Year of Rabbit: Leaping into a bumper year for digital payment

February 02, 2023 11:16
Photo: Reuters

An agile, speedy and proud animal, the rabbit can leap over obstacles and maintain its pace as it navigates the complex landscapes it finds itself in. A symbol of longevity, peace, and prosperity in the Chinese Zodiac, the year of the rabbit is a timely token for the digital payments industry.

Yet, in the midst of the Lunar New Year celebrations, we find ourselves facing a challenging landscape. Inflation is rising rapidly, Singapore, for example, has introduced a higher rate of GST, and in the tech sector we’re seeing a wave of layoffs as some of the world’s largest tech firms grapple to stay on course in the face of post-Covid corrections. However, it’s not all bad news. The fintech industry is expected to see significant growth in Asia this year and current predictions suggest the global payments revenue – which APAC accounted for over 50% of in 2021 – will top USD 3 trillion by 2026. As we leap over the economic challenges, there’s a lush landscape of opportunities for the tech and payment sectors across the APAC region to graze on.

Challenges present a hotbed for innovation
As the retail sector becomes even more competitive, transcending borders and channels, merchants and enterprises are fighting to get the attention of consumers, wherever they may be. But, as the digital payments rabbit leaps through this competitive landscape it must remember the lesson from that well-known fable – it mustn’t stop to rest on its laurels and be outdone by the slow and steady tortoise, but instead it must innovate to maintain pace throughout this year. Innovation and creativity thrive in difficult environments, so we should expect great things this year.

One area where we can expect to see creative use cases is Buy Now Pay Later (BNPL) systems across the B2B industries. Due to the larger and more expensive purchases involved in the case of corporates, it can be challenging to implement a BNPL system for B2B transactions. However, as more SMEs turn to BNPL for their 0% interest rates, we can expect businesses will take the leap to integrate BNPL systems to attract more customers in the current environment.

Across the APAC region, BNPL has continued to surge in popularity with consumers, evolving to become Live Now Pay Later (LNPL). When money is tight, consumers want to spread their costs for new work wardrobes, flights for their next escape, or even routine health and dental costs. We can expect consumer payment trends like BNPL and LNPL to continue to evolve with entrants into the APAC market likely to come from China and the US.

Alongside BNPL, new digital wallet functionality often combined with embedded finance services and apps will appear on the scene, paving the way for merchants, enterprises, and payment service providers to offer customers unrivaled and highly personalised payment experiences.

Where innovation grows, it is vital that regulation must follow, particularly in the payments industry where trust is of paramount importance. We have already witnessed active regulators over the last year in the region with the BNPL space and the crypto industry, protecting consumers whilst promoting innovation.

Digital banks on the rise

In a market that is forward-thinking from a digitalisation standpoint, it’s surprising to see that digital banking is a concept that has seen a slow introduction into the region up until now. Popular for some time in the US and Europe, in 2023, we will likely see digital banks surge in popularity across the APAC region. This will throw incumbent banks into a state of disruption in which they need to compete against offers of shopping rebates, improved interest rates, and sign-up bonuses as well as greater convenience and the streamlined interfaces of digital banks.

However, traditional banks are leaping towards the same opportunities as their fintech counterparts, increasing their offerings and stalling digital banks from winning the race for now. It will be exciting to see how the new and old players battle it out this year, in the hopes that this will also spur innovation in the banking sector.

Hopping into the metaverse

Could this be the year that most of us take our first jump into the metaverse? Shifting our perspective on reality, big tech companies and financial institutions are foraging for their pixelated piece of metaverse, which is estimated to be worth over a trillion dollars by 2024. In December, Indonesia's central bank (BI) announced plans to use the digital Rupiah to buy products in the metaverse in the future. Many central banks around the world are also developing Central Bank Digital Currencies (CBDCs), for use in the metaverse.

This emerging technology could have a transformative impact on APAC economies, with the metaverse having the potential to have its own digital economy with integrated payments and an avenue for commerce. Though it is still in its dawning stage of development, countries such as China and South Korea are already ahead of others when it comes to adoption rates and regulatory stances on developing and integrating the metaverse. Hopefully other markets in APAC will mirror these steps and we’ll see collaboration between regulators and industry players as we journey towards making the metaverse the next big transactional channel.

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Vice-president and head of partnerships for Asia-Pacific at PPRO