Going digital: Transformation of Asia-Pacific financial landscape

This article was originally published on The Business Times.

The payments provider has been forging new tech-based products and partnerships to keep up.

Mastercard is banking on its longstanding innovation and amping up partnerships with digital players to stay ahead of the neobanks and fintechs that have further tightened the money game in Singapore and also in Asia.

The entrance of digital firms into the banking space is an important evolutionary step for Singapore, Mastercard Asia Pacific executive vice president for services Matthew Driver said, as the increased competition will bolster innovation in the local banking industry. Contenders for the licenses include consortiums made up of e-commerce, telecommunications, and fintech firms.

Currently, Mastercard may have the upper hand in Singapore. A report by analytics company GlobalData revealed that credit cards took the lion’s share or 60% in the cards payment market in 2019, with payments projected to hit US$116b (S$158b) in 2023. But e-wallets are increasingly closing the gap, with the digital payments segment now making up US$14.27b in 2020 according to data firm Statista. By 2025, this value is sighted to rise to $40.38b in 2025, a separate report by ResearchAndMarket noted.

Driver remains confident of Mastercard’s position in the local scene. “The Monetary Authority of Singapore (MAS) has been very careful to establish thoughtful guidelines to ensure the new entrants will be suitably capitalised and that there’s a level playing field for all parties.”

In an exclusive interview with Asian Banking & Finance, Driver shares how Mastercard has been preparing for the digital onslaught, and how digitisation will affect the domestic and regional banking industry as a whole.

Q: How does Mastercard APAC plan to position itself in Singapore and in the region with this dawning era of digital banks?

When you think about it, Mastercard itself is one of the original fintech players, which created an international network more than 50 years ago connecting buyers (cardholders) and sellers (merchants), thereby reducing the need for cash. And as a fintech we have continued to innovate throughout our history—it’s part of our DNA. 

We started with enabling debit and credit card payments but quickly branched into other payment types as commerce globalized and e-commerce connected consumers to digital marketplaces all over the world. We have grown our payment capabilities extensively to cater for new clients, markets and opportunities, now offering real-time payment solutions and applications, advanced cybersecurity and fraud solutions, and a huge range of data, advisory, loyalty and engagement capabilities.

We are also co-creating new services with partners to help enable commerce and financial inclusion like the Kionect Farmers network whilst advocating for diversity, decency and sustainability. We are the preferred partner of fintechs across the globe because we are global and flexible, we lean into our partnerships to create new solutions and we want to create social impact.

We cultivate relationships with startups, have a globally established fintech accelerator programme called StartPath and, at the Singapore Fintech Festival 2019, we launched our Fintech Express programme as part of our global Mastercard Accelerate initiative designed to simplify the way our global payments work with fintechs around the world.

Q: How will digital banks affect the card and virtual payments in Singapore and in APAC?

Digital banks will significantly accelerate and deepen the use of physical and virtual payments solutions across the region as payments are a great space where they can create relevant and impactful differentiation for their target customers.

Neo-banks and fintech players are fast adopters of prepaid and debit cards, both physical and digital, often because prepaid platforms are very flexible and can be used for everything from travel and gifting to per-diem expenses and, in some cases, closed-loop payments.

Digital banks like Monzo, N26 and Revolut all started using prepaid propositions, and are now actively marketing debit cards linked to checking accounts. Newer fintech players like 2C2P, YouTrip and Matchmove are also bringing new innovative prepaid solutions to market in partnership with banks across the region.

A number of the bigger platform players have also moved into credit cards, like Lazada in Thailand and Amazon and Rakuten in Japan, and following the success of Apple Card in the US and Nubank’s purple credit card in Latin America, more will surely follow in the region.

Digital banks and fintechs also tend to be immediate users of contactless and QR technology deployed via virtual card form factors securely embedded in mobile banking applications as we have seen with Google Pay in India, AliPay and WeChat Pay in China and LinePay in Thailand and Japan, all of which are transforming the industry.

Digital players are also quick to use open banking standards and so-called faster payment applications. Indeed, any payments service that is digital first and seamless will be better able to meet a customer’s needs. The use of virtual cards in business-to-business payments for procurement and expense management purposes, as well as wholesale and B2B payments, are good examples and have proven to be very successful for digital players like WEX and eNett.

We also expect that digital banks may choose to use virtual cards to solve consumer use cases as well.

Q: Are there opportunities that traditional banks and fintechs can pursue with these digital disruptors? How do you think collaborations will play out?

Fintechs and traditional banks often make excellent partners as they have complementary capabilities. Banks provide the fintechs with access to their distribution network, balance sheet strength and trusted reputation with clients. Fintechs provide banks with more nimble technical infrastructure, helping them deliver and continuously upgrade more compelling and innovative client experiences.

This is not to say that “fintegration” is an easy process. In particular, traditional banks have to strike a careful balance between keeping pace with the nimbleness of new technology whilst protecting the customer’s privacy and personal data. We do believe that in this hyper-connected digital world, no one player can really do everything alone anymore, so having the ability to not only agree but successfully execute ecosystem partnerships where all parties mutually benefit (fintech, bank and customer) is an increasingly important aspect of doing business today.

These partnerships can range from simply having the bank connect to a fintech application using secure APIs to offer a specific product capability or service—Citi and DBS being great examples of banks leveraging developer zones for this purpose—to the development of a much more elaborate ecosystem model like CBA has done in partnership with Microsoft and KPMG in Australia, or like Chinese players Pingan and Tencent have successfully done.

Q:What is your five-year forecast for Singapore’s financial institutions given the rising digitisation of financial services? What are the possible trends?

What we do know from other markets is that rising digitisation and increased competition in financial services will only serve to expand the overall market, create greater customer choice, drive innovation, and deliver increased value for consumers, business and corporates. Singapore already has a high level of digitisation thanks to low-cost data, strong local infrastructure, high smart phone penetration and savvy market participants.

We also believe that a natural outcome of this digitisation will be the accelerated growth in electronic payments as there is still plenty of room for growth. Whilst the majority of retail payments in dollar volume terms are electronic, by transaction count they are not, so there is still a huge opportunity for further payments innovation in Singapore. The opportunity is even bigger in the small business and commercial segments, as well as in wealth management where there has been a rapid increase in the number of technology platform-enabled wealth management platforms.

As Singapore continues to drive greater connectivity as a “smart city”, even more payments flows can be digitised, releasing value by creating greater transparency, security, and efficiency. Rising digitisation of financial services also creates important opportunities around the management, organisation and control of data: thoughtful data privacy policies have to be implemented to protect customer data in the right way.

Singapore continues to have a market environment that is conducive to innovation and we are confident that, with continued thoughtful regulation, the ever-resourceful Singapore financial sector will embrace this era of open banking and continue to find new and better ways to serve the financial needs of consumers, small business owners, and corporates.