Southeast Asia has become a tempting area of expansion for international corporates due to its high level of digital payments penetration, with a recent study indicating that nearly 90% of the population uses digital wallets or other forms of electronic payment. eCommerce is popular in the region, as the total value of the industry surged 40% annually between 2016 and 2021. Nontraditional banking is growing quickly as well, with some countries having a 75% smartphone usage rate despite just half the population possessing bank accounts.
Entry into this quickly growing economy is not as straightforward as it seems, however, especially when considering the cross-border payments necessary to do business in the region. This month, PYMNTS examines the unique challenges and opportunities for new entrants into four promising high-growth markets: India, Indonesia, Singapore and Thailand.
Cross-border payments complicate India’s rewards
India’s eCommerce market is one of the fastest-growing in the world, with annual online sales topping $67 billion in 2021. More than 88% of adults in India use some form of mobile wallet, and 833.7 million consumers are currently connected to the internet. Foreign companies such as Amazon and eBay have a substantial presence in India as well, allowing local merchants to market their wares both domestically and abroad.
Merchants looking to expand into India need to be cognizant of the fact that cross-border payments are relatively new in the region, however, and are thus largely unregulated. Additionally, while the Indian government allows foreign companies to own and operate business-to-business (B2B) eCommerce marketplaces, these companies may not distribute their own inventory. Such marketplaces also are not allowed to influence product prices, limiting newcomers’ ability to make a profit once cross-border fees are taken into account.
Indonesia’s geography poses obstacles
Indonesia’s eCommerce market saw substantial growth of 24% in 2022, making it an attractive target for foreign companies. The country’s geography as a massive archipelago poses steep hurdles, however, leaving it to rely heavily on expensive sea and air transport rather than roads, thus increasing eCommerce shipping costs and reducing profitability. Indonesia also is still a heavily cash-based economy, limiting the opportunity for cross-border payments, as most consumers will need to rely on legacy systems such as money orders and wire transfers rather than newer, digital methods.
Singapore offers a jumping-off point into Southeast Asia
Its strategic location, high level of digital integration and a large number of existing technology giants such as Carousell, Grab and Shoppee make Singapore a perfect launchpad for foreign companies looking to establish a regional presence. The country also has a centralized real-time payments system called PayNow, which expects to process more than 392 million payments by 2025. Singapore prides itself on being a free port and accordingly lets most products enter the country duty-free, with its Goods and Services Tax projected to rise to just 9% by next year. All these factors mean there are relatively few obstacles for foreign merchants seeking to enter this high-growth market.
Thailand beckons as the regional leader in digital payments
The country recorded 9.7 billion real-time transactions in 2021 — the fourth-highest number in the entire world — signifying a deep entrenchment of digital payment methods from which foreign companies could surely benefit. Cross-border payments remain a significant challenge, however, due to disparate government regulations between Thailand and its neighbors. Progress is underway on unified digital payment systems between Thailand, Malaysia, Singapore and many other countries in the region, but for now, corporates will need to navigate cross-border regulations on their own.
Local payment options critical for success
Customers are set in their ways and will readily abandon purchases if the shopping experience does not meet their expectations. Forty-one percent of merchants that do not offer local payment options lose 60% or more of their sales to cart abandonment, according to a PYMNTS study, so ensuring that these options are available should be a top priority for companies looking to do business in the region. This is especially important for merchants that plan to transact internationally. Those that offer local payment methods in the Asia-Pacific region generated 15% more of their cross-border sales from the region than those that do not. Cross-border payments remain a perpetual challenge, but ensuring that local payment options are available goes a long way toward preventing potential revenue loss.