Photo - Raj Lorenz, Group CEO, GHL Systems.
The e-payment solutions industry throughout ASEAN is expected to grow above average over the next two to three years due to a confluence of technological factors, according to Malaysia-based regional payment service provider GHL Systems.
GHL Systems group chief executive officer Raj Lorenz said Malaysian companies should new growth opportunities by adopting e-payment processes. "Technology has clearly driven the evolution of faster and safer electronic payments. We have come a long way from the days when we used manual credit card swiping machines to produce carbon copies of credit card slips."
Today, credit card information is transmitted electronically to the card issuing bank in seconds for approval. Also, the data is encrypted before it is transmitted thereby ensuring that the data is safe. These developments have helped boost consumer confidence and encouraged the wide usage of electronic payments," said Lorenz.
Advances in technology would impact the various players in the e-payment ecosystem in different ways, he said. "Consumers, merchants, payment service providers and banks will all experience the far-reaching effects of developments in technology."
"From the consumer's perspective, the large number of smartphones opens up the possibility of using such phones to effect payment, accept loyalty points and record transaction data," said Lorenz. "In countries like Japan and Korea, consumers have been actively using their phones to do just this for over 10 years. As countries in ASEAN build up their network infrastructure and as smartphone penetration increases, this will likely become the norm in ASEAN as well."
"Payment service providers (PSPs) will be positively affected by the shift towards cloud or server based computing, said Lorenz. In simple terms, cloud computing enables the complex aspects of processing payment transactions to be done on a back-end server rather than the front-end EDC (electronic data capture) terminal. What this simply means is that with the use of cloud computing, EDC machines will use less powerful processing and memory chips. This, in turn, results in much lower EDC costs."
Taking advantage of cost reduction
Lorenz said some PSPs in the US and other parts of the world that have taken advantage of this cost reduction to provide payment services to merchants that were previously too small to be addressed. "The cost reduction has significantly increased the number of merchants accepting electronic payments in these countries. Additionally, PSPs will have to adapt to offer merchants and banks a variety of payment alternatives."
"Central banks in ASEAN are focusing on enabling PIN-based ATM cards to be used to make payments," he said. "From the merchant's perspective, this means that a much larger pool of consumers will now be able to make electronic payment. Typically, only less than 20 percent of the consumer base in ASEAN is eligible to apply for a credit card. ATM cards address a much broader market. In countries where there is a higher 'unbanked consumer segment' such as Philippines and Indonesia, prepaid cards have evolved to address consumer payment needs," he explained. Raj encouraged merchants to adapt to accept these new payment types if they wish to remain competitive."
"From the banks perspective, technology shifts will trigger demand for greater efficiency and price reduction," said Lorenz. "Banks will likely focus on driving card usage and new product development to increase their value proposition to merchants, and to increase their earnings. Concurrently, they will also likely outsource merchant services to PSPs that are large enough to deliver high service levels at a low enough unit cost. Today, many of the global and regional banks have already gone down this route. As technology drives efficiency, these trends will become more and more self-evident".
"Malaysia recognises the importance of e-payment in enhancing economic efficiency," he said. "However, Malaysia needs to, and will, extend its payment infrastructure to levels where the man-on-the-street will easily have the option to pay electronically. This means many more electronic acceptance points. More importantly, this means the acceptance of payment modes that are not limited to only those who meet the stringent requirements of credit cards, but extends to the masses."
"According to the Financial Stability and Payment Systems Report 2011, Bank Negara Malaysia has targeted 200 E-payment transactions per capita, 30 debit card transactions per capita, and 25 point-of-sale terminals per 1,000 inhabitants by 2020," said Lorenz.
Small merchant segment in 2013
"In addition, the small merchant segment will likely experience the biggest growth for e-payments in 2013 due to two main drivers," he said. "Firstly, the growth of ATM card payments, and secondly, saturation in the existing top and middle market segments will cause banks to partner with PSPs to enter the small merchant market."
"ATM card payments will become more widely used and small merchants serving the mass market will start accepting this type of payment," said Lorenz. "Within the small merchant segment, he believed that the industry segments likely to see higher conversion to e-payment include consumer retail, food and entertainment outlets. "Today, such small merchants accept only cash and therefore, there is potential for conversion to the broader based ATM card payments"
"The small merchant segment offers new opportunity for growth and serves the broader market in terms of consumers and merchants," he said. "As the existing top-tier and middle market segments are already heavily contested and saturated, banks are expected to start partnering PSPs to enter the small merchant segment. The small transaction volumes of these merchants pose challenges in terms of economic viability to payment operators."
"However, PSPs in partnership with banks could overcome this by aggregating merchant services and introducing other products that may not necessarily be payment related," said Lorenz.
"There is no other ASEAN PSP [compared with GHL Systems] that has the breath of products that we have to deal with the anticipated changes in technology," he said. "We manufacture our own payment devices, such as contactless card readers, which are sold globally from Brazil to New Zealand. We provide managed network solutions for many major banks and telcos in ASEAN and Australia. We have also developed various back-end applications such as prepaid products, loyalty cards, and Internet gateway that have been implemented by significant corporations throughout the region. No other PSP has the end-to-end product solutions that GHL has."
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