Mobile-payment wallets have become a vital part of the Southeast Asian consumer landscape, allowing financial access for millions of previously excluded people. As online spending soared during the COVID-19 pandemic, wallets saw a surge in newly registered users. Uptake of this convenient technology now far outpaces that of credit cards in the region’s emerging markets, thereby revitalizing the payments ecosystem.
The very notion of digital wallets has changed. Wallets are no longer simply a value store: they are a medium for every type of payment—and more. What started out as a closed-loop payments platform is fast becoming a front-end engagement channel, enabled by a multitude of open and semi-open payment networks. Wallets have greeted the rise of BNPL (buy now, pay later), cryptocurrency, and cross-border payments by enabling transactions through these modes too. Beyond this, digital wallets are becoming access points for gaming, commerce, and loyalty, in some cases emerging as “super apps” or financial superstores—hubs of financial connectivity.
Despite the surge in use of these tools, no Southeast Asian provider has replicated the success of Chinese giants such as Ant. It remains to be seen whether the industry can overcome the challenges of monetization, profitability, and a crowded field of competitors. Is a sustainable playbook in sight?
To explore these issues, we tapped the collective wisdom of three leaders at the forefront of the field: Martha Sazon of Mynt, Anthony Thomas of MoMo, and Chris Yeo of Grab Financial Group. Their experience spans Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam—a total population of close to 600 million people—and they share their existing and would-be customers’ enthusiasm for the wallet revolution (see sidebar, “My path to payments: Leaders’ personal journeys”).
These leaders undertook individual interviews with McKinsey, which have been edited and combined to create “conversations” on common and pertinent themes.
Southeast Asia: The ‘wallet first’ region
McKinsey: How do you account for the massive uptake of wallet technology in the region? And are you optimistic that this growth will persist after COVID-19 wanes?
Martha Sazon: In the Philippines, internet adoption was fast because of smartphone ownership. We circumvented the computer and went straight to mobile. A similar thing is happening with e-wallets: their role has evolved from being just for payments. People have become very creative and personalized in the way they use the app. We’ve seen merchants use it to receive payments from customers, pay bills, and get access to credit or loans, especially during COVID-19. It’s heartwarming to see how people are reacting to these innovations throughout the region. You could say we’re a digital life hack that is fast becoming a financial-wellness platform.
In Southeast Asia, more than six in ten people are unbanked, and only about 17 percent of transactions are cashless. So there are massive opportunities: we have to meet those needs, solve these problems.
Chris Yeo
Chris Yeo: We’re really excited about the future of wallets in Southeast Asia. It’s an underappreciated region—over 600 million young emerging consumers, massive smartphone penetration—yet there are basic problems with infrastructure and access to financial services. More than six in ten people are unbanked, and only about 17 percent of transactions are cashless. So there are massive opportunities: we have to meet those needs, solve these problems. This means really strong growth for wallets. It may be the only payment method that’s consistently gaining share across most or all markets in Southeast Asia, driven by tailwinds from e-commerce and COVID-19. Southeast Asia, in fact, is a wallet-first region, and we think this trend will continue.
Martha Sazon: Cash continues to be the preferred means of payment, but we’ve seen greatly accelerated adoption of wallets during the pandemic. In fact, if I may quote some data, the Central Bank of the Philippines just reported that 20 percent of retail transactions last year were done with online merchants, and P2P payments are key growth drivers.1 We deal with anything and everything that needs some form of financial connectivity. Filipinos are known to not jump on a trend right away; we want to be sure about where we put our money. But once you get to that tipping point, it’s like a big bandwagon. People have observed wallets being used by friends and family members who were early adopters. They’ve seen that it works.
Payments is deeply local. Wallets have been urban-centric, but there’s so much expansion in smaller cities beyond the traditional hubs, and that’s where future growth lies.
Anthony Thomas
Anthony Thomas: These services inherently add convenience. The big barrier was education and awareness. And when there’s a trigger like COVID-19, which forces you to move onto this path, people realize that this is so much better. Education and awareness go hand in hand with trust. And once you’ve crossed that trust barrier, it sticks. I think we are beyond the need for incentives, because people have realized that this solves real problems. Payments is deeply local. Wallets have been urban-centric, but there’s so much expansion in smaller cities beyond the traditional hubs, and that’s where future growth lies, especially once we solve for cash-in.
Martha Sazon: As digital payments increase, we’ve experienced unprecedented growth on our own platform. When GCash started in 2020, we only had 20 million registered users. This grew to 55 million by the end of 2021, which is 70 percent of the adult population. There are 17 million daily active transactions, and we serve three million merchants and social sellers. So GCash is already embedded in users’ daily lives. This popularity is based, I think, on the trust we’ve earned—on our ability to simplify communication and demystify financial services for the masses.
Monetization: Finding routes to sustainability
McKinsey: Despite the popularity of wallets, monetization has proved a somewhat elusive goal. Often, payments are seen as a route to diversification into financial services, where the real monetization happens. What’s your playbook here?
Chris Yeo: What’s important is for each player to recognize their strengths and competitive advantages. Asia is really diverse, so everyone is starting in a different position. For us, we’re already large—part of a growing ecosystem with over 25 million monthly transacting users—so one thing we anchor on is our data advantage. How do you get efficient proprietary data at scale? With that, you can have more granular and proprietary risk and credit assessments, which lets you cross-sell your lending products safely. And fortunately, we have very high-quality, high-frequency transactional data.
