The (Untapped) Opportunities Within Asia’s Payments Landscape by Goldman Sachs

Shanghai, China

Online payments are quickly dethroning cash as king across Asia. We sat down with Goldman Sachs’ Geddes Johnson to discuss the untapped opportunities — and latest misconceptions — within Asia’s payments landscape.

In your role in Investment Banking, you spend a lot of time speaking with clients who are interested in investing in the region. What have you learned about the evolving landscape?

Geddes Johnson: Simplistically speaking, we segment the payments landscape into consumer-facing payments, namely digital or mobile wallets, and merchant-facing payments, such as processing. We also view Asia as three separate and distinct markets: China, India and Southeast Asia. Many clients, however, tend to focus solely on consumer payments in China, often concluding there is little room for new entrants across the region. While we agree the consumer-facing Chinese digital payments market, at this point, has extremely high barriers to entry, we see ample opportunity and room for multiple winners across the region, especially in merchant services. Furthermore, what works in China may not necessarily work in Vietnam or in any of the other countries across Asia given that demographics and regulatory factors are driving differentiation across country-specific payment ecosystems. Bottom line: We view the success of certain consumer-facing wallets, in China and elsewhere, as reflective of the magnitude of the broader opportunity instead of as a barrier to entry.

From a payments perspective, how different are each of these markets?

Geddes Johnson: Overall, successful mobile wallets represent a uniquely Asian phenomenon, but the factors driving the pace of adoption among countries vary. In Southeast Asia — which is made up of six different countries — mobile wallets are gaining traction among a young and digitally native demographic. Nearly 60% of the population is younger than 34 years old and 150 million people will enter the workforce in the next 15 years, which will fuel payment volumes and opportunities to cross-sell digital financial services. But the absence of a uniform licensing regime has prevented the emergence of a true pan-regional player so the “arms race” for market share is just beginning. In fact, the macro and demographic tailwinds are pushing market evolution faster than regulators can keep up.

Meanwhile, India — a country with an estimated 1.4 billion people — has created a public digital infrastructure, including a biometric database of more than a billion citizens, in an effort to accelerate the company’s tech sector and help to lower the cost of access to financial services. Furthermore, and importantly, the market is accessible to foreign investors. As a result, global companies such as Google, Facebook and Amazon, among others, have rushed to set up shop in India, building payments ecosystems atop the government’s digital framework to strengthen the stickiness of their respective offerings. At the same time, hundreds of millions of Indians are shifting online and starting to transact for the first time, thanks to plummeting prices for data and smartphones, which have fallen approximately 95% and 33%, respectively, in three years. In some respects, India serves as a petri dish for the bottom-up development of a digital fintech ecosystem. It will be fascinating to see how it plays out.

Lastly, in China — where nearly 70% of the population has a smartphone — consumers are paying for nearly everything with their phones and QR codes. China has leapfrogged checks and cards, going straight from cash to mobile. That said, it can be challenging to create a meaningful presence in China given the consumer focus and geopolitical landscape. From a corporate perspective, there are also limits on how much foreign companies can own, making partnerships and joint ventures with local fintech companies an attractive option.

Where do you see the most opportunity?

Geddes Johnson: We are spending a lot of time thinking about the merchant payments opportunity which packages core payments acceptance with a suite of other merchant services, such as payroll and tax solutions. The merchant payments model, popularized by the likes of Square and others in the US, is relatively nascent — even nonexistent — across Asia. For instance, small- to medium-sized businesses in the region may not be ready to add payroll software or tax solutions, but many can benefit by accepting mobile payments from retail consumers, or the ability to advertise or lend online. Consider this: Square works with more than 2 million merchants and processed nearly $50 billion in volumes the first half of this year — and currently has a $25 billion market cap. But in China, one of the leading, public independent payment service providers, Huifu, reaches more than 7 million merchants and processed over RMB1 trillion in volumes (approximately US$150 billion) over the same period, yet is valued at less than $600 million. That’s a massive gap in valuation which we believe highlights an opportunity that many of these companies across the entire region have, which is to build out a merchant services offering anchored by a payment product. 


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