Online payments have been booming in the wake of the COVID-19 pandemic and this is expected to continue, with the total transaction value in the digital payments segment projected to reach USD8.49 trillion by 2022, according to a report by Statista.1
The bulk of the growth in online payments has been driven by rising e-commerce transactions, largely initiated by consumers who have fully embraced online shopping. Increased online shopping and the resultant spike in digital payments have turned many countries, particularly emerging markets, into a hot spot for fintechs in the payment space.
Lured by a relatively young demographic – nearly 90 per cent of people under the age of 30 reside in emerging markets2 – and favourable government policies to boost financial inclusion, fintechs are rapidly expanding in the region. One example is Stripe, one of Silicon Valley’s most valuable fintechs that launched in the Middle East in 2021, is now looking to expand across South East Asia over the next six to 12 months.3
Scaling challenges to capture opportunities
While rapid global expansion plans could help fintechs unlock significant benefits, they could also offer a host of challenges.
Firstly, fintechs need to invest in understanding the local payment landscape and regulatory expectations in order to scale faster, says Anurag Bajaj, Global Head, Fintech, at Standard Chartered.
“Global players entering our franchise markets in Asia, Africa and Middle East immediately aim to serve aggregated platforms, such as e-commerce marketplaces, to develop scale. Understanding the local payment infrastructure and applicable regulations is key to their success, whether these are emerging customer due diligence (CDD) standards, financial crime reporting and obligations, or the usage of virtual accounts,” he says.
Perhaps the most striking challenge is understanding the regulatory environment.
“Fintechs should consider it not as a barrier, but as an opportunity to explore new markets,” says Robert Clarkson, Chief Revenue Officer of Payoneer, a Nasdaq-listed fintech that specialises in digital commerce and cross border solutions.
“Generally speaking, the kinds of markets that we want to be regulated in are ones where the regulators have clarity in their communication, detailed and published guidance, and an understanding of the ramifications of their decisions. These factors give companies the ability to assess the costs and benefits of becoming regulated.”
Efficiency in real-time payments
The right partnership between a bank and fintech often results in decreased costs and creates more efficiency in real-time payments.
When Payoneer planned to expand its payouts and collections services in Hong Kong to serve its international network of corporate clients, it sought a partner bank that would assist it in implementing a real time API solution for its Treasury management activities.
By enlisting Standard Chartered’s services, Payoneer’s backend systems generate real-time API payment requests for 24/7 funds credit and receive API real-time payment status responses. The solution reduces the manual intervention required, lessens errors and increases automation for Payoneer, enabling their customers to receive money in their accounts instantly.
“I am excited about what can emerge from collaboration between fintechs and banks in the long run,” says Robert, adding that Payoneer often seeks to forge long-term relationships with banks when it contemplates expansion to new markets.
He explains that Payoneer and its banking partners are regulated financial entities, and all parties take their roles as stewards of the financial system seriously. Once the company has made the important investments in setting up such an alliance, the trusted relationship is allowed to grow and adapt to meet customers’ evolving needs, as well as explore new expansion opportunities that emerge.
And as payment fintechs mature, they often need an established banking partner that can help them with seamless Application Programming Interface (API) connectivity and provide them the ability to process payments globally.
“Leading fintechs in the e-commerce space will look for banks that understand their business and their requirements, and who have the product capability for payments, collections, reconciliation, FX, virtual accounts, all API-driven and available from one partner integration to service the merchants,” Anurag says.
Established banks like Standard Chartered are often seen as ideal partners for fast-growing fintechs who can utilise the bank’s expansive network across the globe.
Tapping into the emerging markets boom
In emerging markets, particularly in Southeast Asia, government and regulatory initiatives to improve financial inclusion are creating vast swathes of opportunities for fintechs that are helping to facilitate online payments. Since the start of the COVID-19 pandemic, more than 40 per cent of adults in low- and middle-income economies conducted an in-store or online transaction using a card, phone or the internet for the first time, according to a recent survey by the World Bank4.
But more importantly, emerging markets have also been rapidly embracing other forms of electronic payments, further widening the scope for fintechs and banks.
Mobile-based payments through scannable QR codes that authorise payments, digital wallets linked to a bank card or instant real time payment systems developed by governments are popular ways of facilitating digital payments in many emerging markets, particularly in Asia.
“Countries in Southeast Asia are very digital-friendly and natural markets to embrace digital payment solutions. Buyers are getting more sophisticated in their purchasing journeys, and we expect physical and digital experiences will continue to integrate and further work to complement each other,” says Robert.
He adds that businesses would need to adapt to changing payment preferences in the region without jeopardising customer experience, prompting them to seek the services of fintechs.
How banks and payment fintechs can strike a successful partnership to boost innovation
As the payments landscape transforms across emerging markets, Anurag says there is more scope for partnerships between banks and payment fintechs, particularly as the latter could play a larger role in financial inclusion by serving segments that traditional banks are not able to.
“Banks can partner payment fintechs that have been able to utilise digital technologies to originate customer relationships electronically and have a process to onboard, monitor and use analytics to deliver services to their clients through an ecosystem of merchants and users. Banks essentially have the infrastructure fintechs need in order to service those customers’ needs,” Anurag says.
Banks that have a global presence can provide the infrastructure to simplify cross-border payments for fast-growing fintechs, allowing them to provide a seamless digital experience for customers. Meanwhile, these fintechs could also use the banks’ expertise and their investment in developing areas of payments, which are set for a rapid evolution over the next few years as digital currencies and real-time payments take precedence.
Standard Chartered has a long history of partnering with companies to unlock innovation in payments. In 2020, it became the first bank to complete the first cross-border live transaction on Trusple, the digital trade service platform of Ant Group’s blockchain-based technology solution. By integrating its services with Trusple, the bank can offer both buyers and sellers improved access to trade finance.5
In 2018, Standard Chartered also partnered with AlipayHK to enable the world’s first cross-border remittances from workers in Hong Kong to the Philippines. The move aimed to cut out middlemen, settling transactions in seconds.
However, Anurag says there are more interesting opportunities in which the bank can showcase its innovation.
“There are going to be interesting opportunities arising from areas such as central bank digital currencies, particularly in wholesale payments, as well as in cryptocurrencies and digital assets. These are all spaces that Standard Chartered is investing in heavily to try and understand and is participating in,” says Anurag.
“From the consumers’ perspective, we can expect to see the appearance of seamless, real time 24/7 cross-border payment capability at a relatively low and decreasing cost.”
For now, the advent of new payment methods, such as the buy now, pay later model, amid growing e-commerce transactions in emerging markets offers both banks and fintechs an opportunity to unlock significant potential from their partnerships to ease payment experiences.
1 Digital payments report by Statista: https://www.statista.com/outlook/dmo/fintech/digital-payments/worldwide#transaction-value
3 Stripe expands into SE Asia: https://techwireasia.com/2022/06/payment-giant-stripe-plots-southeast-asian-expansion/
4 Covid-19 drives surge in digital payments, World Bank Report, https://www.worldbank.org/en/news/press-release/2022/06/29/covid-19-drives-global-surge-in-use-of-digital-payments
Our Sustainable Account enables you to contribute to sustainable development whilst maintaining daily access to your cash.