The game of digital wallets: the era of the Cold War between the West and the East

Hi, Habr! The confrontation between the largest technology companies in the West and the East is increasing every year. The Fintech sector has not become an exception, where the market is shared by the payment giants, including PayPal, Apple Pay, Alipay, Samsung Pay and Paytm. In order to learn more about this formed innovative competitive environment, we at PayOnline , a company specializing in the automation of online payment, decided to translate material on the alignment of these technological forces.

By the end of 2016, the number of mobile phone users will exceed 4.8 billion people. The growth of mobile wallets will also accelerate. Against this background, the following situation arises in Asia: on the one hand, the popularity of smartphones is growing faster than in any other region of the world, on the other hand, financial services in most Asian countries are practically not common. The coincidence of these two factors creates excellent opportunities for fintech companies. Comparing the western and eastern players, we can say that the first are more famous, go one step ahead in the field of innovation and quickly expand their business, including in the Asian region. Their oriental "pursuers" provide the best local adaptation of their solutions, are very popular in their home countries, have great potential for a solid presence in the local market and deep pockets that allow them to compete in all directions.

American digital financial solutions have long fit to compare with banks. As of the end of March, 148 million PayPal customers held more than $ 13 billion in their accounts. If you compare the figure with bank deposits, then PayPal on this indicator will only slightly lag behind TD Bank or Capital One . Starbucks does not have an account opening service, and yet the 12 million members of the network’s loyalty program have loaded over $ 1.2 billion into their mobile app accounts. This is more than the amounts stored in accounts at First Commonwealth Financial Corp. and Charles Schwab .

PayPal and its subsidiary services Venmo and Braintree showed excellent financial results in 2015, ahead of eBay in terms of capitalization. The first quarter of 2016 also showed the validity of the division of companies into two separate businesses. PayPal does not intend to become a bank in the traditional sense of the word, but the success of new products, such as lending to merchants and the overall popularity of the service for making online purchases, indicate that the company already provides almost the entire range of basic financial services.
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The largest e-wallet operators are primarily engaged in expanding their geographic presence, rather than product lines. Thus, by launching its services in the South Korean market (5 million consumers) and the USA, Samsung Pay added Spain and Australia to this list. Apple Pay, whose client base replenishes weekly with 1 million new users, previously available in 6 countries (USA, UK, Canada, Australia, China, Singapore) this summer expanded its presence, starting work in Switzerland, France and Hong Kong. As for Android Pay, in addition to the US and UK markets, where one and a half million new users join it every month, at the end of last month the service became available in Singapore and Australia.

A serious threat to these expansions is represented by mobile phone manufacturers, in particular, such Chinese players as Xiaomi and Huawei, who have joined this race. In addition to developing its own digital wallet, Xiaomi has invested $ 115 million in acquiring a 29.5% stake in Sichuan Hope Bank, which plans to serve the millennials, as well as small and medium businesses. An unexpected news was also the announcement of cooperation between potential competitors in the Samsung and AliPay payment segment.

Of all the e-wallet markets, the fastest growth is observed in China and India - countries with a high penetration rate of smartphones and a large number of customers who do not have access to banking services. The main problem of solutions developed in these countries is their low popularity outside of countries and poor scalability. However, besides big prospects, these markets also differ in quarterly growth of the level of competition.

During the April private round of financing, AliPay managed to raise a record 4.5 billion dollars, raising the company's total market value to 60 billion dollars, which is about 10 billion more than PayPal's capitalization. As for the client base of AliPay, the size of which has exceeded 450 million users, this figure is already twice as high as PayPal. The cost of the loan portfolio of MyBank, a subsidiary bank of a company specializing in loans for small and medium-sized businesses, is already $ 20 million. The company promises to expand the scope of its activities soon, including insurance and wealth management.

As for the company's foreign initiatives, AliPay was faced with a new Chinese legislation prohibiting the storage of money in the payment services accounts from July 1, if their customers do not have a bank card in China. Thus, foreign users will be able to use the services of AliPay only for making online purchases on the websites of Alibaba group.

Earlier this year, AliPay completed a $ 1.28 billion deal to acquire a controlling stake in Paytm, the largest representative of the Indian e-commerce market. In the near future, Paytm plans to launch the country's first payment bank. In the future, in addition to payments and international transfers, the new bank will also provide insurance, private capital management and lending services (in cooperation with other banks, since it does not have permission).

