Financial illiteracy hinders Asia's m-payments uptake

Challenges such as financial illiteracy and enacting the right regulations to prevent consumers from being scammed are identified by one industry watcher as reasons for slower adoption of mobile payments technology in Asia.

According to the Joyful Frog Digital Incubator Asia (JFDI.Asia) CEO Hugh Mason, poor financial literacy is one of the main challenges faced by mobile payments proponents in Asia. This is particularly so among the region's emerging markets, he said.

"Financial literacy is a huge challenge and that feeds into the regulation question," Mason said. "When I first started my apprenticeship in 1986, I was paid in cash each week in a brown envelope.  By 1990, it was mandatory to have a bank account, and suddenly people went from a situation where they had a teapot with money in it... to a situation where they had to deal with abstract numbers on a bank account, being offered credit cards and running up huge bills."

He added that people's financial illiteracy meant that regulators are very loathe to allow new payments vendors into the marketplace. It might be a sophisticated corporate market in the developed world, but in Asia, the opportunities for people to get scammed and ripped off "are just vast", the CEO said.

He believes mobile payments will eventually take off in the region and the killer app to revolutionize banking and finance will be introduced by startups and entrepreneurs, but this could take up to 20 years to realize.

Prepaid, merchant relationships key
One mobile social network operator, though, hopes to accelerate adoption of mobile payments through its virtual currency model for digital wallets. mig33's CFO May Chuah shared that its platform has 65 million users who chat and play games for free but must purchase level upgrades and gifts.

Users in Asia's emerging markets generally buy their mig credits from merchants, who are key members of the social platform, and this merchant model is necessary in Asia where business is conducted based on relationships and upfront payment is the only guaranteed income, Chuah stated. People can now buy and sell in the virtual economy without a credit card, and this addresses a key cultural difference between the developing and developed world, she added.

"In the emerging markets, people live quite far from services and amenities so they don't have quick access to these financial institutions and mature payment services, and most wouldn't have a credit card," the CFO said. "Markets such as India, China, Africa, Indonesia, Nepal, Bangladesh, all work with the prepaid model and even when it comes to electricity, people would buy a [prepaid value] card and swipe this through the meter outside their houses to get their electricity."

Furthermore, there is a culture that is heavily based on people relationships so mig33 users, for example, would rather go to their friends to buy virtual currency rather than go online to purchase these, she added.

As such, the company is currently in talks with Indonesian mobile wallet companies to use mig credits to pay for services such as electricity and phone bills, she revealed.

Regulatory hurdles will have to be crossed though, she noted, reiterating Mason's earlier observation. With banks, user details such as the name, IC number and passport number are stored in their databases once an account is opened with them so these institutions will know who they are dealing with and are able to account for money laundering and black money transactions, she stated.

With online virtual currency and mobile payments, there aren't regulatory structures in place yet and governments are still trying to "figure out" how to manage this emerging industry, she explained.

"The mobile world is pretty much a baby, so it's still evolving. It will take time, but over the next few years, all these difficulties with legislation will ease as [lawmakers] figure out what to put in the legislation and smooth out conflicting rules in existence," Chuah pointed out.

Mahesh Sharma is a freelance IT writer based in Australia.