This is Part 1 on “Mobile Wallets in Southeast Asia”. In this article I will give a brief explanation on what mobile wallets are, why and how do they operate in the region, as well as which are the kinds of main players in the region.

What are Mobile Wallets in the first place?

Digital wallets are one of the hottest topics in Fintech in Southeast Asia right now. And for the purposes of this article, all digital wallets will be synonymous with mobile wallets, because that is the direction the industry is moving towards where products/services are becoming more mobile-centric.

If you are used to living in a more developed economy like the US, Europe or Singapore, the concept of a digital wallet might be more constrained to the likes of PayPal, Visa Checkout, MasterPass, Apple Pay, Samsung Pay and GooglePay. But then one comes to a place like Vietnam and Indonesia, and one thinks — “Why are there so many local wallets floating around? Shouldn’t people just prefer to trust a big international brand for such an important financial service instead?”

Welcome to the Wild Wild Southeast of digital wallets in Asia, where almost every large influential corporation, alongside startups and tech giants, are vying to grow their own mobile wallet / payments system, in order to fill the gap between the financial services which customers in Asia desire vs what is currently offered by the local banking and financial infrastructure.

Digital wallets that typically exist in developed markets
A snapshot of the numerous mobile wallets available in Vietnam

But let’s break down for a second what the term “mobile wallet” even means. In more developed markets where people have credit cards and bank accounts, a mobile wallet is merely an application which stores a digitized version of your credit/debit cards and/or is linked to your bank account which acts as a source of funds. After connecting to any one of these source of funds, one can simply whip out their phone, open the mobile wallet app and “tap” to pay at stores that accept mobile wallets as a payment method. This equates to a faster, more convenient way for us to pay for everyday goods.

“Tap”-to-pay contactless technology

Why do Mobile Wallets exist in Southeast Asia?

So what’s so different about the way things work in Southeast Asia then? It basically boils down to the fact that most of the population in the region is unbanked. The only places in the region with a high enough credit card penetration to have traditional mobile wallets would be in Singapore and the largest capital cities in the region, e.g. Bangkok, Kuala Lumpur, Manila, Jakarta.

How do Mobile Wallets exist in the region? Distinguishing between “E-wallets” and “E-Money”

Then how in the world can a mobile wallet work in a world where people don’t even have bank accounts, what more debit and credit cards you ask? Simple — people have cash, and they just need a means to digitize and store that value of a currency. Enter the world of reverse O2O (O2O typically stands for online-to-offline), where offline-to-online mobile wallet top-ups are seen as the remedy. What this means, is that a local can go to to a 7–11 or other physical partners to add value to their current mobile wallet balance, otherwise known as “e-money” balance.

“E-money” is different than merely connecting a debit/credit card or bank account to a digital wallet or “e-wallet” as often named by governments in the region, because this is an actual store of value (similar to the concept of adding value to your Venmo or PayPal balance). E-wallets on the other hand can be more easily thought of as a platform that integrates with many different sources of funds.

In a world where bank accounts and debit/credit cards are common, the difference between “e-wallets” and “e-money” are not distinguished because these sources of funds can be drawn upon whenever needed (and with sufficient digital documentation) without users having to maintain any balance within their mobile wallets. In a primarily cash-based economy however, physical cash has no direct means of connecting to the mobile wallet, so a virtual e-money balance needs to be maintained in order to account for that initial cash transaction instead.

This is one of the reasons why Southeast Asian government e-money regulations have become more stringent over the years — without properly accounting for the e-money balance’s source of funds (cash-based transactions are harder to trace and the additional value to the balance is entirely controlled by the e-money player), one might imagine e-money players simply manufacturing digital currency out of thin air if they wish to.

Which are the main Mobile Wallet aka E-money players in the region?

In the region, the 3 main categories of e-money players happen to be banks, telcos, and tech companies, consistently across all countries in the region. The speed of e-money roll-outs differ by country and government attitudes towards them differ as well, as showcased through the varying levels of regulatory hurdles presented to players.

In Indonesia for example, in order to protect the interests of traditional banking and telco companies in the country, e-money licenses have been slow to be granted to tech companies such as Shopee, Grab and Tokopedia, of which their mobile wallets/e-wallets are currently operating under limited scope only (e.g. able to receive refunds and cashback from the platform, but users are unable to top-up and send payments). In other words, these tech companies have the license to operate e-wallets but not e-money.

In fact, of the 20 or more e-money licenses granted in Indonesia, 11 are to banks and 5 are to telco firms. Go-Jek (Indonesia’s answer to Uber) happens to be the only large non-bank or non-telco player with a valid e-money license, which enables users to add value to their mobile wallet balance and send money to other Go-Jek users.

Illustration of topping up one’s mobile wallet balance through a Go-Jek driver — Step 1: Pay your Go-Jek driver cash. Step 2: Check your existing Go-Pay balance before top-up. Step 3: Your Go-Jek driver will help to top-up your Go-Pay balance. Step 4: Check your new Go-Pay balance after top-up.

That’s it for Part 1 on Mobile Wallets in Southeast Asia. In Part 2 (coming soon), I plan to explore:

  1. Who is winning the e-money war? Especially, how do tech companies stack up against banks and telcos?
  2. Why tech companies are moving into mobile wallets in the first place despite personal finance not being their main industry?

About Caroline

LInkedinOne of those darn job-hopping millennials who is passionately curious about the business and technological undercurrents that change and shape Southeast Asia. I’ve worked in finance, consulting, and am currently a payments product manager, so you know I have a serious case of FOMO/constant soul searching. The thread that links them all together – an appreciation of how money and finance make the world go round and round. Throw in the speed of tech and you get a hurricane. Needless to say, I like fintech.

