Wallet wisdom: The transformative power of Asia’s ‘Wallet Economy’
September 27, 2021 | By Rama SridharThis article was originally published in the Financial Times.
Recently, some impressive valuations have been reported for digital payments businesses in Asia, many of which are domestic fintech phenomena, barely known outside their home markets.
Through private equity funding rounds, stock market listings and the use of special purpose acquisition companies (SPACs), platform entities such as Singapore-based Grab, Indonesia’s Gojek and Bukalapak, as well as GCash and Paymaya in the Philippines, have caught the attention of investors and are now collectively valued in the multiple billions of dollars.
These payments platforms have grown rapidly by leveraging cutting-edge financial innovation to offer electronic payments, loans, credit cards and other services through their wallet offerings, usually delivered by apps downloaded on mobile devices.
This revolution in digital finance is transforming how consumers and markets operate, empowering businesses and boosting financial inclusion by bringing millions of people into a new, quasi-banking ecosystem in Asia.
According to a report commissioned by Boku, a mobile payments company, the wallet economy in Asia is set to have 2.6 billion users involving over $7 trillion-worth of transactions by 2025.
Wallets will be transformative in their economic power. Mastercard estimates that wallets alone are likely to contribute 0.5-0.75% annually to GDP growth (on average) across Asia’s economies over the next five years. This will happen through a combination of increasing financial inclusion, reducing cash in circulation (thereby increasing the efficiency of business and the public sector) and boosting consumer spending.
To appreciate the impact of wallets, it is vital to examine the factors that will propel their growth. Three in particular, stand out:
First, the wallet economy will continue to grow by 100-200 million people each year as more people use the internet for the first time to engage with payments offerings, displacing the use of cash (which accounts for about 70 percent of transactions across Asia currently). In Southeast Asia alone, more than 40 million people used the internet for the first time in 2020, according to a study by Google, Singapore state investment company Temasek, and consultancy Bain1.
Second, wallets will drive participation in commerce. Asia is set to account for 40 percent of an estimated $13.3 trillion in global retail sales this year, while making up 47 percent of $2.9 trillion in e-commerce transactions, and 65 percent of mobile commerce, worth $1.6 trillion, according to data from Euromonitor2. Mobile commerce itself is likely to grow eight times faster than brick-and-mortar retailing in the region, translating into additional annual spending of $600 billion for the wallet economy in Asia by 2025.
Third, wallet usage and the resulting digitization of the system will continue to improve economic operational efficiency and transparency for governments, regulators, and financial institutions. The World Bank has shown that increased use of digital means of payment also can help reduce the size and impact of the shadow economy, and the growing use of cost-effective solutions like QR codes and adoption of uniform standards for payments will continue to allow wallets to lower costs for merchants, while increasing electronic and trackable acceptance.
While the overall impact of wallets is incontestable, it is also worthwhile noting that not all wallets are created equal. Asia’s wallet economy provides an instructive contrast to the model that has been developing elsewhere in the world, particularly in the West.