The countries that comprise the Association of Southeast Asian Nations (ASEAN) have more in common than mere geography. All remain largely cash-based economies, and few people have bank accounts. In this interview, Matthew Driver, MasterCard’s group executive, global products and solutions, Asia–Pacific, discusses the opportunity that presents and why the ASEAN region should be viewed alongside Brazil, Russia, India, and China (BRICs). An extended and edited transcript of Driver’s comments follows.
A misunderstood region
If you think about ASEAN, I think there’s a lot of misunderstanding about what it might be. It has the potential of the BRICs, but, actually, it’s much more of a consistent geographical area. At the same time, ASEAN’s not really like the European Union either, because it’s not going to have the same level of political and legal integration.
At the macro level, the opportunity is big enough to consider ASEAN as a legitimate alternative to India and China. Think about this: ASEAN is 600 million consumers, $2.3 trillion in GDP, growing at 5 percent. That’s a substantial opportunity—very positive demographics. Then, if you take the next step, if you think about the level of consumption in that GDP, overall it’s more than 50 percent. So there’s an intrinsic consumer opportunity already happening.
If we think about the risk profile of ASEAN, certainly the important thing to remember is that it’s a very different scenario from 15 years ago. All the economies in this region have moved on substantially since then. The economies are performing much more consistently. There hasn’t been a huge amount of variability in growth. You have well-capitalized banks. And the institutional structures are improving all the time.
Transforming cash economies
As a payment-technology company, we are very much interested in this intersection between mobile and payments. Eighty-five percent of the transactions in Southeast Asia are still done in cash, so there’s a huge efficiency opportunity for us to facilitate transactions. Cash is expensive to produce. It’s expensive to distribute. It costs an economy anywhere between 0.5 percent and 1.5 percent of GDP, and that’s before you start counting its ability to facilitate illegal or other undesirable behaviors.
Electronic payments create greater transparency and help support initiatives related to antigraft. They also enable governments to distribute benefits more effectively; rather than paying in cash and having all the administrative and fraud issues that may come with that, you can deploy and target social-assistance programs to individuals who really need them because of the precision and the transparency that comes with financial payments.
Developing the financial system
There’s a huge opportunity to include, or bring in, a lot of consumers into the financial system. Probably on average about 25 percent of the total adult population [in ASEAN] has a bank account. But there’s a massive opportunity to include people by using a mobile phone and having a payment mechanism linked to it, creating opportunities for them. It could give farmers access to microinsurance. It could give families in small villages the ability to save for their future, to make bill payments without having to leave their fields or close their small provisioning store—by ensuring a safe and secure way of transmitting remittances at a lower cost.
If you look at overseas workers, the opportunity for making remittances more cost effective by utilizing payment technology is incredibly important. A number of countries in Southeast Asia—the Philippines, Indonesia, and Vietnam, specifically, but also Myanmar—are large, inbound markets for remittances. And a lot of the workers, who are working overseas away from their families, have to pay from anywhere between 9 and 10 percent of that remitted amount just to facilitate the payment.
The prospect of economic integration
It’s going to take some time, but what’s important to realize is that the direction is very, very positive. Not only are people talking more positively about it, but they are also making changes. Now, some are making changes faster than others, but everyone is committed to making it happen. So is it going to happen tomorrow? No. But the big thing is, it’s really coming.