By Chris Kapfer
Liquid Group founder and CEO, Jeremy Tan, describes the current payments landscape for non-bank financial institutions and believes personalisation to be the defining feature of the next generation payment networks.
While traditional banks might have been taken back by the rapid growth of payment fintechs and how they positioned themselves around core customer needs, they are slowly coming around and fighting back. The next wave of mobile payments or rather mobile banking with payments will be driven by banks, said Jeremy Tan, founder and CEO of Liquid Group. At the same time, he also expects that the industry has not seen the end of more digital apps and platforms across different consumer sectors with large number of consumers, such as airlines, taxis, ordering platforms, may join the fray in mobile payments.
“Today, the technology cost and barrier are completely gone and 20 years from now all payments will be done on mobile,” Tan said.
In particular the cost of servicing the unbanked rural segment has gone down dramatically. Financial inclusions will take time but for the first time there is a real chance big apps and platforms can succeed what banks accomplished marginally.
“For non-bank wallets, there is still a process where people have to download the app, need to have liquidity into the apps, need to top up and then how to pay,” Tan mentioned. “There are still last mile cash point interactions which needs to be addressed, but consumers don’t need to have ATM cards, or credit cards or passbooks anymore. The approach is completely different.”
Emerging winners will be those that provide end to end financial services, regardless whether those are banks or non-bank financial institutions , Tan believes. In this process, banks’ wallets, their financial services, and their market share might change. The other group which will be successful, according to Tan, offer a principle service that gets massively adopted and people interact there every day such as what we have seen with messaging platforms but also transportation or telcos. “The biggest brands there with a few million or hundred million customers eventually will jump into the payments space to engage better their own customers and providing basic services and payments.”
Non-bank financial institutions smartly exploited the gap left open by banks. They were too occupied in building their internal digital platforms and busy moving products and services into the mobile app, instead of looking at the customer in the first place.
The first wave of technology and fintech companies in payments, Tan said, were driven by platforms regardless whether it was social messaging, booking, taxi, or e-commerce. They saw payments as a natural extension of their interaction with customers as everybody pays for something every day.
“In building their own digital platform banks took all their brick and mortar banking financial services and digitise it into mobile applications, that is the first phase, and we can see the varying phase of competency in bank apps today. We are now moving towards the beginning of the second phase where banks realised they can use their existing platforms not only for transaction processing but a means of engagement.”
Tan believes that the competitive cycle may have started to turn in favour of banks. “Banks will increasingly challenge those players. At the end of the day financial services is no just about payments it’s about depositors, credit lines, insurance, home loans, and the distribution of financial services.”
And banks are good in those areas. By relooking at their business as well as their distribution models and combining those with having years investing in their technology, risk and operations, Tan believes we will see banks will gain momentum in digital payments.
Unfortunately for banks, Tan went on, none of the super apps stuck to their own corner and went into financial services. “If those platforms had kept away from financial services banks would have come to them regardless. There will be alliance between those two but stand-alone payment apps will not survive.”
“Non-bank financial institutions that entered payments will aim to move up quickly the financial food chain to expand in all sorts of financial services otherwise they cannot turn a profit or be competitive if their payment product is built on costs provided by other banks,” explained Tan.
Such is the reason behind Grab, Go Jek, and similar entities have developed deep strategies into developing comprehensive financial services. To them, payments is just an entry point. They will be thickening their financial service and product solutions fast. Tan said, “They are well capitalised but they also will have their own cut throat competition.”
While the conversion from footfall into app and payment usage is not straightforward, Tan acknowledges, that owners of big customer bases such as airlines and telcos will seek to monetise their engagement and move to the payments space and then do more.
Tan anticipates that mobile NFC will probably be existing beside mobile QR, although we believe mobile QR will be more prevalent in ASEAN/Asia in general. “NFC will probably stay for a while but it is hardware dependent. There might be some large closed payment ecosystems which continue with NFC but leveraging this technology on a global $20 trillion payments market is not sustainable.”
The industry focus is currently on building interoperability within a country and between countries. “The ASEAN region agreed on their domestic standards as of 2019 but if you look at the collage of QRs on stickers at the merchant front, it not only creates the impression that there are too many players, it also impedes adoption. For example in Singapore, there are more than 50-60 cards in the market but nobody complains there are too many – it is called choice. This is because it’s almost fully interoperable.”
Liquid Group, in partnership with Changi Airport Group rolled one of the first integrated QR agnostic payments and marketing platforms for more than 200 merchants with over 800 acceptance points located at Changi Airport’s Terminals 1 to 4. Merchants can manage the offers and discounts digitally which also cuts the need for cashier training.
The next generation payment networks are being more robust, more capable, seamless and automated as compared of what it is today and provide completely personalised offers for micro-segments and eventually the individual consumer. The final outcome will be that every customer has a different price at the retailer.
Tan said, “The aggregation and consolidation of individual parameters from a bank perspective will create a totally personalised pricing. To the naked eye at the merchant site, there are no promotions at all any more, it’s all in the app.”