Danai Pathomvanich
Sep 24, 2015
ASEAN with its 600 million largely underserved cash-based economies offers a tremendous opportunity for payment technology entrepreneurs.
In a recent interview, Matthew Driver, MasterCard’s group executive, global products and solutions, Asia–Pacific said the vast majority of the region’s transactions are in cash, and few people have bank accounts.
“That presents an opportunity.”
Macro-level
At the macro level, Driver said the opportunity is big enough to consider ASEAN as a legitimate alternative to India and China.
ASEANs current GDP at $US2.3 trillion is growing annually at five per cent.
More importantly, ASEAN still has positive demographics, especially in Indonesia where people under 30 are a significant part of the population. In addition, consumption in ASEAN is at 50 per cent of GDP.
Efficiency opportunity – transforming cash economies
Because 85 per cent of all transactions in Southeast Asia are still in cash, Driver said a huge opportunity exists financial-technology entrepreneurs.
“Cash is expensive to produce. It’s expensive to distribute. It costs an economy anywhere between 0.5 percent and 1.5 percent of GDP, and that’s before you start counting its ability to facilitate illegal or other undesirable behaviors.”
Moreover, electronic payments he said create greater transparency and help support initiatives related to anticorruption.
Here in Thailand, several private sector initiatives are underway to help governments distribute benefits more effectively by eliminating cash.
Payments such as social assistance to individuals can be more efficiently and transparently distributed electronically because it reduces administrative roadblocks and potential fraud issues that are prevalent when cash is distributed.
Mobile payment systems
According to Driver, only about 25 per cent of the total ASEAN adult population has bank accounts.
However, in most countries a large majority of the population uses smart phone technology.
“.... there’s a massive opportunity to include people by using a mobile phone and having a payment mechanism linked to it, creating opportunities for them.”
These mobile applications can especially help ASEAN’s underserved agrarian economy.
“ It could give families in small villages the ability to save for their future, to make bill payments without having to leave their fields or close their small provisioning store—by ensuring a safe and secure way of transmitting remittances at a lower cost.”
Overseas remittances
ASEANs millions of overseas workers that regularly remit funds to their families can also benefiting greatly from cost-effective payment technologies.
“A number of countries in Southeast Asia—the Philippines, Indonesia, Thailand and Vietnam, specifically, but also Myanmar—are large, inbound markets for remittances.”
Many of these overseas workers are currently forced to pay between 9 to 10 percent of remittance amounts just to facilitate the payment.
New payment systems developed by entrepreneurs will reduce these costs substantially.
M-PESA success model
ASEAN entrepreneurs are closely following how Safaricom and Vodacam, the largest mobile operators in Kenya and Tanzania have been able to latch onto low income money flows with its M-PESA accounts.
M-Pesa allows users with a national ID card or passport to deposit, withdraw, and transfer money easily with a mobile device.
Initially, M-Pesa was developed as a service that microfinance borrowers could use to conveniently receive and repay loans using the Safaricom network of airtime resellers and retail outlets.
Customers can also deposit and withdraw money in all of these outlets.
M-PESA allows users to transfer money to other users and non-users, pay bills, purchase airtime and in some markets transfer money between the service and a bank accounts.
It basically operates a branchless banking service that enables users to complete financial transactions without visiting bank branches that are often only ubiquitous in urban areas. It has become a highly popular, affordable payment service without any bank involvement.
Most importantly, mobile money sent to and from mobile phones through text messages and other means piggy-backs on existing communications systems and doesn’t require building costly new communications infrastructures.
