It’s banks versus Alibaba in digital payments turf war in Southeast Asia

Billionaire Jack Ma, chairman of Alibaba Group Holding Ltd., looks on during news conference in Hong Kong, China, on Tuesday, Nov. 1, 2016. Photographer: Anthony Kwan/Bloomberg

Over the past two months, some 1,000 part-time workers for DBS Group Holdings Ltd. have fanned out across Singapore’s famed food courts, trying to entice mom-and-pop hawkers to use the bank’s digital payments service, called PayLah!

“Hawkers need speed, and they are afraid that using PayLah! may not be fast enough when the queues are very, very long,” 19-year-old Erica Chiang, who has signed up 50 food vendors in her seven weeks working for DBS, said on a sweltering Wednesday afternoon. “Once they know the product, they become interested.”

Chiang is on the front lines of a push consuming banks across Southeast Asia these days: defending against Jack Ma’s Alibaba Group Holding Ltd. and its payments affiliate Ant Financial, which are targeting the region as a major growth market.

Southeast Asia’s banks have long been spared the competitive onslaught that saw their peers in China cede that nation’s giant payments market to Ant Financial and Tencent Holdings Ltd. That’s about to change, as Ma lines up partnerships across the region to win over some of the estimated 450 million people with limited access to banking services — and then use that position to go after the lenders’ core customers.

“We view the ‘Big Techs’ with large platforms as the ones we should be more concerned with,” said Sandeep Lal, head of digital banking at DBS.

Government Help

Underscoring the perceived threat, Singapore’s government on Tuesday proposed new rules to make it easier for banks to invest in non-financial businesses, including e-commerce and digital-payment platforms. In announcing the move, Finance Minister Heng Swee Keat cited “increasing competition from online and non-financial players.”

Digital payments in Southeast Asia, home to some 630 million people, may reach $62.3 billion this year, according to the research firm Statista. The transition to digital offerings will put pressure on other lucrative areas for banks, like cross-border transactions, said James Lloyd, a Hong Kong-based fintech specialist at consultancy EY.

“Banks will not be making the same profit margins in this market in five years,” Lloyd said.

China stands as a looming reminder of what happens when banks don’t respond quickly enough. Alipay and an offering from Tencent carved up more than 90 percent of the country’s $5.5 trillion mobile payments market between them in just four years.

Ant Financial has set up partnerships in Thailand, Indonesia and the Philippines to offer services like lending and money transfers. Together with Alibaba, it is also piecing together a digital payments business in heavily-banked Singapore.

Ant Financial’s tie-up with Ascend Money, a unit of Bangkok-based retail and telecoms conglomerate Charoen Pokphand Group, illustrates its approach. Charoen Pokphand runs the 7-Eleven franchise in Thailand, which has almost 10,000 outlets across the country. Thais can sign up for Ascend Money’s product — known locally as TrueMoney — in 7-Eleven outlets, and use it to pay for online shopping or at a range of stores, even if they don’t have regular bank accounts. They can top up their TrueMoney accounts in 7-Elevens with cash.

The 7-Eleven network dwarfs even Thailand’s largest bank, Bangkok Bank Pcl, which has about 1,200 branches across the country. And Ascend says it has more than 20 million users across Southeast Asia, mostly in Thailand.

Two Steps

“We start by serving the under-served, unserved customers, similar to in China,” said Doug Feagin, the former Goldman Sachs Group Inc. partner who now oversees Ant Financial’s international operations. “Then we look to expand that to a much broader customer base.”

Ma, through Alibaba and Ant Financial, is also stitching together an e-commerce and payments network in Singapore through the acquisitions of Lazada Group SA, online-grocer Redmart and HelloPay, a mobile payments service now rebranded as Alipay. Lazada, involved in e-commerce, payments, transport and storage, on Wednesday said Alibaba will invest another $1 billion in the company to boost its stake to 83 percent.

DBS is moving to stave off the challenge by linking up with traditionally cash-heavy businesses. The bank is working with ComfortDelGro Corp., Singapore’s largest taxi firm, to equip 16,300 of its cabs with terminals that allow payments through PayLah! by the third quarter.

E-Wallet

Other Southeast Asian banks are making similar pushes into digital services by introducing so-called e-wallet and payments options via mobile phones. Malayan Banking Bhd., Malaysia’s largest lender, has introduced an e-wallet that allows clients to send money gifts on special occasions. In Thailand, Kasikornbank Pcl has set aside 5 billion baht ($147 million) a year for investment in digital-banking technology.

“If we don’t do anything, we believe there could be an impact to our business and revenue,” said Michael Foong, Maybank’s chief strategy officer.

The banks that fail to adapt will face a double-whammy of lost customers and higher costs, according to Denis Bugrov, a senior advisor at McKinsey & Co. As customers switch to mobile payments, the lenders may find it harder to justify the expense of their branch networks.

“Those that don’t do that will obviously get stuck with a high-cost base that will become a disadvantage, and smart and sophisticated people like Alibaba will then come in and potentially do that customer adoption themselves,” Bugrov said.

Also Read

The Rise and Rise of Jack Ma’s Alibaba

Jack Ma’s Ant Financial Eyes more deals in Global Expansion

Alibaba in Talks to acquire Singapore’s Redmart for $30-$40m

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

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Following vacancies can be applied for (only in Singapore).   

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  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.