Is There Room for a Borderless Digital Wallet?

    Insights » APAC » Is There Room for a Borderless Digital Wallet?

    Booming APAC wallets are starting to expand to other markets and aiming to onboard foreign travelers. Yet, challenges in these areas remain substantial.

    Borderless Digital Wallet in APAC

    Tonet Santana

    Senior Consultant – APAC

    Contact the author

    The digital wallet revolution in the Asia-Pacific (APAC) region is one of the biggest and most fascinating stories in the payments world today. Digital wallets have helped to reduce the use of cash in China and are rapidly becoming the preferred payment method in APAC for both online shopping and in-store purchases.1 In part, the buzz around APAC wallets arises from the fact that they offer users seamless payment experiences — including contactless in-store payment options — and a wide range of services, operating as a one-stop-shop for all things digital. Examples include China-based WeChat and AliPay; GCash, from the Philippines; and GrabPay, based in Singapore, offering ride-hailing, food delivery, e-commerce and more.  Yet, one limitation of these wallets is that they are generally accepted only within one country and cater mainly to locals. Simply put, wallets still stumble when crossing borders — or serving those who do so.

    Some wallet providers are addressing these issues by forging agreements with local payments providers, financial institutions, and merchants from different countries, enabling users to pay with their wallets when traveling abroad. Others are pioneering solutions to allow foreigners to open accounts while visiting the wallet’s home country. These efforts raise a key question: Would it be possible to create borderless digital wallets that could be used in any country?

    The drivers of wallet adoption

    A digital wallet is essentially an online service or system that enables users to store their credentials and assets digitally and make financial transactions electronically. Currently, this solution accounts for 70% of the value of all e-commerce transactions and 50% of point-of-sale transactions in APAC. By 2025, 84% of Southeast Asians are projected to use digital wallets.2

    Number of User Per Wallet in the APAC Region
    APAC ECOM TOP PAYMENT METHOD
    APAC POS TOP PAYMENT METHOD

    A key driver of wallet use in APAC is the fact that providers have managed to create value for both merchants and consumers. For instance, at GCash, users can make transfers to other users for free, and merchants pay a low 2% fee for scan-to-pay QR transactions. Similarly, Alipay offers its users a financially appealing solution with minimal to no fees for everyday transactions conducted with Alipay Balance. For withdrawals or transfers to bank accounts, users pay a modest 0.1% fee for values over RMB 20,000. And for merchants, Alipay charges a 0.55% transaction fee, roughly half the fee for processing local credit cards.

    Ultimately, users of these wallets have a large part of their financial and digital consumption activities mediated by the super apps, allowing companies to accumulate a valuable amount of data about their consumers. This data is then used to enhance their monetization strategies and increase wallets’ capacity to cross-sell all these products and services. One of the results of such a finely tuned strategy is that, over time, digital wallets have eaten up credit and debit card volumes in APAC. In fact, even when cards are the ultimate funding source of the transaction conducted via a wallet, customers’ brand recognition leans towards the wallet, not the card provider, which further exacerbates the perception that wallets are quickly taking over.

    Expanding beyond national borders

    One limitation of the wallet system is, as mentioned, its restricted acceptance across borders. Wallet providers have tried to address this pain-point via agreements with foreign groups to allow their systems to be used in other countries. Others established limited operations in specific markets. That is how GrabPay expanded to the Philippines and Malaysia, for instance. Initially, it was an in-app feature of the Grab platform, mainly used for ride-hailing cashless payments. In 2018, however, Grab was granted an e-money license by the Philippine’s central bank, which enabled the company to expand its GrabPay services to include bill payments, QR code payments, prepaid top-ups, and so on.

    Alipay has expanded its overseas merchant acceptance network and is now available as a payment option for transportation in countries such as South Korea, Singapore, Malaysia, the U.S., Italy, and Australia. Additionally, it offers online payment channels across 200 countries,3 with its global expansion facilitated by Alipay+, a cross-border payment solutions provider (that allows merchants to accept not only Alipay payments but also other digital wallets from other countries).

    Using Alipay+’s infrastructure, GCash is accepted in select merchants in countries like Japan, South Korea, Singapore, Malaysia, Hong Kong, the U.S., France, Italy, Germany, and the U.K. In addition, it recently launched a service known as GCash Overseas, which enables overseas Filipinos in 16 countries across Asia, Europe, and North America to download and use some of the GCash app features, despite having Philippine SIM cards.4

    The problem is that the user experience provided by all these initiatives falls short of the superior experience that wallets can offer their consumers in their home countries. The functionalities of wallets and their super apps are tailored to specific consumers in specific markets, and it is challenging for companies to transport them to different countries. In other words, while the credit card payment experience is uniform everywhere, the digital wallet experience is tied to a specific super-app environment, which varies per digital wallet and per country. It is extremely hard to replicate. One example: GCash Overseas can be used to send money to the Philippines, but once in this country, visitors cannot use this wallet to pay for a coffee, or anything else, because its system is not integrated with the domestic payment structure of GCash.