Another Indian digital wallet operator, MobiKwik, managed to obtain financing totaling more than $ 80 million. Now its user base has 30 million retail customers and 75 thousand SME clients. The company aims to increase these indicators to 150 million and 500 thousand, respectively, with a turnover of $ 5 billion. Recently, MobiKwik launched a campaign to provide an annual interest rate of 6% for funds that users keep in their mobile wallet account MobiKwik. The offer looks very attractive compared to other interest rates on bank deposits in India, the average size of which is 4%.

Another player, FreeCharge, attracted 113 million investments last year. A little later, the leader of the Indian e-commerce market Snapdeal acquired it for $ 400 million. Ola, the largest Indian taxi service, announced the development of its own digital wallet OlaMoney. In general, there are at least five popular digital wallets on the market, including a brand like Oxygen.

European mobile banks of the new generation (the so-called “neo-banks”, for example, Atom , Mondo , Fidor ), whose number is growing very fast, can be a useful acquisition for Asian operators of digital wallets who want to compete with PayPal and Apple Pay in terms of product quality, extensions of functionality and geographical coverage.

In the first half of the year, Fintech news aggregators were full of loud headlines. The German Number26 with a 200 thousand customer base attracted $ 40 million during the B round. Another German bank, Fidor, with an audience of 300 thousand users, continues to grow in the UK, where the popular technology publication Wired has already named it the leading online bank in the country. Just a month ago, Fidor was acquired by BPCE, the second largest bank in France.

The British Tandem, Mondo and Loot during their rounds A attracted 20 million, 5 million and 1.5 million pounds, respectively. In addition, Mondo and Starlink reported receiving another 15 million and 70 million pounds, respectively. Swedish Tink received $ 10 million in Round B, Starling and Number26 received their own banking licenses.

Previously, such fully mobile banks existed only in the United States, and now, thanks to the British regulatory authorities, this trend is experiencing a rebirth. Nevertheless, for some reason, we do not observe followers of this trend in Asia. Is it really a lack of talent? For most Asian markets, there is a shortage of banking services, that is, the conditions for the emergence of new wave banks have not yet developed. As for the markets with a high level of distribution of banking products and services, such as Singapore, Japan, South Korea, Hong Kong, they are under strict control of large banks, and local regulators maintain their security and stability, which is more important than any market innovation. It seems that only customers are able to get this situation off the ground. Perhaps this is also due to world-famous investors, such as Li Ka-shing, who recently invested in Number26.

It is also worth noting that £ 1 million of the amount raised by both Tandem and Mondo comes from crowdfunding campaigns. This is a good trend, because, firstly, it shows the initial demand for the service (and both banks are in beta testing), secondly, it gives the opportunity to get first customers from the very beginning of the activity, and, thirdly, “one million from customers "sounds more attractive to potential investors than" one million from other investors. " The crowdfunding scenario can be very promising for the Asian market: if customers “vote” with their money to create such services, then local regulators will probably not be able to ignore their requirements.

Frankly, in Asia there are only a few banks of the new generation. Neat Mobile Bank is available in Hong Kong, Timo and Momo are available in Vietnam. The latter attracted $ 28 million in the course of the B. round. However, this is no comparison with the Brazilian Nubank, which received a record $ 52 million for both the country and the industry, with the result that the startup cost is now estimated at $ 500 million.

Goldman Sachs announced the launch of its own digital bank called GS Bank , since then, however, without reporting any good news about the project. Singapore-based DBS Bank made a similar statement about a similar project in India. However, the devil, as you know, is in the details: the news sounded good, but let's look at the end result.

Anyway, all these solutions are intended only for retail customers, while the idea of ​​a “simplified bank for SMEs” looks much more interesting. Earlier this year, the Spanish financial group BBVA, which bought the American non-bank Simple and invested in British Atom, also acquired Holvi , a Finnish online bank for businesses that provides services in Finland, Austria and Germany. A similar bank called Anna will soon be launched in the UK. It is interesting when such solutions will get to Asia, the majority of whose population is somehow connected with small or medium business, and the boundaries between retail customers and micro and small businesses are blurred.

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