Southeast Asia payment platforms: Who pays?

At the start of 2015 it was announced that they would form a joint venture mobile payments platform. It promises to be a combination of the assets PLDT already has in place through Smart eMoney, the largest "branchless banking" network in the Philippines, and Rocket's expertise in Europe-based payments platforms Paymill Holding and Payleven Holding.

As architect of online retailer Zalora and e-commerce marketplace Lazada - both of which have established sizeable footprints in Southeast Asia - Rocket's move into payments apparatus that supports these businesses was not unexpected. Alibaba Group also has ambitions to expand its e-commerce platforms into the region and Alipay, its dedicated payments service, will no doubt follow.

Consolidation in the Southeast Asia mobile payment space seems like a logical outcome, although it remains to be seen how long this process takes and what path it follows.

There is no questioning the size of the opportunity. Frost & Sullivan estimates that the value of B2C e-commerce in Singapore, Indonesia, Malaysia, the Philippines, Thailand and Vietnam will grow from $7 billion in 2013 to $34.5 billion in 2018. At the same time, some markets lack the infrastructure required to support this expansion.

Though credit card penetration may be low, mobile penetration is high and rising higher - so there is obvious potential in payment services on handheld devices.

A handful of start-ups have received venture capital funding with a view carving out a slice of this market. This week 2C2P raised $7 million from Amun Capital and GMO Venture Partners and the company has outlined bold plans for regional expansion and a broader portfolio of products and services. It claims to have processed $2.2 billion in transactions in the 2014 financial year, up 400% on 2013.

However, picking winners in a market that remains relatively immature is tricky. First, industry participants tend to emerge from various niches. Coda Payments uses telecom providers' infrastructure to provide billing services to third-party merchants; Ayannah started out doing cross-border remittances for the Philippines diaspora but recalibrated its network for the domestic market, targeting mobile phone charge cards and then micro-insurance and payments.

Second, a payments business is only as strong as the partnerships it establishes with financial services and retail counterparties. A start-up pitching for business with an online retailer will be asked whether it has a critical mass of financial institutions on board. Needless to say, financial institutions will ask the same questions about online retailers.

Coda, for example, got traction in Indonesia when it convinced a telecom operator that its business model made sense. Ayannah relies on relationships with the clutch of non-banking financial companies that dominate lending at the lower end of the customer spectrum in the Philippines. 2C2P's momentum in Thailand was due to the founder's familiarity with local financial services providers through a previous business venture.

Relationships - and the way in which they can facilitate the navigation of idiosyncratic local bureaucracies and business networks - are also a key factor in whether these payments providers can expand into new markets within Southeast Asia. As a result, there is often an emphasis on collaboration rather than competition.

Similarly, there is a reluctance to cast the threat posed by the PLDT-Rocket alliance and Alibaba's Alipay in binary terms. Payments providers can see themselves working with these giants, for example, facilitating access to a range of banks within a particular market. Indeed, it is hoped that the arrival of large-scale e-commerce players might accelerate the introduction of alternative payment instruments and ease reliance on Visa and MasterCard.

What this means for the long-term future of these VC-backed providers - as potential acquisition targets, large-scale platforms or smaller-scale also-rans - remains to be seen.

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• Topics
• Financials
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• Southeast Asia
• Venture
• Southeast Asia
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• Technology