Seventeen years into running Southeast Asian payment processor 2C2P, its founder and group CEO, Aung Kyaw Moe, still holds a passion for everything related to the future of digital payments in Southeast Asia.
Aung Kyaw Moe first started the company in 2003 to develop mobile games, but mobile games were not a fad yet at the time, so he shifted to payment processing, counting online travel and regional airline companies as some of its earliest clients. Singapore-based 2C2P first secured a seed investment in 2009, and fast forward, it raised USD 52 million in a Series E round last November 2019, bringing the total amount of funding to USD 70 million from investors such as IFC, Cento Ventures, and Arbor Ventures.
As one of the few early entrants in the region, 2C2P offers an array of payment solutions that help different businesses collect and process payment from customers, catering to the needs of e-commerce merchants, regional airlines, global retailers, and financial institutions.
The firm allocated about 30% of its latest cash injection to establish a new venture capital (VC) arm named 2C2P.VC, with the target of investing in fintech opportunities across Southeast Asia that could later help 2C2P to further expand beyond existing markets.
The payment processor turned profitable last year, according to Aung Kyaw Moe, who added that currently, the firm is seeking and expansion of its footprint in regional markets.
KrASIA recently spoke with Aung Kyaw Moe about 2C2P, Southeast Asia’s fragmented digital payment landscape, and some challenges that hinder greater payment adoption across the region.
The following interview was edited for brevity and clarity.
KrASIA (Kr): What are some new payment trends emerging from the pandemic?
Aung Kyaw Moe (AKM): As we all know, more and more people in Southeast Asia are forced to use technology to continue their jobs and connect virtually, digital payment is no exception. As soon as COVID-19 hit last February, we saw a significant drop [of transaction volume] in the travel sector. With a large portfolio of travel customers, we saw that transactions volume in business-to-business payments dropped close to zero. At the same time, we saw recovery or growth in other areas, such as online insurance or digital goods payments. Transaction volumes of e-commerce companies also grew over three to four times within a short time span. Now, we are seeing even growth in those affected areas, as domestic travel is starting to happen again in countries like Indonesia and Thailand.
Kr: Southeast Asia’s leading fintech firms tend to burn cash to acquire new customers. Do you think this strategy is sustainable?
AKM: We have to look at the fintech landscape in two groups of fintech companies. One is consumer-facing fintech companies like GoPay and GrabPay, and the other is business-to-business fintech companies. We are in the latter category and provide our services for a fee, so every transaction has a positive margin.
We don’t have any consumer-facing products, but we will provide technology to other businesses, and they may use our technology to serve their consumer, tapping the end-users under their brand name. There is a clear distinction between us and consumer-facing fintech firms that need to acquire new customers or merchants who will be accepting their payment method. For us, we have very little customer acquisition costs.
But in the consumer-facing wallet battle, you will see consumer products like Lazada and Shopee coming up with their own wallets, leveraging their existing customer base. You will find fintech companies like Momo in Vietnam or Razor in Singapore launching their own fintech products, and banks spinning off their own wallets.
Consumer-facing wallets are trying to entice customers by providing subsidies so that they can demonstrate the use cases within their wallets. But I think this eventually has to stop and there must be a cool-down period sometime in the future, as it is not going to be scalable.
Kr: How do you see the current competitive landscape for payments in Southeast Asia?
AKM: We don’t consider [credit or debit] cards as the only way to accelerate the digital economy growth. We have new kinds of alternative payment methods and an entire landscape with digital wallets.
Having a national standard for digital payments will be the future of the payment landscape in the region. In China, Alipay and WeChat Pay were created by private entities which became the standard for China to do wallet payments. In India, the government created the Unified Payments Interface (UPI) [a payment infrastructure that allows interoperability between payment apps and facilities peer-to-peer transfer]. Because of the UPI, now all the commercial banks are riding on the same standard, and customers can transact digitally without any kind of physical payment instruments like cards.
In Southeast Asia, governments or central banks are creating their own national standards. Every Southeast Asian country has a road map to establish its national [digital payment] standard, which will be like an Alipay or Wechat Pay standard for Southeast Asia. Personally, I think that will play a significant role in the future. Digital payment solutions might have more market share than Visa and MasterCard networks in the region. Mobile wallets or fintech players might become part of the ecosystem, which is an exciting development for the whole region.
Meanwhile, the “buy now, pay later” payment method is very popular in Europe, while the trend is also catching on in the US and Japan. Southeast Asian fintech companies are also trying that out right now, and what 2C2P does is that we aggregate them and we help them to connect with large and well-known merchants that we serve. We will continue to do this kind of integration or implementation within and beyond Southeast Asia so that we can continue to be relevant.
Kr: What are the obstacles to greater digital payment adoption across Southeast Asia?
AKM: Cash is one issue. People are using cash because there is a much bigger underlying motivation. We cannot keep pumping up the technology with the hope that cash will go away. For instance, some people don’t trust the financial system in their country.
In Myanmar, some of the banks failed before and all deposits disappeared. They worry that their bank might disappear the next day. Central banks across the region have to understand this and work with their peers, like the revenue departments and the finance ministries, to come up with a solution so that we can eliminate cash. Technology or fintech companies alone cannot solve that.
Kr: Would payment processors like 2C2P become the key player to address fragmentation and limitations to interoperability within the region’s digital payment ecosystem?
AKM: 2C2P today has over 200 different kinds of payment methods across the region. We aggregate all these payment methods and provide a one-stop service to our customers, which is one of our key selling points. Of course, governments and regulators are streamlining the payment method by coming up with a national standard. The number of [available] payment options will decrease in the future. But in the meantime, we will continue to consolidate and aggregate [existing] payment options, not only from Southeast Asia but also outside of Southeast Asia.
Kr: In addition to payment aggregation, what are 2C2P’s strategies for the future?
AKM: In the next five years, the region will have fewer payment options, but more value-added services beyond payments. We provide offerings beyond initial payment transactions including pay-out to the supplier, multi-currency, multi-location settlement payment, refund, and chargeback management. These services are very important and unique. As more streamlined payment methods emerge in the region, better digital payment services will be developed.
We will continue to be profitable and use the new capital to grow locally and beyond the region, that’s why we are setting up our offices in Europe and the Middle East. By the time COVID-19 is over, we may have a license in Europe and the Middle East. We also decided that we will continue to rule by ourselves. We will find ways to combine with smaller companies in our region so that we can grow faster.