Asia leads the world in digital wallet adoption. We examine the current state of the market, how startups and big tech companies are tackling the space, and the challenges they face.
Over the past 10 years, digital wallets have grown from a niche payment option into a worldwide phenomenon, accounting for 22% of point-of-sale spend globally in 2019.
While the trend is gaining traction around the world, digital wallet adoption in Asia is unrivaled. Digital wallets in APAC countries account for 58% of regional e-commerce payments and have surpassed cash at the point-of-sale, according to Worldpay.
Their ubiquity in Asia now presents a barrier to startup opportunity, as big tech giants and payments incumbents dominate certain countries within the region.
In China, for example, the digital wallets market is essentially a duopoly between Ant Group and Tencent, which are processing trillions of dollars in transactions each year. Meanwhile, in advanced economies like Japan and South Korea, credit cards remain popular.
In this report, we use CB Insights data to provide a snapshot of the state of digital wallets in Asia, the startup outlook, and challenges to widespread adoption.
TABLE OF CONTENTS
- What are digital wallets?
- Where the opportunity lies
- The current state of digital wallets in Asia
- The outlook for digital wallets in Asia
What are digital wallets?
Digital wallets — sometimes called e-wallets or mobile wallets — are consumer-focused apps to facilitate payments. Unlike their counterparts in mobile banking apps, digital wallets typically don’t accrue fees or recycle money into loans.
Commercial versions first took off in the late ‘90s, with PayPal as an early leader. But the technology truly reached the mainstream with the advent of smartphones.
In the US, names like Zelle, Venmo, and Square’s Cash App (recently valued at $40B as a standalone business) have gained significant traction by enabling peer-to-peer mobile payments. More recently, big tech companies are doubling down on their digital wallet efforts with Apple Pay, Google Pay, and WhatsApp Pay.
Despite the many wallet offerings from US-based companies, adoption in developed countries lags far behind Asia.
Plastic cards continue to dominate in the US because they are accessible and familiar — potential disruptors are up against a well-functioning ecosystem. Merchants have a fairly seamless checkout and consumers are generally kept happy with sticky rewards from their cards. Even new solutions from big tech players work on top of incumbent card networks.
QR codes have also been a significant lever for mobile wallets in Asia, and the trend is even starting to take hold in the US with popular retailers like Starbucks and Walmart adding the option at checkout.
Where the opportunity lies
Today, Asia is arguably the center for digital wallet innovation. In China, digital wallets account for a massive 48% of payment volume and 71% of e-commerce spend. But adoption is increasing across the globe. Digital wallets account for 32% of e-commerce spend in India, 25% in Germany, and 24% in the US, according to data from Worldpay.
It’s worth noting that digital wallet players remain fairly regionalized due to regulations. For example, Apple Pay is a significant player in the US, but has no presence in India. Similarly, Facebook’s much-anticipated WhatsApp Pay roll out in India has been held up by regulatory issues.
Mobile wallets have flourished in Asia because they “merely had to provide a solution that was better than cash,” as Lazard notes. Innovation in Asia has coincided with the rise of smartphones and powerful local super apps, which helped Asia leap ahead over the rest of the world.
However, the winners may have already been picked in China. Ant Group’s Alipay along with rival Tencent’s WeChat Pay is effectively a mobile payments duopoly. Alipay and WeChat Pay account for 54% and 39% of the country’s mobile payments market by value, according to The Economist. Already, there’s talk of anti-competitive behavior.
Elsewhere, regions like South Asia and Southeast Asia appear to offer more room for startup growth. India is home to 34% of digital wallet deals, followed by Singapore at 19%. This is significantly more than China, which is home to just 12% of deals.