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Decoding Asia-Pacific’s e-commerce landscape

04.05.2020

Asia-Pacific (APAC) is both a fascinating and complex region when it comes to its e-commerce landscape. With the ubiquitous use of e-wallets and other local payment methods (LPMs), it will come as no surprise that the region is set to account for two-thirds of the global e-commerce market next year, with a value of over US$3 trillion [1].

While this paints a homogenous picture of the region’s exponential e-commerce growth, a deep-dive into the numbers reveals that the growth it has experienced hasn’t been evenly spread across countries.

Take Japan, for example. In 2018, it registered the second-highest volume of B2C e-commerce transactions in APAC with US$147 billion spent online, marking just a 10% increase [2] in transactional value. One of the largest marketplaces in Japan Rakuten registered 24.3% growth in GTV last year [3].

In contrast, Southeast Asia’s e-commerce market size grew by 114% in the same period [3], with countries such as Indonesia recording an annual growth rate of 49% since 2015 [4]. Of course, growth rates aside, Japan is still considered the world’s third largest economy and thus a big opportunity awaits for merchants able to navigate the largely untapped cross-border shopping desires of the wealthy population.

The region’s love affair with online shopping is nothing new, but for any merchant seeking to grow their online presence beyond their borders, the fragmented business of collecting payments in this region – with capital controls, local withholding tax and new e-wallets springing up often – can be off-putting. The payment market is not just incredibly complex, it is also dictated by consumers’ preferences on LPMs which, in turn, drives where they choose to part with their hard-earned money.

The Japanese e-commerce conundrum

As we said before, the Japanese economy is the world’s third-largest behind China and the United States. The country’s smartphone adoption rates are also well above the regional average of 47% with 58% of all e-commerce sales in Japan completed on a mobile device. This figure eclipses even China, a country well known for its e-commerce prowess. As a global technology leader, why does Japan lag behind other countries in the region when it comes to e-commerce growth?

A major barrier to adoption lies in Japanese consumers’ lack of confidence in digital payments. This largely comes down to security concerns with high-profile privacy breaches frequently being reported in the media. For example, 7/11’s newly launched 7pay mobile payment service being hacked in July of last year (and subsequently closed down) [5]. With many unwilling to participate in local e-commerce, just 6% of Japanese consumers shop cross-border, with preferred markets being China, the US and South Korea.

For payment providers, this presents an issue. Online merchants cannot convert consumers without earning their trust. To do that, it’s essential to know the customer, and offer the payment methods they prefer.

Cash remains a huge part of the payment culture in Japan. Risk-averse and security conscious, many Japanese consumers tend to gravitate towards Japanese cash-based payment methods such as Konbini and Pay-easy. For reference, let’s look at the contrast between Japan and the UK. As a result of the COVID-19 pandemic, cash withdrawals in the UK have plunged by up to 60% [6]whilst, in Japan, Mitsubishi UFJ Financial Group Inc and Sumitomo Mitsui Financial Group Inc have reported total visitor numbers in April declined by just 10% and 15% respectively [7]. They even reported increases in some residential areas.

As much of the Western world has locked down during the global pandemic, and although Prime Minister Shinzo Abe has declared a state of emergency, life in Japan has continued. Due to the federal governance system, the locking down of cities remains largely a local decision – which would prove unpopular when it came to local elections. Thus, brick-and-mortar commerce has so far avoided the shut downs; even though foot traffic is down significantly, convenience stores remain open and people are out on the streets continuing to resist the move to fully digital forms of payment.

However, “there could be first-time users during this time who see the merits of e-commerce,” said Takeshi Mori, a researcher at Nomura Research Institute. “After the coronavirus outbreak calms down, more people will be online in Japan [8]. With the sales of the Japanese Golden Week coming up, this theory will be put to the test.

With already high levels of online spend and connectivity, the Japanese e-commerce market is rich with plenty of lucrative opportunities. Good news for those looking to capitalise on cross-border e-commerce opportunities once things normalise.

Ready for take-off: Southeast Asia

In contrast to Japan, Southeast Asia’s digital economy is booming. According to the latest Google-Temasek report, the e-commerce market is on track to hit US$300 billion by 2025, topping the 2016 forecast by US$100 billion [9].

This growth has, in large part, been driven by an increase in adoption of e-wallets by the middle classes. This growth has led to an uptick in the usage of ride-hailing and food delivery apps. As a result, Southeast Asia has truly welcomed in the era of the e-wallet. Southeast Asia’s digital payments landscape at present is dominated by Grab and Go-Jek, who wrestle side-by-side for market share. News outlets are constantly on overdrive, pushing out articles on how their latest funding round will help them secure regional domination [10].

Whilst it’s true that these two are the main players, other local payment methods in the region should not be ignored. For example, Vietnam’s Momo is the country’s largest mobile wallet company with 10 million downloads [11]. In Thailand, PromptPay, a national money transfer platform had 49.7 million registrations out of a population of 70 million and reached a peak of 13 million transactions towards the end of 2019 [12] It is an ever-changing market with governments actively incentivising their populations to digitalise, and merchants need to keep pace with the popularity race.

What this means for merchants is that getting a piece of the e-commerce pie in Southeast Asia requires a tailored approach to LPMs. While there is the possibility of a consolidated payments landscape led by Grab Pay and Go-Jek in the future, there is enough room for all to operate. And whilst QR codes are becoming a trend at Point of Sale, acceptance for e-commerce is still fragmented.

Break into multiple markets with a simple strategy

How far a business can grow is determined by how responsive it is to the payment preferences of its customers. Payment preferences can be cultural, or simply decided by convenience. While such differences are often complex and challenging to navigate, an understanding of them could help your business expand successfully across multiple markets in the APAC region.

At PPRO, we’re all about making things simple for payment service providers and their merchants. With one integration, one contract and one platform, we can help businesses resolve the complexities associated with connecting multiple LPMs and allow you to deliver a customer-centric experience that boosts conversion.

Konbini and Pay-easy are the latest additions to our growing list of payment methods in APAC, joining a number of heavy hitters like AliPay, WeChat Pay and UnionPay in China, and GrabPay and eNets in Singapore. For more information on payments and how you can increase conversion rates in APAC, get in touch with one of our payments experts.

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