How Credit Cards Are Fighting Rise of E-wallets in Asia
Which can you reach faster – your wallet or phone? That’s what the battle between credit cards and e-wallets is coming down to. A digital wallet, or e-wallet, is found within a smartphone and allows an individual to make electronic transactions, thanks to stored credit from a bank account or credit card, or via a credit card itself.
The most popular examples of e-wallets today include Apple Pay, Samsung Pay, Google Pay, as well as a handful or regional variants such as Grab Pay and Alipay in Asia.
However, credit cards are still a big business and, in most cases, are the primary source of credit and funds for e-wallets, which is somewhat ironic. The growth of e-wallets has also meant that millions of credit cards are being linked to them for funding purposes. As such, this is by no means a zero sum game as portrayed by some—the rise of e-wallets does not have to come at the expense of credit cards.
Credit card ownership in Asia is still high. In Singapore, seven in 10 consumers own at least one credit card, according to a study by market research company YouGov, and ownership rates rise with income levels. Many consumers still prefer to pay for online purchases by credit card.
E-wallet adoption is being driven by technology, changing human behaviour, and smartphone penetration. In China, 65 per cent of online transactions are made using e-wallets powered by AliPay and WeChat Pay. In emerging markets in Southeast Asia, where the majority of the population are unbanked and cannot apply for a credit card, digital wallets offer a strong value proposition. In Indonesia, for example, commuters pay Grab and Go-Jek drivers (the two dominant ride-hailing apps) with cash to top up their wallets.
Banks, of course, are also finding new ways to innovate and stay relevant in the credit card space through rewards, reduced fees, and improved customer experiences on digital and mobile. Singapore banks DBS and UOB have come up with cards targeted specifically at women, while others highlight the benefits of using a card to help offset your carbon footprint.
Standard Chartered recently rolled out digital credit cards and personal loans that are approved and ready to use instantly, reducing wait times from days to just minutes. Launched by the Land Transport Authority (LTA) in April, the SimplyGo scheme allows commuters to store their Mastercard credit card in their e-wallet and pay for their daily trips with a few smartphone taps.
The main perks and benefits of credit cards such as welcome offers, cash back, and air miles also reward consumers more so than e-wallets. The more innovative banks are already offering their own e-wallets. For example, DBS’ PayLah makes it easy to send and receive money from fellow account holders with just a mobile number.
A Lesson in the Future of Credit Cards from Apple
A personal wishlist was largely addressed when Apple unveiled the Apple Card in partnership with Goldman Sachs. It retains the DNA of any Apple product: simplicity, transparency, privacy, convenience, and security. It offers cash rebates like many credit cards, but on a daily basis rather than at the end of the month. This is instant daily cash straight into your account that you can use immediately.
Apple has shown the evolution of the credit cards by eliminating all fees: no annual fees, no cash-advance fees, no international fees, no late payment penalty fees. Every time there is a purchase you get an instant notification from the Apple Wallet. You’ll also be notified of any unusual activity. If you don’t recognize a charge you just tap to let Apple know. No more calling and waiting on call queues.
The physical titanium card also has no card number displayed. So if you lose your physical card, it cannot be used by anyone else and you can instantly deactivate it using your phone. That’s a clever security upgrade.
Finally, when you apply for the Apple Card you get your virtual card instantly. You don't have to wait for days or weeks to receive your card number and start using it. A key lesson here for the traditional card issuers is that Apple has reinvented the experience and not merely banked on leveraging technology to provide a better offering.
As we can see, virtual credit cards will soon become more commonplace, as we have also seen with digital cards being offered by incumbents like Standard Chartered. Going entirely digital and offering virtual cards appeals particularly well to millennials and e-commerce shoppers.
Why Cards Will be Hard to Replace
Credit cards from a business perspective are still misunderstood by many, but as part of this discussion on e-wallets, it's important to understand that the credit cards business is actually two businesses.
The first is card issuing: offering credits to customers, providing them with rewards and perks when they spend on the card, managing their accounts, and processing their payments. The second business is merchant acquiring: enabling merchants to accept card payments and get reimbursed.
The modern payment card industry is a marvel—an underappreciated, underrated miracle of modern commerce: you can travel to any corner of the earth, armed only with a piece of plastic bearing the Visa or Mastercard logo. Wherever you are in the world, you can be pretty sure somebody will accept your card and you know how it will work and that there is a well-understood process when things go wrong.
This offer is extremely powerful. Those who aspire to overturn the incumbent credit cards need a regional, if not global, strategy for how to become the consumer’s “default” or preferred payment mechanism. While this is a Herculean task in itself, credit card issuers recognize the threat and are innovating in many of the areas we have already looked at.
This year will be an interesting time for credit cards and e-wallets, especially in Asia. Some argue this could be the year when mobile payments overtake physical credit cards as the preferred way to pay for e-commerce, but doesn’t seem like it.
E-wallets are still a work in progress. We are only just getting started, and most underestimate the ability of credit cards to fight back. No matter what, we will see more innovation from both sides driven by technology, and that’s a win for the digital consumer in key areas like simplicity, transparency, rewards, convenience, and security.