Pay and PhonePe. David Zhang, insights manager for payments and lending at Euromonitor International, attributes this growth to the rise of smartphones, enhanced digital wallet usage, mobile banking advancements, and government-led initiatives promoting cashless payments.  In an exclusive interview, Zhang shared his insights on the transformative trends in the region’s payment landscape and the future of cashless transactions. The story so far According to Zhang, Apac is increasingly taking the lead in financial innovations, especially payment. This includes well-known embedded payment features within social media apps such as WeChat Pay, Kaokao Pay, Rakuten Pay and AliPay. The rapid development of fast payment, blockchain-powered payment as well as AI-powered security has also accelerated this sector. “On fast payment, examples include Unified Payment Interface (UPI) in India, as well as the progress of interoperability of payments in Asia Pacific,” he told Inside Retail. UPI is an Indian instant payment system and protocol developed by the National Payments Corporation of India in 2016. The interface facilitates inter-bank peer-to-peer and person-to-merchant transactions. The key driving factors Zhang noted that besides apps like WeChat, AliPay, Kaokao and Rakuten, super apps like Grab, Shopee, GoJek and Line have expanded aggressively in Southeast Asia, and these have provided the ecosystems for the growth of embedded digital wallets. Digital IDs have also now become commonplace. For example, Thailand’s national digital ID (NDID) has enrolled 35 million citizens out of 61 million. The government also launched the ThaID mobile application for facial verification in July last year, to boost financial inclusion. Another example is Indonesia, where the government launched IKD (Digital Population Identity) last year, and completed the registration of 7 million citizens as of February. “Digital wallets have also become a key channel for government subsidies. In Malaysia, since November last year, RM1 billion (US$210 million) was disbursed to 10 million Malaysians in targeted subsidies via digital wallets that included TouchNGo and Shopee Pay,” he added. Zhang also said that in emerging markets such as Indonesia and Thailand in Asia Pacific, static QR codes by merchants have become a cost-effective way to drive merchant inclusion, as it is much more affordable than card or dynamic QR POS terminals.  “Many unbanked or underserved merchants from hawker stores to street retail stores adopted digital wallets for payments, especially during the pandemic years,” he noted. Emerging markets in Apac contributed to 92 per cent of paperless transactions, including bank account transfers, digital wallets and cards in 2023. China and India In mainland China, Zhang said that digital wallets including WeChat Pay and AliPay are widely accepted in every industry and most business-to-consumer outlets, from corporations to wet market sellers.  “Tencent-owned WeChat Pay is embedded in WeChat, the most popular messaging app in China, with 1.45 billion monthly active users in 2023. It is a natural seamless payment from consumer to consumer (i.e. digital red packets), or from consumers to social commerce merchants in WeChat,” he explained. He also noted that leading banks, retailers, food services and ride-hailing firms have also embedded their services in WeChat as mini programs, with WeChat as one of the key payment methods driving usage of WeChat Pay.  In India, Zhang said PhonePe is accepted at 39 million stores. It is also backed by Walmart, which is a major shareholder of Flipkart and PhonePe. “Flipkart registered 33 per cent market value share of retail e-commerce in India in 2023. Meanwhile, PhonePe is one of the key advocates of UPI, leveraging growth of UPI to drive usage,” he pointed out. Euromonitor International forecasts that personal electronic direct payments will overtake personal cash transactions in Apac by 2028. “Credit card and debit card transaction value are expected to grow at 11 per cent and  6 per cent CAGR in 2023-2028. Debit cards are projected to grow at a slower rate, due to faster growth in fast payment such as UPI in India,” he said. Final thoughts One big factor that has driven these transactions has been the rise of digital banks.  Zhang said that in Indonesia, for example, there are more than a dozen digital banks, including subsidiaries of incumbent banks, such as UOB TMRW, tech-led consortium banks, such as Bank Jago, as well subsidiaries of major technology companies, such as SeaBank. Nonetheless, he said that talent and skill sets remain a key industry concern for non-financial businesses aiming to drive digital transformation in Apac’s emerging markets. Another challenge is security and privacy. As digital embedded finance is built upon real-time data exchange partnerships between finance vendors and partners, it needs cross-industry efforts and continuous investment. “Meanwhile, with ongoing scams, embedded finance firms need to assist retailers to defend against frauds and scams, while balancing the need to optimise payment speed. For  example, setting lower security settings for low value but frequent transactions,” he concluded.