Local payment methods in Asia: what do merchants need to think about?

Fortumo headed to INMA Stockholm & Money20/20 Asia

The digital economy of South-East Asia is estimated to triple by 2025 to $240 billion. With close to 500 million people and smartphone ownership above 60%, the region is in focus for both international and local digital content merchants.

But despite the large consumer audience hungry for entertainment and widespread online through smartphones, monetization remains a challenge. Users can be acquired by offering free content and running promotions, but how to convert these users into paying customers?

The payments ecosystem of South-East Asia is fragmented. SuperData Research indicates that only half of digital gaming transactions move through traditional payment methods: debit or credit cards and direct debit. The other half is split up between alternative payments: direct carrier billing, digital wallets and prepaid cards. In other words, merchants who rely only on bank-based payments miss out on half of the revenue.

With each country in the region having dozens of alternative payment methods to integrate, where do you even start? Here are a few considerations to keep in mind when putting together your payments strategy for the region.

Shortest path to the consumer

Regardless of the payment solution used, any online payment requires the consumer to have money available in an online environment.

In case of credit and debit cards, this money comes directly from their bank account. Wallets are loaded with money through an offline cash transaction or through online banks. Prepaid cards require the consumer to purchase or recharge the card offline, e.g. in a 7-Eleven or Alfamart. In case of carrier billing, the money is deducted from the user’s prepaid SIM card or added to their monthly phone bill.

With each payment method there are several companies between the consumer and the merchant that allow the transaction to happen, with each company taking its cut of the payment:

Comparison of companies involved in payment processing - Fortumo

Wallets add an extra layer on top of a payment method that the consumer already can access, but take an additional step to make the payment. With card-based wallets, the user can also make the transaction directly with their bank card. In case the money needs to be loaded to the wallet offline, the same result can be achieved through a prepaid card.

In case of carrier billing and prepaid cards, the least amount of additional companies are involved and the link between the consumer and the merchant is the shortest. However…

Consumer convenience

Digital content payments - purchasing credits in a game, subscribing to a streaming service or buying a new sticker pack in a messaging app - are usually impulse-based. The decision to make the payment is done in a few seconds and there is also expectation that receiving access to the content will be instant. The longer it takes for the consumer to complete the payment, the more likely they are to change their mind.

Let’s assume the consumer has never used any alternative payment method before. Here is what they will need to do to complete their purchase:

  • Wallets require the user to create an account and load the money onto their account either online (through their bank) or offline (cash transaction)

  • Prepaid cards require the user to head to their local retailer and purchase a prepaid card (cash transaction)

  • Carrier billing is by default available and usable by any mobile phone owner immediately

Digital content is purchased and consumed on mobile devices and any additional steps they need to take to complete the transaction will cause some users to churn out. In case of wallets and prepaid cards, it is highly likely that the user will need to take these extra steps.

In a country like Indonesia, even the most popular wallets are used by less than 25% of the population. It is also highly improbable that the user carries around a topped up prepaid card on the off chance that they need to make an online payment. Carrier billing on the other hand will be available immediately.

Integration complexity and technical capabilities

In case the user has a bank card or account, one integration is usually required to cover all the major card providers such as Visa, MasterCard and AmEx. Integrating wallets and prepaid card providers needs to be done one by one.

GSMA lists out the various mobile money services available in each country on its Mobile Money Deployment Tracker. In South-East Asia, there are over 40 mobile money services available today.

This means digital merchants need to integrate, launch and manage multiple wallet and prepaid card partnerships for each country where they have users. Since many of the wallets and prepaid card providers operate only in one country, international expansion requires even more payment integrations.

Beside the significant overhead from multiple integrations, some wallets and prepaid cards also have technical limitations, for example the inability to use recurring payments. Others do not provide a great user experience: for example, the user needs to visit a retail store, buy a scratch card and enter the PIN code on the card to load money into their wallet. This makes their usage in case of impulse purchases very unlikely.

Carrier billing gives merchants a simpler alternative. Companies like Fortumo have integrated local telcos in the region and merchants can start collecting payments from subscribers of many telcos through one integration.

Carrier billing has also gone through some of the most extensive quality control processes from the technical and consumer experience perspective out of all alternative payment methods. This is illustrated by the fact that it is the only alternative payment method used by global companies including Google and Apple.

Security and privacy

The more data a merchant collects about its users, the more valuable they are as a target to criminals. Data on the user’s personal financial details is even more valuable. Mobile fraud in Asia is increasing, as is consumer fear of having their payment information stolen and misused.

Digital wallets need to ask for personal information in order to verify the legitimacy of the transaction and ensure no fraud is taking place. This is a double-edged sword because in order to ensure that transactions are legitimate, the consumer needs to share a lot of information about themselves: their email, a password, card number, expiry date, CVC code, country, postal code, name and their address.

What kind of information is collected with carrier billing? Only the user’s phone number. Since physical access to the SIM card and device are required to complete transactions, there is no need to collect sensitive personal and financial information about the user.

In summary, what to look out for?

There is no doubt that alternative payments are a key to success for digital content merchants in South-East Asia. However, not all alternative payment methods are created equal. When assessing which payment method to add, digital merchants should ask themselves the following questions:

  • Least amount of companies involved: How many companies sit between the merchant and consumer and take their cut from the transaction?

  • Immediate availability to consumers: Is the payment method available to all users immediately? Do they need to create an account or make an offline cash transactions to make the purchase?

  • Simple checkout flows: How many steps does the checkout flow include and how many fields does the user need to fill out in order to complete their transaction?

  • Integration simplicity: How many integrations are needed to reach optimal market coverage? Is there overhead from expanding into new countries?

  • Security and privacy: In case of a data leak with information collected using the payment method, how big will be the damage on you and the consumer?

If you’re interested in exploring carrier billing and understanding how the payment method stacks up against other alternative payment solutions in South-East Asia, get in touch.