    Expanding overseas acceptance is also a slow and friction-ridden process. Companies must first establish the necessary financial infrastructure to facilitate cross-border payments and ensure their licenses to operate. Then, they must persuade local merchants to accept their payment solutions. The agreements with local payment providers are typically complex, and face challenges due to market and regulatory differences. On top of that, wallets attempting to integrate their systems into foreign partners also face interoperability and compatibility issues due to differences in operational structures, product offerings, and so on.

    Onboarding foreign visitors

    The progress of wallets in developing systems that can accept foreign visitors has also been slow. Today, when visiting an APAC country without a local wallet, a foreigner may struggle to make simple purchases. For instance, in China, many merchants no longer accept cash, and the acceptance of wallets from other countries is also limited. Similarly, in Singapore, while it is relatively easy to find merchants that accept payment through dozens of digital apps, most of them are local. And in the Philippines, it is common to find merchants who only accept GCash or cash—they don’t accept the one payment method designed for international commerce—cards.

    AliPay and WeChat are probably leading the race in creating systems that enable foreigners to use their wallets. In March, Alipay announced that foreign visitors can now spend up to $2,000 in their mobile app without registering their IDs, compared to the previous limit of $500.5 Yet, advances in these initiatives also face major hurdles. One of them is the wallets’ need to conduct identity checks on international travelers to ensure compliance with anti-money laundering and other regulations. This adds extra costs and a layer of complexity to the wallet operation, which may pose a problem considering the typically low margins in financial transactions for wallets.

    Key takeaways: wallets’ race for new frontiers

    Although wallet providers seem to be making some progress toward borderless commerce, they are advancing slowly, and are still far from offering users a consistent experience across different countries. In fact, it is more likely that, before we witness the adoption of an efficient cross-border wallet system, we will see the establishment of a global Real-Time Payment (RTP) solution — perhaps as a result of the advances of the Nexus Project, the Bank of International Settlements’ initiative aimed at enabling instant cross-border payments.

    For payment providers and other players in the payment sphere, an analysis of the recent phase of APAC’s wallet revolution offers four takeaways:

    First, keep an eye on the efforts of APAC wallets to expand internationally.

    Wallet providers’ search for partners to expand their international footprint may generate valuable business opportunities for payment providers, financial institutions, merchants, and other industry players in targeted countries. Staying informed about wallets’ strategies and interests is crucial to seize the best opportunities ahead of competitors.

    Second, expect the race between wallets and RTPs to intensify.

    Wallets and RTP solutions are competitors in the race to build global payment solutions, yet they also collaborate, and interesting initiatives may result from the combination of the two systems.

    Third, if consumers are king, so are merchants.

    Beyond offering an excellent consumer experience, creating value for merchants through lower fees and more business opportunities was crucial to boosting wallets’ expansion in the APAC region.6 This is something that card processors and other industry players should keep in mind as they strive to grow or remain relevant.

    Fourth, focus on the financials.

    At some point, super apps were seen as the holy grail of the tech industry, with various groups trying to launch their own self-contained digital ecosystems. Yet, countries have different regulations and market demographics, while consumer preferences also vary. The strategy may not be as successful in more competitive markets, and its operationalization is complex. The wallet business is typically marked by low fees to consumers and merchants, so anyone venturing into this space should make sure the apps’ non-payment offerings are robust enough to ensure a healthy bottom line.

    Next Steps

    Contact us for a comprehensive analysis of digital wallets in APAC.


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    Sources

    1. The Global Payments Report, Worldpay, 2024 ↩︎
    2. The Global Payments Report, Worldpay, 2024 ↩︎
    3. “Alipay remains the world’s best financial platform,” Capital Media, 2024 ↩︎
    4. GCash official website, 2024 ↩︎
    5. “China is making it much easier for foreigners to use mobile pay,” CNBC, March 2024. ↩︎
    6. See, for instance: Ian Gross, Kristofer “Kriffy” Perez, and Bee-Lian Quah. “Why Hasn’t Apple Pay Replicated Alipay’s Success?”, Harvard Business Review, 2020 ↩︎

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    Tonet Santana
    tonet@paymentscmi.com

    Tonet is a seasoned leader in payments with nearly two decades of experience not only in traditional banking but more recently in emerging new digital payments and technologies in local, regional and global roles covering more than 100 markets. Having worked in the Philippines, Hong Kong and in New York, Tonet brings a unique viewpoint, a deep understanding of local nuances vis-à-vis regional and global prioirities and a great and profound appreciation of the power of diversity and inclusion.

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