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Payments technology is developing rapidly in Asia Pacific (APAC). Businesses compete for the best payments and customer experiences in the region, while governments are actively incentivizing cashless payments by introducing new policies. Our research shows that 95% of APAC consumers regularly shop online, with 26% of them doing so at least once a week. This highlights how important it is to perfect your online payments set up.
APAC is a challenging region to break into because there’s no unified payments guidance, although some countries are easier than others. For example, Singapore and Hong Kong actively incentivize new businesses to operate there with less regulatory restrictions than Japan, which is notoriously difficult to expand into due to a complicated regulatory framework.
The differences don’t just stop at regulations. Currencies, languages, and preferred payment methods vary widely across the region too. Taking on this patchwork of complexities alone can be expensive and operationally intense, which is why partnering with in-market experts is essential.
As the Head of APAC for Checkout.com, I lead our regional expansion through sales, business development and strategy, community engagement, marketing, and branding. Previously, I spent over 10 years scaling various global businesses into APAC and driving key commercial discussions.
What is APAC?
APAC stands for Asia Pacific, a region that broadly includes countries in East, South, and Southeast Asia, as well as Oceania. It’s not a fixed list, but there are generally considered to be 30-40 countries in APAC including Greater China, Japan, Singapore, Australia, New Zealand, South Korea, Malaysia, Thailand, India, and Pakistan.
The term is widely used in business to group these countries due to their geographic proximity and growing influence in global trade and economic development. The region is key for international trade and its economy is developing rapidly. Many APAC countries are leaders in tech innovation.
The APAC payments landscape
While Europe has the European Union (EU), which simplifies many of its regulation complexities and makes payments simpler to navigate, APAC comprises 30-40 countries with different regulations and currencies. There’s no equivalent of the Euro, which is shared by a total of 20 out of 27 EU member countries.
The European Economic Area (EEA) is an economic agreement for the free movement of goods and services between the EU and three non-EU countries (Norway, Iceland, and Liechtenstein).
Businesses can set up one legal entity that enables them to operate in the entire EEA, meaning local acquiring or expensive cross-border settlements are not needed to process payments in each specific country.
On the flip side, in APAC, you need different payment setups to operate in each country, from legal entities to bank accounts and beyond. The region's diversity is reflected in the fragmentation of the payments landscape, with global economic leaders and emerging economies both under the APAC umbrella.
Despite this fragmentation, one thing can be seen across nearly all APAC countries: the rise in digital payments, the expansion of alternative payment methods (APMs), and a move away from cash. The cause of this is government initiatives in some countries, rising internet access in others, and the lasting effects of COVID-19.
Where to start in APAC
If you’re looking at expanding into APAC for the first time, I recommend starting in Hong Kong or Singapore, where the taxation and regulations are more straightforward. Singapore actively encourages new businesses to start operating there, and Hong Kong is very open too. It’s much easier to set up payments in these places than in other APAC countries like Japan and Pakistan. Japan is a particularly difficult market to expand into because of its many unique complexities.
There are three main APAC payments differences that if you can master, you’ll be on your way to success. Let’s take a look at them below.
Interchange fees
The interchange fee is a fee that’s exchanged between banks involved in processing credit and debit card transactions. Specifically, the fee is paid by the merchant’s bank (the acquiring bank) to the cardholder’s bank (the issuing bank) to cover all expenses associated with processing card transactions.
In Europe, interchange fees are much lower than in APAC. In Asia, the interchange fees range from 1.5% - 2.2%. This is based on numerous factors such as card type, regionality (whether it’s cross-border or local acquiring), merchant category code (MCC), and the average transaction value (ATV).
The role of the issuer
Because of the particularly high interchange fees in APAC, local issuers often have more budget and resources to carry out promotions, discounts, and marketing to encourage cardholders to spend more money with their card. They work directly with merchants to run promotions, such as offering discounts to customers who buy from their brand using the issuer’s card. All in all, APAC is an issuer’s market.
The opportunity to make more money per transaction attracts more APMs like QR code providers, digital wallets, and Buy Now Pay Later (BNPL) operators to enter the region and offer their own promotions. These help shift preferred payment methods from cards to APMs, accelerating the growth of the providers, who can easily charge a lower price while still making a significant margin.
3D Secure (3DS) adoption and fraud ratio
3DS is an online payment security protocol that adds an extra layer of authentication for online card transactions to reduce fraud.
There is no set standard for 3DS in APAC, and adoption is dependent on the country, regulator, and fraud ratio. Because fraud ratios are higher in the region, some regulators have started providing guidelines for businesses to carry out 3DS.
These guidelines are sometimes based on specific use cases, for example, the regulator Hong Kong Monetary Authority (HKMA) asks all Hong Kong issuers to position Apple Pay cards in users’ wallets through the issuers’ banking apps only. Consequently, customers can’t pay using Apple Pay in their phone wallet apps.
In countries with a higher fraud ratio, acquirers and issuers often mandate more businesses to use 3DS for all transactions. A reliable PSP like Checkout.com will work closely with its merchants to develop a solid fraud strategy that will allow the acquirer to lift the 3DS mandatory requirement from their transactions.
In India, 3DS has been mandated for all businesses, while countries such as Malaysia, Sri Lanka, Bangladesh, and Pakistan, have regulator guidelines that strongly encourage 3DS.
Localization
If you’re looking to expand in certain markets or tap into new ones, localization is key. Many businesses try to reach the maximum amount of customers as fast as possible, but the real legwork lies in creating a sustainable growth strategy that incorporates localization.
