What 2021 holds for payments in Asia

January 20, 2021 10:15
In the move toward using biometrics to authenticate payments, India is already ahead through its biometric system – called Aadhaar or “foundation” in Hindi.  Photo: Reuters

2020 has changed the payments industry forever. Cash is no longer king, and COVID-19 has accelerated a change that was expected to take several years. Restrictions and guidelines put in place to deter the spread of COVID-19, along with the health and safety concerns associated with physical cash and touching surfaces such as payment terminals, have forced consumers to change their everyday behaviour and led to surge in digital and contactless payments.

The pandemic has broken the inertia associated with doing business mostly in the physical world, and even though the shift towards these new payment methods was already underway, this rapid rate of change has caused consumer and retailer behaviour to leapfrog years’ worth of change in the space of a few months.

With consumers now becoming more comfortable with digital and contactless payment trends, we can expect to see continued innovation and acceleration in the payments industry throughout 2021.

Contactless goes Mainstream

Contactless payments have been around for over a decade and while the technology may have already been commonplace in China, the speed in which it has accelerated in the rest of Asia in 2020 is unparalleled.

The Generation Pay report from Worldpay from FIS® (NYSE: FIS) found that there is an increasing appetite for contactless and digital wallets since the start of the pandemic. Globally 61 percent find it easier to pay using contactless, and this number rises significantly for Singapore (74%) and China (81%).

While there are no laws limiting the transaction amount for contactless payments, in practice financial institutions do limit it or require signature verification for higher amounts. There have been conversations around increasing the limits, especially as we see a greater adoption of contactless during the pandemic. Earlier last year, Mastercard had announced a contactless limit raise across 29 countries. Moving forward, perhaps consumers could also be given control over what they want their limits to be, but security concerns need to be addressed first, with 47 percent globally still concerned that contactless card payments are not as secure as other payment methods.

Using Biometrics to Authenticate

Businesses are using new fraud technologies, including biometrics, to prevent fraudulent transactions. The main way biometrics could be used is through fingerprints, similar to how Apple Pay or Google Pay operate. This follows the Fast Identity Online (FIDO) standard, which uses public key cryptography techniques to provide stronger authentication. This removes the need for purchasers to remember a PIN or password, thus reducing the likelihood of hacking or misuse. Consumers can confidently pay online without any form-filling and feel safe that their biometric fingerprint is never leaving their device.

Using biometrics to authenticate payments and making that ubiquitous is what the industry is aiming for in Asia in 2021. India is already ahead through its biometric system – called Aadhaar or “foundation” in Hindi – which is the world’s largest biometric database and a system for sending rupees between any bank or smartphone app. It was also recently reported that Mastercard will be piloting in Asia a biometric card that uses a fingerprint to authorise transactions at in-store payment terminals.

QR Codes: The Future of the Store

QR codes saw remarkable success in Asia, particularly in China where virtually everyone pays using WeChat Pay or Alipay. Southeast Asian markets have not only followed in China’s footstep but taken it a step further through the implementation of unified or interoperable QR codes. For instance, the Singapore Quick Response Code (SGQR) or Duitnow’s QR in Malaysia standardize the QR code label across various payment applications or digital wallets, making it more efficient for both merchants and consumers.
In the wake of COVID-19, QR codes are taking over Asia again. Low set up costs and the unification of QR codes has spurred the adoption of QR payments for new entrepreneurs and small merchants. A point-of-sale (POS) terminal requires an initial investment of at least $1000, while the cost is significantly reduced to $10-$20 for the creation of a QR code, making it much more accessible for small businesses. Some providers are even waiving the costs to help businesses in Asia impacted by the pandemic.

While we might not expect a wholesale replacement of POS terminals, we are seeing a significant displacement of cash which will continue into 2021. Also, while most markets currently use a static code – which entails a two-step process to first scan and then input the payment information – moving ahead a one-touch payment experience will likely increase uptake. This means that scanning the code will capture your identity and the amount all at the same time. We can expect to see more experimentation with QR codes in Asia this year.

Driving Digital Currencies

Over the last year, the notion of central bank digital currencies (CBDC) and the role they could play in the financial services ecosystem has been widely discussed around the world. There are now over 60 CBDC projects globally, including China’s digital yuan or South Korea’s digital won. CBDCs uses blockchain tokens to represent fiat money in digital form and they would act as a replacement for notes and coins, providing better security, reducing fraud and lowering costs. Another major benefit is the promotion of financial inclusion especially as society becomes increasingly cashless.

CBDCs provide opportunities for innovation as they enable programmable money. For example, this could be used to create initiatives such as giving key workers a discounted consumption tax rates. However it is still unclear what the consumer sentiment is given this is a relatively new concept, and there needs to be a marriage of trust and opportunity for technology to see mass acceptance.

Digital currency initiatives can act as a way to rebuild better, and if they can fit in with consumer lifestyles by seamlessly integrating with their everyday life, there will be more opportunities for CBDCs in 2021.

The Future is Digital

The architecture for money is changing for good. COVID-19 has sped up the evolution of the payments industry and new innovative technologies will continue to be produced and developed over this year.

As we move into 2021, the future of payments looks set to be more personalized and tailored. Businesses will have to connect with their customers to find out what they want and need to create a more seamless experience. And as the displacement of cash continues, digital and contactless payments will become the norm, paving the way towards a cashless society.

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General Manager, Global eCom, APAC at Worldpay