This stands in stark opposition to the US and European payments markets, which whilst still in a good economic position, find themselves lagging behind when it comes to their payments infrastructure. In this article, Karthik Jagannathan explores the lessons Europe could take when it comes to building a successful payments infrastructure.

How streamlined regulation can catalyse innovation

Whilst Europe is usually bound to a stringent and heavy regulatory framework, the APAC markets have taken new and innovative approaches to regulation, particularly in Singapore where they have skilfully balanced innovation and regulatory compliance. This can be seen in the actions of the Monetary Authority of Singapore (MAS) who have introduced initiatives such as the Fintech Regulatory Sandbox. First launched in 2016, this initiative empowers fintech startups to test and implement cutting-edge technologies in a controlled environment, fostering greater efficiency and improved risk management. The sandbox itself has safeguards in place to ensure any failure of the product or service in play does not negatively impact the soundness of the overarching financial system. This proportional oversight enables a dynamic response to emerging risks and opportunities, while providing businesses the flexibility needed to grow and succeed.

This stands in stark contrast to the more strict framework that fintechs of all sizes and seniority in Europe must adhere to, seen in policies such as GDPR. Whilst this piece of regulation sets out clear guidelines on how businesses can store and use a person's data, all to the benefit of enhancing consumer privacy and underpinning trust in business, it has had some unintended and possibly negative side effects. This can be observed in the additional financial struggles of businesses, with recent surveys showing that businesses have incurred costs ranging from $1.3 million for small companies, to $70 million for larger businesses regarding data storage. This financial burden, coupled with navigating such a strict regulatory framework, has led to a stifling of innovation. In contrast, the MAS sandbox approach has provided a more agile environment, allowing fintechs to experiment and refine their offerings without the immediate weight of full compliance costs.

By striking a balance between innovation and oversight, Singapore has demonstrated how regulatory frameworks can both protect consumers whilst also acting as a stimulus for progress, in turn offering a valuable lesson for Europe’s constantly evolving payment ecosystem.

Payment preferences and how consumer needs are being prioritised

Whilst the European payments sector may have lessons to learn in streamlining regulation, there are equally important insights to be gained from understanding the payment preferences in the APAC and European market. When looking at the European market, this landscape is heavily fragmented in payment options for consumers and the methods each state leans towards. For example, 77% of UK consumers lean towards digital wallets for their purchases, with PayPal ranked as one the favourite payment methods in the country, whilst a smaller amount prefer Apple and Google Pay. In Germany and Switzerland, consumers tend to favour debit and credit cards, with Mastercard and VISA and domestic cards like Girocard and PostFinance Card being the preferred payment methods. France leans towards bank cards, with the local card scheme Cartes Bancaires making up 60% of current household consumption in France. Spain’s preferences are different too, with Bizum, a mobile payments system in Spain yielding a 63% penetration rate amongst its banked population. Looking at the Netherlands, instant payments is leveraged by its highly developed banking sector and tech-savvy population.

The story is different again in the Nordic market. In Sweden 59% of all transitions in 2021 were through debit and credit card payments. This is in conjunction with other methods such as mobile payment apps like Swish being used by 80% of its total population, underscoring the shift to cashless transactions. When we compare each European state’s preferences as well as the UKs and Switzerland’s, we see how differently the payments narrative unfolds with no one platform reigning supreme.

Cross cut to the APAC market, the payments story is noticeably different. In China, WeChat, Alipay and Union Pay are the dominant forms of payment, with international credit cards backed by Mastercard and Visa almost rendered redundant. India also follows suit, with more than 50% of consumers using digital wallets to pay for online and in-store purchases last year, such as the country’s home-grown Unified Payments Interface (UPI) being one of the most popular transaction apps.

By looking at these two large markets within APAC, it is clear to see a desire to move towards a centralised payment platform which encapsulates multiple bank functions into one seamless application. This desire to move to such platforms has been largely driven by strong government support for real-time payments, including the need to integrate high numbers of unbanked citizens into the digital financial system. This highlights how a combination of innovative technology and proactive government policies has enabled APAC to leapfrog traditional payment methods, creating unified systems that prioritise inclusivity and efficiency. Europe can draw from this approach to accelerate its own transition towards a more streamline, consumer-centric payment ecosystem.

Rise of the super apps

As we look further into the payments landscape of the APAC markets and the tidal shift towards digital transactions, we can see the continuous rise of super apps. In APAC, super apps are revolutionising payments by combining multiple services into one seamless platform whilst also enhancing security. WeChat is a prime example of a super app – having  risen from a standalone messaging service to a multi-functional app providing messaging, financial transactions to enabling food deliveries. But it’s not the only example in APAC, e.g. Alipay in China, Grab and Go-Jek in countries like Vietnam, Singapore, Thailand, and Philippines, Line in Japan and KakaoTalk in South-Korea.

China is not the only APAC country with a growing demand for super apps. We only have to look to countries like India with its Unified Payment Interface (UPI) instant payment system, which is predicted to facilitate 1 billion daily transactions by 2027. Currently, there are 350 million active UPI users in India. UPI can also be used by its citizens outside India and is currently implemented in other countries such as in Oman, the United Arab Emirates, Malaysia, the United Kingdom, Singapore, Bahrain and France.

South East Asia has also seen a boom in the use of these one stop apps, with GrabPay and GoPay having expanded their offering from payments to include insurance and investment products. The success of which has seen GrabPay balloon with a userbase of 20 million, alongside GoPay with 38 million users. These super apps are a testament to the power of cooperation between private and public financial institutions, exacerbated by governmental support.

What we are seeing in the development and widespread proliferation of these apps is a unified front from fintechs, incumbents and governments to accommodate underserved citizens into the banking system. This narrative is somewhat different when compared to the European market, where increased competition is leading to a heavily fragmented market. Whilst rivalry can spur development, it can also hinder widespread adoption by both consumers and merchants. By providing both parties with a more uniform package by consolidating multiple offerings into one app a la APACs super apps, Europe could look to enhance efficiency in payments whilst keeping pace in innovation with competing markets.

From APAC innovation to European inspiration

Despite the success of superapps in the APAC market, there is no real European contender. European unicorns are attempting to bridge this gap in the market, with steps being taken by companies such as Klarna with its €93m acquisition of price comparison site Pricerunner, to broaden its shopping experience. It also offers financial services such as savings and current accounts, but only in mature markets such as Germany and Sweden.

What is generally agreed upon is Revolut is the closest platform that Europe has to a super app, with 54 product offerings on the app ranging from bank accounts and debit cards to holiday insurance and crypto trading. Revolut from the outset developed its multi-product offering and this had led to it having a more prolific userbase than its competitors. It also has had the added benefit of scaling the business as a whole, as it's easier to sell products to an existing userbase than to generate a whole new one. Revolut is not the only contender in the financial landscape trying to capitalise on the success of super apps. There have been concerted efforts by banks to develop super apps, such as KBC and Belfius in Belgium. Other players, including Bolt and Lydia, are entering this space, alongside US tech giants like Apple and Uber.

APACs rapid transformation into a global payments leader, capable of inspiring other markets, is underscored by its embrace of innovative solutions, agile regulation and consumer centric focus. By learning from APAC’s advancements in real-time payments and inclusive financial ecosystem which is exemplified in its development and scale out of consolidated super apps, Europe has the opportunity to reimagine its payments infrastructure. This can help better meet the needs of the end user whilst also servicing the needs of institutions and innovators who are rising to this challenge.

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