Like so many around the world, Urmi Bhattacheryya has cut back on her use of cash during the pandemic.
“I think I’ve switched to Google Pay and Paytm almost entirely over the last year in quarantine,” says the Delhi-based journalist who uses the apps for everything from buying sportswear online to purchasing food from vendors’ carts. So ubiquitous have these digital solutions become that she can even make mobile donations to some of the poorest members of the Dalit community, India’s lowest cast. “They all have these apps on their phone now too.”
By November 2020, 47 percent of Indians had already reported using less cash for purchases than before the Covid-19 outbreak, according to a YouGov survey of over 20 countries. The figure was even higher in emerging markets like Thailand, Malaysia, the United Arab Emirates, Vietnam, Indonesia and a few mature markets.
Though cash is still the only way that billions of people around the world make purchases for consumer goods like fashion, the uptake of alternative payment methods has leapt forward since the onset of the pandemic, progressing five years in less than 12 months, according to McKinsey’s 2020 Global Payments Report.
“We saw a huge increase in mobile penetration in the first year of the pandemic‚” said Marius Costin, head of EMEA (Europe, the Middle East and Africa) sales for PayU, which facilitates payments for most of the world’s largest 100 apparel brands.
Electronic forms of peer-to-peer and consumer-to-business payments have seen increased use across several of the fashion industry’s key geographies, benefiting global services such as Stripe and PayPal, China’s WeChat Pay and Alipay, Japan’s PayPay and Line Pay, along with a fast-growing list of buy-now-pay-later services like Klarna that have gained popularity among fashion consumers.
In a bid to get closer to the industry’s decision-makers, Afterpay has inked high-profile partnerships with Australian Fashion Week and New York Fashion Week while its UK service Clearpay has linked arms with London Fashion Week.
Lesser-known payment methods are now empowering consumers in increasingly important emerging markets
But change has been especially quick in regions like Africa, South Asia and South America where contactless payments, online banking and the use of mobile payment apps are historically low. Looking to capitalise on the opportunity, investors have poured over $23 billion into fintech start-ups in emerging markets in the past five years, according to a recent report by Catalyst Fund and Briter Bridges.
Lesser-known payment methods are now empowering consumers in increasingly important emerging markets to purchase the fashion they want from around the world, as long as brands are ready to meet them where they spend.
PhonePe, Google Pay and Paytm Battle for India
Ten years ago, only six non-cash transactions were made per person each year in India, according to the country’s reserve bank. That changed with the establishment of the Unified Payments Interface (UPI), which allows people to make payments instantly between over 200 banks nationwide using apps on their mobile phones.
Introduced in 2016, use of the UPI has grown at a ferocious pace. Both the number and value of monthly transactions more than tripled in the two years to April 2021. In that month alone, 2.6 billion transactions worth almost $70 billion were made using the UPI.
The vast majority of payments on the interface are made using apps such as Google Pay and Walmart-owned Indian firm PhonePE. India-based Paytm recently revealed plans to raise an additional $3 billion in a stock offering that would bring its valuation up to $29 billion, but it is still playing catch up.
If ambition in the Indian market can be measured in cricketing sponsorships, PhonePe is going to be hard to beat.
PhonePe had over 100 million monthly active users in January 2021. The total value of payments through the app reached $300 billion last year, according to Walmart’s 2021 Annual Report. The service is already widespread, having partnered with 19 million stores, apps and websites, including Indian online fashion giant Myntra, which stocks global brands such as Nike, H&M and Marks & Spencer.
If ambition in the Indian market can be measured in cricketing sponsorships, PhonePe is going to be hard to beat. They’re sponsoring four franchises, as well as the TV broadcast on Star Sports and the digital broadcast on Disney+Hotstar.
M-Pesa and the Rise of Mobile Money in Africa
Mobile money is a service that allows people without bank accounts to make transactions using their phone number as their account number. There are now over 1.2 billion such SIM card-based accounts globally, according to a 2021 GSMA report, and transaction values are growing quickly, up 22 percent last year to $767 billion.
Mobile money began as a way for city earners to safely send money to family and friends in remote areas, but it has since evolved into one of the most popular and flexible payment methods in emerging markets. It is used not only to send money but to pay bills and make online purchases.
Of the estimated 310 mobile money services worldwide, 171 are in Africa. Examples include EcoCash in Zimbabwe, MoMo in South Africa, Paga in Nigeria and Tigo Pesa in Tanzania. One of the most popular is M-Pesa, which launched in Kenya in 2007 and now operates in 15 countries. The “M” stands for “mobile,” while “pesa” is Swahili for “money.”
Merchants who accept M-Pesa can now reach over 40 million customers, most of whom don’t have any other way to pay for online purchases. M-Pesa can be used to shop for fashion and accessories on Africa’s largest e-commerce platform, Jumia, which stocks brands like Adidas, as well as sites like Afrikrea, which helps thousands of “micro-retailers” sell African fashion to 170 countries worldwide.
