and $10,000 notes in 1969. These measures were put in place to fight terrorism, money-laundering and tax evasion.

For high-value purchases, consumers are encouraged to opt for the convenience of paying cashlessly, thus giving in to the evolving trend. Some countries have brought in size limits on cash transactions, such as Italy, where it has been illegal to pay cash for anything worth more than €1,000 since 2011.

Cashless payments at the beginning were rife with insecurities, online frauds and phishing attacks. But with sophisticated technology, there is now a wide range of payment methods from paying through a “wave” action (Visa pay wave) and integrated credit cards (Swype) to even WeChat and Line payments, in addition to the early players such as credit cards and PayPal.

Let us look at some of the major economies in Asia and how they are embracing this trend.

With an ageing population and rising importance of smartphones, it is not unusual for everyone in major Chinese cities to pay with their smartphones for just about everything. Popular payment
platforms include WeChat Pay and Alipay, along with Apple Pay and Android Pay, which have put cash payments on the backseat.

Last year, China’s mobile payments hit US$5.5 trillion, roughly 50 times the size of the $112-billion US market, according to consulting firm iResearch. The absence of Facebook and Google gave a chance for the innate, QR-code-based WeChat to gain ground.

And thanks to the popularity of mobile payments in the country, WeChat Pay and Alipay are most commonly used to pay for everything, from a cab ride to luxury handbags in metro cities. The smartphone wallet is so essential that even street musicians in several Chinese cities are also said to be using it to earn tips; they have put up boards with QR codes so that passers-by can simply transfer them tips digitally.

This means, Ant Financial, the financial affiliate of Alibaba, and Tencent, the two Chinese Internet companies that operate Alipay and WeChat respectively, can further monetize the transactions and charge other businesses to use their payment platforms. The payments data collected can also used for other purposes such as new credit systems and advertising.

Industry experts believe the two operators will surpass credit card companies such as Visa and Mastercard in total global transactions in the coming year. This is because Ant Financial and Tencent offer lower payments, partly by allowing smaller vendors to make use of a simple printout of a QR code or their phone, instead of an expensive card reader. A backend system that stores a record of user accounts, instead of having to communicate with a bank, also keeps costs low.

But the potential future problem with this embrace of online payments is the near-monopolistic operations of two private smartphone payment platforms that rule the digital payment market in China as of now. It does, however, makes things difficult for foreign visitors and business travellers who are unlikely to use local apps and struggle with cashless payments that do not support internationally recognised cards or wallets.

Going cashless is said to not only save time and prevent the risk of carrying a lot of money for the consumer, but also streamlines the retail experience and heightens accountability.

South Korea
In South Korea, cash is no longer king. Because if it were, Samsung smartphones would not come pre-installed with Samsung Pay. Cash payment in South Korea is among the lowest in the world (about 20%), says the Bank of Korea, which is reportedly steering the country to go cashless by 2020.

South Korea’s booming financial technology (fintech) industry and growing support from the government to ease financial regulations early in 2015 encouraged the country’s Internet giants, Naver and Kakao, to invest more in mobile payment systems that have become more widely used. Naver Pay’s subscribers have grown to more than 16 million, while Kakao Pay’s subscribers stand at 14 million.

Both are expanding their online financial services, with Kakao obtaining in February this year US$200 million in funding from a subsidiary of Alibaba, China’s e-commerce giant.

According to data from the Bank of Japan, the value of digital e-money transactions grew to ¥4.6 trillion (US$41.6 billion) in 2015, a fraction of the ¥49.8 trillion in credit card payments. In August last year, a survey by insurer Meiji Yasuda showed that cash was still the preferred payment method for 70% of Japanese across all age groups. For all its tech-savvy image, industry players have cited the fear from decades of economic stagnation stemming from overspending and incurring debts as reasons for the slow growth of cashless payments in Japan. Moreover, for a country with a crime rate so low that people feel safer carrying around wads of cash, virtual security is not fully trusted yet.

Slow to accept change, the traditional society of Taiwan is finally moving towards cashless payments. According to Taiwan’s top financial regulator, the Financial Supervisory Commission (FSC), mobile transactions accounted for only 26% of the total electronic payments in the country, as opposed to mobile payments in South Korea (77%), Hong Kong (65%) and China (56%). The FSC, however, expects mobile payments to rise to 52% within the next five years.

Earlier this year, seven banks had been given the green light by the FSC to offer digital wallet and mobile payment services. And they are Taipei Fubon Commercial Bank, Cathay United Bank, E. Sun Commercial Bank, Taishin International Bank, CTBC Bank, First Commercial Bank, and Union Bank of Taiwan.

It is also thumbs up for users of iPhones and Apple watches as they can make payments through Apple Pay, thus making Taiwan Apple’s 14th market for its digital wallet service. Samsung Pay also wants a slice of the market.

An early adopter of mobile payments in Taiwan is credit card issuer CTBC, which has been teaming up with various platforms such as PChome Online, Yahoo and LINE Pay to allow consumers to use their mobile wallets.

LINE Pay was launched in Taiwan in 2015, and together with CTBC, it rolled out a CTBC LINE Pay Card at the end of last year. According to the company, it has nearly 1.5 million users in Taiwan and is working with 11,000 merchants, including convenience stores such as Family Mart and 7-Eleven.

While big players such as Visa and MasterCard evolved early in the digital-first country, there is a surge of innovative payment methods sans cash. According to the 2016 Visa Consumer Payment Attitudes survey, close to nine in 10 Singaporeans prefer to make electronic payments, as opposed to using cash. Singapore is a developed market where more than 60% of all transactions are made electronically. However, this means that around 40% of payments are still transacted using cash and cheques, presenting significant opportunities for cash displacement, Ooi Huey Tyng, Visa’s country manager for Singapore and Brunei, told the local media. The PayPal Innovation Lab in Singapore last year initiated a partnership with two tech companies — TabSquare and Integral Solutions — to facilitate in-store digital payment capabilities in some 200 restaurants. The initiative basically does away with the long-winded process of ordering the bill, the server going paying with the card and bringing it back to the table.

Nets Flashpay and local firm Liquid Group also rolled out its cashless payment systems in the predominant cash-only hawker centres. To pay, customers can scan a QR code and key in the amount owed on the mobile application. This is then confirmed by the hawker, who receives an app notification. After the payment is made digitally, the users have to show their phone to the hawker for acknowledgement.

Cashless payments at F&B outlets and retail will continue to surge in Asia, given the rise of smartphones and Internet access. Not only does cashless payment offer consumers convenience at their fingertips, but it also eliminates the potential of exposing oneself to theft in some of the emerging economies.