September 1, 2021

New Generations Shape the Future of Digital Payments in Asia

by Matt Cheng

“Buy Now, Pay Later” (BNPL) is not a new concept by any means. Numerous startup companies have been developing BNPL services as early as 2010, some of which have already achieved unicorn status, like the US’s Affirm which debuted its IPO this year. Since the onset of the pandemic, the considerable uptick in demand for digital payment methods has caused the BNPL-space to experience explosive growth. Most recently this month, US-based financial services company Square acquired Australia’s Afterpay for a whopping $29B. Apple even announced that it would begin providing Canadian consumers with BNPL services when purchasing Apple products. With the growing popularity of BNPL services, this sector is increasingly attracting industry-wide attention. 

Much like Western markets, the BNPL industry in Asia has similarly experienced a growing trend. For example, South Korea’s Coupang announced in August of last year that they would test out BNPL services on their platform. In Japan, fintech startup Paidy has already achieved unicorn status before its scheduled IPO at the end of 2021. What’s interesting about Japan’s BNPL industry is that, 4 years ago, I remember reading an article from the Nikkei that discussed the “cash-ism” of Japanese consumers. Japanese consumers have long relied on cash as their primary payment method because of an emphasis on frugality and a widespread culture that values privacy. At that time, non-cash-based payments in Japan only accounted for 20-30% of all transactions. However, despite these consumer trends, Japan produced Asia’s first BNPL-focused unicorn only after four years, leading Asia’s overall BNPL industry. 

Cherubic is actually one of Paidy’s early investors. Observing their growth since our seed investment in 2014, Paidy had been able to provide card-less payment and BNPL services much earlier on in their journey. However, they experienced their fastest growth within the last three years, and the key to their growth transformation has been the increasingly powerful force of Gen-Z and Gen-Y consumers. Some unique qualities of these new generations are that they highly value the quality of life, are willing to spend money on experiences as opposed to goods, and want to stay on top of generational trends. However, with limited disposable income, they want to spend less on service fees while also increasing their ability to purchase high-end products through BNPL platforms. Because of these preferences, BNPL is perceived as a more reliable and preferred option to credit cards. 

From the merchants’ perspective, collaboration with BNPL platforms is increasingly essential. To target young consumers and maximize their growth potential, merchants willingly pay service fees to BNPL platforms because they consider BNPL platforms as marketing channels due to their established presence among young consumers. This creates a win-win outcome for BNPL platforms, merchants, and consumers because it improves the overall experience and convenience of digital payment. Seeing Paidy’s tremendous growth in the past several years, it’s clear that Paidy is going all-in on capitalizing on this significant business opportunity among Gen-Z and Gen-Y consumers. 

Compared to Western markets, Asia’s fintech industry is certainly a few steps behind. However, with generational shifts and changing attitudes towards credit cards and digital payment, Asia was able to nurture its first BNPL unicorn even in Japan’s relatively conservative consumer environment. Like how I mentioned in my last article, the new generation of consumers increasingly value the quality of digital service experiences, and the formidable rise of Gen-Alpha has put a greater emphasis on convenience and speed. With these overall trends, thinking about the next big opportunity is keeping me on my toes. 

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