M-Pesa and other mobile money services are well-positioned to take advantage of the African Continental Free Trade Agreement that came into effect on January 1 this year, eradicating 90 percent of tariffs and diminishing non-tariff barriers between signatories. The agreement will connect 1.3 billion people across 55 countries.
Admittedly, Africa currently accounts for just 2 percent of global trade, but payments provider eShopWorld expects to see significant growth in e-commerce across the MEA (Middle East and Africa) region, especially in countries such as Nigeria and South Africa and the United Arab Emirates.
Nubank and Oxxo Revolutionise Payments in Latin America
Latin America’s unbanked population is around 50 percent, and as high as 70 percent in some countries, excluding many from online shopping. But in the five months to October 2020, 40 million people in Latin America opened bank accounts for the first time, according to a study by Americas Market Intelligence and Mastercard.
Government subsidies helped drive the shift, with programmes in Brazil, Colombia and Argentina all requiring users to open an account to receive funds. Covid-related programmes like these are estimated to have reduced the unbanked population in Latin America by a whopping 25 percent.
Brazil’s branchless bank Nubank has been one of the beneficiaries, growing from 12 million customers in 2019 to 34 million in January 2021. Their services, which include a mobile banking app and credit cards that max out at as little as $10 per month, have helped them become the largest digital bank in the world by the number of customers and app downloads, according to TechCrunch. They’ve recently expanded into Colombia and Mexico, hoovering up venture capital along the way. Series G funding of $400 million brought their valuation to $25 billion.
In parallel to the increase in bank account ownership across Latin America, workarounds for those who don’t yet have them are becoming more powerful. The voucher system offered by Mexico’s Oxxo convenience stores is one hugely popular example.
In the five months to October 2020, 40 million people in Latin America opened bank accounts for the first time.
Users order items online and receive an invoice, which they can pay in cash at one of over 20,000 Oxxo stores, to complete the transaction. Boleto in Brazil and Baloto in Colombia offer similar voucher systems.
“Every little village has an Oxxo store in Mexico,” says Scott Lindsay, who heads marketing in EMEA for eShop World, which works with fashion brands in 200 countries worldwide. It’s an option he recommends to clients looking for the quickest wins at the lowest costs.
“Offering as many payment methods as possible is not the way to do that,” he says. Instead, most brands should focus their energies on a group of high-performance platforms across high-priority emerging markets.
Oxxo is working hard to maintain its edge in Mexico. Its partners now include Amazon and Mercado Libre, Latin America’s largest e-tailer. Oxxo also announced a new payment app called Spin in March of this year, with the payments processed by Visa, opening up e-commerce to millions of people who don’t have bank accounts. All users need to sign up is a phone number.
Online fashion purchases in Latin America increased significantly since the pandemic began. According to PayU, online shopping in Colombia saw an increase of 70 percent from 2019 to 2020, while in Brazil the upsurge was 500 percent .
Notably, payment by instalments is the norm in much of the region, accounting for 60 percent of e-commerce purchases in Brazil, according to Ebanx.
The World’s Biggest Mobile Payments Prize?
Of all emerging market regions, Southeast Asia is primed to see the fastest growth in alternative payments. Digital payments are projected to double in value from $620 billion in 2020 to $1.2 trillion in 2025, according to the e-Conomy SEA 2020 report compiled by Google, Temasek and Bain.
This change is being propelled by a rapid increase in access to the internet. Forty million people in the region came online in 2020 alone, bringing the total number up to 400 million out of 538 million.
Most of the over 400 million unbanked individuals in the region still stand to benefit from access to mobile payment apps. Boston Consulting Group says such services are currently used by only 13 percent of Southeast Asia’s unbanked urban population, but that figure will surge to 58 percent by 2025.
Consolidation could help overcome one of consumers’ biggest gripes with e-wallets in the Southeast Asian region.
It remains to be seen who will process all these payments. While mobile payments are dominated by PhonePE and Google Pay in India, and Alipay and WeChat Pay in China, the market is far more fragmented in Southeast Asia.
A snapshot of this fragmentation was demonstrated in 2019 by Reuters when the wire service counted 28 different e-wallets among two dozen stalls selling crab soup and banhmi sandwiches in Ho Chi Minh City, Vietnam. Moreover, there are over 40 licensed mobile payments services still fighting it out in Indonesia, Malaysia and the Philippines.
Consolidation will come eventually, with market leaders like Singapore’s Sea and Grab (who announced a partnership with Stripe last month) and Indonesia’s Gojek (who recently announced a merger with e-commerce giant Tokopedia to form GoTo) likely to prosper. That could help overcome one of consumers’ biggest gripes with e-wallets in the region, which is that they’re not accepted by enough merchants. Many would rather take cash on delivery than deal with the different requirements of dozens of payment providers.
Embracing new payment options can also be costly for brands, with McKinsey predicting the shift to digital will drive up merchants’ payments-acceptance costs by 6 to 10 percent. But PayU’s Costin says that expense is easy to justify when you know what you’re getting back in return.
“Seventy percent of payments are made through local payment methods,” he says. “If you want to capture a market you need to have them.”