Saad Saif, Senior Manager of Global Payments Acceptance at Delivery Hero, explains “During Delivery Hero’s hyper-growth period, it was all about how we acquire new customers as quickly as possible. We launched payment methods regardless of the cost strategy or customer experience. Expansion was the aim, but we soon realized we had to find a more sustainable model that allowed us to deal with cost-efficiency challenges such as retaining our newly acquired customers. To achieve this, we had to improve the customer experience through localization. You can only drive cost-efficiency through localization. And you can only improve your customer experience through localization.”
Local acquiring vs cross-border settlements
Local acquiring is much more cost-effective than expensive cross-border settlements. For many businesses, it’s crucial to reduce costs. The cost of cross-border settlements can be three times more expensive than what the transaction would cost with a local acquirer.
Beyond being expensive, cross-border settlements can also lead to low acceptance rates because of issuer skepticism. Local issuers trust local acquirers more and are more likely to approve their transactions. So, if you invest time in finding the most effective local setup, it’s likely your approval rates will increase.
However, in some smaller markets, it doesn’t always make sense for businesses to set up local acquiring because of the operational costs it requires. In those cases, where you retain a cross-border setup, experimentation may be required. A cross-border connection from Singapore might lead to better approval rates than from Hong Kong, or vice versa, as an improved connection can be due to proximity. From our data, Hong Kong works best for cross-border settlements in Myanmar and Cambodia, but for Malaysia and Indonesia, Singapore works better.
“Moving away from cross-border settlements and connecting with local acquiring has been instrumental in hitting our core KPIs.” Shares Saad, highlighting the benefits local acquiring can have on business strategy.
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APMs vs cards
APAC is a region big on APMs, and adding local APMs to the list of payment methods you accept is one of the best ways to localize. Especially if you want to tap the untapped segment of customers in specific markets.
The topic of cards vs. APMs receives a lot of airtime in APAC. Which one is more important?
When it comes to APAC online payments, providers like Alipay, GCash, and TrueMoney mean APMs often have a higher share of the market than cards in some countries. However, despite being an APM-heavy market, this isn’t always the case in other countries – especially when it comes to ecommerce.
“Cards are still king in most of our markets when it comes to customer preference. This is because of the convenience cards bring, as well as the issuer marketing campaigns that incentivize customers to use their cards.” Saad explains.
The popularity of one over the other can also depend on local regulators. Regulators run campaigns incentivizing, or in some cases dictating, certain issuers to push their card types more. In turn, that dictates what mix of cards you see in the market.
Hong Kong and Singapore are very credit card-heavy markets, whereas Malaysia is a very debit card and online banking-heavy market. Pakistan is a card-heavy market.
Choosing the right APMs
To decide what APMs to offer where, look at your competitors in the market. If they’re offering certain APMs to entice customers, you should consider offering the same.
You should also assess the business case. A key question to ask to determine a business case for an APM is: will this APM bring in new customers? If the answer is no, ask yourself if it will have an impact on your business’s average order value. Or will it impact customer stickiness? Will the frequency of customers change? Take PayPal for example; although it’s expensive, the frequency of PayPal customers is much higher in markets where businesses offer PayPal. Therefore it makes sense to retain PayPal in those markets despite its high cost.
Cost is another big factor to evaluate. Is the APM running a campaign that’s worthy of promoting? APMs running campaigns with your business lowers the cost of acquiring customers, so can help you acquire more.
Then, you need to consider your operational bandwidth. Launching new APMs, like most new integrations, is very bandwidth intensive. It takes a lot of financial and time investment, especially on the engineering side.
Choosing the right APMs, like so much of localization, is also about improving customer experience. You want to make it as convenient as possible for all customers to pay in their preferred way.
There’s a growing trend across APAC of customers choosing digital payments, so businesses should provide the right payment methods to support this. Local digital wallets, for example, are helpful for getting rid of cash – and cash is a big challenge for many businesses operating online. The share of cash is organically decreasing across the region as people get more familiar with online payments. Even countries with smaller economies like Bangladesh, Cambodia, Laos, and Myanmar have moved away from cash.
Intelligent Acceptance
Partnering with a global PSP that can offer local expertise and local solutions will help your localization strategy immensely.
At Checkout.com, our machine learning payment routing engine, Intelligent Acceptance, constantly optimizes connections to a number of local acquirers to create the best outcome and performance for our merchants. While any business can technically work directly with the local acquirer, it means that for every single acquirer, they’d have to manage and optimize hundreds of parameters. That’s incredibly difficult for a single merchant to do. Checkout.com will optimize local connections for you, using machine learning to make payment routing decisions.
Our issuer outreach program is a key element of our Boost suite of products, where we use our network of individual issuers to help improve your business’s acceptance rate with local issuers. We do this by sending certain scores, e.g. risk scores, to local issuers to build trust with them.
How Checkout.com will help you master payments in APAC
I’ve explained the three main components of mastering payments in APAC; interchange fees, 3D Secure, and localization. At Checkout.com, we have a team of Payment Success Managers who will guide you through all three and help you overcome any challenges along the way.
We have local acquiring licenses in New Zealand, Australia, Hong Kong SAR, Singapore, Greater China, and most recently Japan. Our expert local support can help you improve performance, optimize costs, and scale fast in APAC. Reduce currency conversion losses and eliminate hidden fees such as cross-border charges.
Intelligent Acceptance will boost your acceptance rates with local issuers and reduce the operational pressure on your business to manage multiple local acquirers at once.
Let customers pay the way they want with Flow, our flexible tool that helps you accept payments using customizable components via a single integration. Add and remove payment methods easily, and dynamically offer customers their preferred method based on their device, location, or currency. Further localize the payment experience with support for over 20 languages.
Our global network includes APAC’s most popular traditional payment methods and APMs, such as Alipay, GCash, JCB, Kakao Pay, Octopus, TrueMoney, UnionPay International, and WeChat Pay. Check out our full payment methods directory.