Anthony Thomas: First, I am quite a proponent of the Ant model. There is significant room for growth and for monetization. As we move into smaller towns and more rural areas, it will be about how we connect the use cases—the vital network effect that all of us look for. However, the payment margins are razor-thin, so monetization has to happen in parallel through distribution of financial and other services. This obviously lags the larger payment services, but the monetization part is very much in progress.
Chris Yeo: We’ve spent a lot of time building up the infrastructure and foundations of the Grab ecosystem; now we’re looking to accelerate growth. We also want to deepen our financial services, to start cross-selling across payments and other products. And we continue to focus on being more efficient—increasing our cost advantage, operating efficiency, and marketing advantage.
Martha Sazon: We’ve seen tremendous growth in our financial-services space. Many traditional offerings from banks are not suited for the masses, but we’ve proven that digitization can make previously “for the wealthier” services—like credit, lending, insurance—relevant to all. We’ve democratized investment for our users, making it accessible even in a sachet economy like the Philippines.2 Global funds availability was such a surprise for people. They felt so empowered: “Oh, finally, I can invest in global funds for my future!” That concept of financial freedom and financial growth has really resonated. We currently have 7 percent market share of unit-linked funds and 77 percent of UITF [unit investment trust fund] accounts in the country.
Anthony Thomas: Value pools are clearly in lending, but I’m also bullish about our role in wealth management. Taking a leaf from the Ant playbook, we started with the equivalent of a money-market fund, which gives a reasonably high yield at very limited risk, as a foundational product. That has scaled very well. You can lower the entry to $1 or less. Then if you can get access to a bond fund, an equity index fund, some blue-chip global funds, there’s great opportunity to create access to wealth. Also with insurance, platforms like ours can often provide a better end-to-end experience than banks in terms of bringing the offering at the right time, to the right consumer, with a better risk profile than they’d get in the “real world.” So there’s value to be captured, especially considering we have so much engagement.
Is banking the future for wallet platforms?
McKinsey: Do you feel you’re in competition with traditional banks or need to become more bank-like yourselves?
Martha Sazon: I don’t believe becoming a bank is the only path forward for payment players. We already offer a full suite of financial services, but we’re focused rather on our platform approach, which allows us to collaborate actively with both traditional banks and neobanks. It’s a flexible, hybrid strategy. Not everything has to be initiated by us or owned by us end to end. I also believe in concentrating on what we’re great at, which is creating distinctive customer experiences by simplifying communication.
Anthony Thomas: We deeply care about our relationship with the banks in anything we do. Right now, for us, it’s a seamless process to pull money from a bank, and that’s fundamental to wallets. Banks can, of course, upgrade their apps and create payments platforms, but it’s a question of specialized focus. The DNA of the institution creates barriers to direct competition. It’s unlikely that a bank app will sell flowers, for example. Besides, banks and wallets are trying to work together for the most part. I don’t think there’s a good model that is completely stand-alone. Many wallet businesses are partnered with a licensed player in some form. I think a good hybrid is a ring-fenced independent entity: a digital front-end layer that runs on top of a parent bank’s license.
Building merchant relationships
McKinsey: Partnerships are key to this fragmented market. You never win alone in payments—especially in a subsector like wallets, which involves an extensive ecosystem of merchants and other players. How do you manage these relationships?
Martha Sazon: There’s so much to be done in the merchant space. Because it’s a huge opportunity and market base, we want to be there for the merchants, to have a role in their ecosystem, whether as a payment tool, as their pseudo bank access through our app, or even insurance. As we venture into the e-commerce space, we see merchants looking to partner with super apps to expand their digital presence.
Chris Yeo: We tend to adopt a merchant-centric lens. How do we uniquely serve merchant customers? How do we partner with them to be their preferred growth partner, supporting their business needs beyond payment acceptance? It’s really important to help new merchants get onboarded. We have cash-advance products, analytics, and other tools that we provide them beyond the ecosystem. We’re constantly thinking about increasing value to merchants, such as helping them improve the discoverability of their brand and exposing that to our consumers across 68 countries on the Grab app.
Martha Sazon: The philosophy we apply in developing the merchant base and empowering it is, first of all, that these merchants are consumers themselves. Most of the time, what they find useful for themselves and their families, they also want to adapt in their business; there’s a lot of intertwining of the two lives. Solutions can get complicated—simple for a micro business, but very complex as the enterprise grows—and can’t be provided by one company alone. We believe in partnerships, especially when tackling complex problems, like taking care of the merchants.
Anthony Thomas: We’ve been building merchant solutions beyond pure payment acceptance to include integrated logistics. For example, our app supports small food merchants with content to aid local discovery. The voucher marketplace and mini-apps allow merchants to leverage our traffic. And we’ve enabled large convenience-store chains to integrate their loyalty program with MoMo payments.
Space for new players in the wallet arena
McKinsey: Established players with large user bases and high engagement seem best positioned to win in this space. Is there room for new, smaller companies? Or do you see a giant regional payment specialist emerging?
Chris Yeo: Every month, you hear of new payments start-ups trying to add value within the value chain, trying to create a new layer, to aggregate different products, to reduce the friction. That’s what makes the payment space so interesting. We need to be open and keep saying, “How do we partner together so we help the ecosystem grow?”
Anthony Thomas: There’s always room for new players. But I don’t think this is the age of a new regional player, cutting across geographies. It’s tougher now to create a region-wide organization; each country’s dynamics are totally different. I think there will be some M&A activity and some consolidation. Then it depends on alignments—how businesses get acquired or partner and form networks. New players will probably solve in niches that make sense for them, but they’re unlikely to try to solve everything for everyone, because the leading wallets have somewhat captured positions.