The Game of E-Wallets: The Era Of 'Cold War' Between West (PayPal, Apple Pay) and East (Alipay, Samsung Pay, Paytm)

There will be more than 4.8 billion individuals using a mobile phone by the end of 2016; consequently, e-wallets keep growing at a faster rate. And Asia is the fastest growing region for smartphone usage with low penetration of financial services, which provides double opportunities to become a winner of this race. Western players are more famous, one-step-ahead in terms of innovations and expand very fast to the East – but Eastern 'followers' provide better localization of their solutions, high usage, wider opportunities for the market penetration and they have deep pockets to compete everywhere.

US-based wallets have become comparable with some banks already! At the end of March, 148 million customers of PayPal held more than $13B in accounts – compared with bank deposit, the figure would put the company just behind TD Bank or Capital One. Starbucks doesn’t offer bank accounts, but 12 million members of the company’s loyalty & reward program app loaded a total $1.2 billion onto them. That’s more than what First Commonwealth Financial Corp. and Charles Schwab have in deposits.

PayPal (as well as its services Venmo and Braintree) showed excellent financial results for 2015 – ahead of eBay in terms of capitalization. The first quarter of 2016 also proved the reasonableness of separation of these companies. PayPal is not going to become a classic bank, but the success of new products such as lending to merchants and final retail clients shopping online evidence that the company eventually intends to provide most of the financial services.

The rest of e-wallets are mostly concerned about geographic expansion, rather than extension of the product line: after entering the markets in South Korea (5 million customers and $1B in transactions) and the US, Samsung Pay has expanded to Spain and Australia; Apple Pay connects 1 million users per week, is present in six countries (the USA, Canada, the UK, Australia, China and Singapore) and is expanding to Switzerland, France and Hong Kong this summer; Android Pay is present in the US and the UK, where it totally connects 1.5 million users each month and is going to launch in Singapore and Australia soon.

A large potential threat to e-wallet expansion comes from mobile phone manufacturers with Xiaomi and Huawei joining this race. (In addition to the development of its e-wallet, Xiaomi has invested $115M for the 29.5% stake in Sichuan Hope Bank, which is going to lend to millennials and SMEs.) As opposed to their potential expansion Samsung and AliPay have announced a partnership.

The most rapidly growing e-wallet markets are China and India: the countries with a large number of unbanked customers and a high level of smartphone penetration. The main problem for the solutions developed in these countries is that they are not popular abroad and do not scale well. Despite the huge domestic potential, the competition in these countries intensifies quarterly.

Alipay raised a record $4.5B round at a valuation of up to $60B (which is about $10B above PayPal’s capitalization and Alipay client base of 450 million users is twice the size of PayPal’s customer base). MyBank, a subsidiary bank for SME lending, has already disbursed 20 million loans. The company claims it will soon expand to new spheres: insurance and wealth management with the target audience of 140 million customers. The company’s development abroad is challenged by the new Chinese legislation stipulating that starting from July 1, customers are not eligible to keep money in the accounts of such services if they don’t have a Chinese bank card. Therefore, overseas users can use Alipay only for online purchases at Alibaba sites.

At the end of last year and early this year, AliPay acquired the controlling stake in Paytm, the largest Indian e-wallet, by two tranches of $600M and $680M. In August 2016, Paytm plans to launch its payment bank. In addition to payments and remittances, the service is going to provide such services as insurance, wealth management and lending (based on integration with other banks, the payment bank itself is not eligible to lend). Another Indian e-wallet MobiKwik has raised $50M ($80M in aggregate). It currently has 30 million retail customers and 75,000 SME-clients. The company targets to increase these numbers up to 150 million and 500 thousand, respectively, with $5B turnover. The company recently launched a campaign: 6% on account balance (the market rate in India is 4%). Another player, FreeCharge, raised $113M in investments last year and was later acquired by Snapdeal, India's largest e-commerce company, for $400M. Ola, the largest Indian taxi service, announced the development of its e-wallet OlaMoney. There are over five popular e-wallets, including Oxigen, already in the market.

Challenger and neobanks from Europe, whose numbers growing very fast, can be useful for Asian e-wallets as a potential acquisition to compete with PayPal and Apple Pay in terms of quality of their products, new features and geographical expansion.

In the first half of the year, this vertical of FinTech is always "on hype." German Number26 with a 200,000 customer base raised $40 million in its round B. With 300 thousand customers, Fidor (another Germany-based company) continues to grow in the UK where Wired named it the top online bank and was sold for BPCA from France. British Tandem, Mondo and Loot raised £20M, £5M and £1.5M, respectively, in their A rounds. British Mondo and Starlink announced to be raising another £15M and £70M, respectively. Swedish Tink raised $10M in Round B. Starling bank and Number26 now have their own banking licenses.

Neo- and challenger banks existed previously only in the US, and have got a second wind and a new growth phase with the support of the British regulator – but why we do not see their followers in Asia? Lack of talents? Most of the Asian markets are unbanked – and it is too early for them to join this party. Overbanked markets like Singapore, Japan, South Korea, Hong Kong highly controlled by megabanks, and local regulators support their safety and stability more than market innovations. It looks that only customers can shift this situation from zero-point; or iconic investors like Li Ka-shing, who recently invested in Number26.

It is worth noting that Tandem and Mondo raised £1M each in these rounds through crowdfunding services. This is a positive development, as, firstly, it shows initial demand for your service (both banks are in beta), and secondly, it brings in more of your first customers and, thirdly, "one million from customers" is more essential for investors compared to "one million from other investors." The crowdinvesting scenario can be interesting for the Asian market – is customers will vote by their money for the creation of this kind of services, and I think that the local regulators can’t ignore their demand.

To be honest, we can find only a few neobanks in Asia. Neat, a mobile bank, was launched in Hong Kong. Vietnam launched Timo and Momo. Momo raised $28M in its round B. But, please, compare them with Nubank in Brazil, which raised a record (for the country and the vertical) $52M with a $500M valuation.

Goldman Sachs announced launching GS bank, its own digital bank; however, it has released no new good news about the project since then. DBS Bank in Singapore made a similar statement about its project in India. But the God is in the details – the announcements were good, now let’s wait for the solution (from both players).

However, these are solutions only for retail customers. I think simple banks for SMEs seem much more interesting. Earlier this year, BBVA, a Spanish financial group, which had acquired Simple (USA) and invested in UK's Atom, acquired Holvi for an unnamed amount, a Finnish online bank operating in Finland, Austria and Germany. A similar bank, Anna, will be launched soon in the UK. I wonder when such solutions will arrive in Asia, where the majority of the population is involved in small and medium business and the borderlines between retail customers and micro and small business are blurred.

Read more about results of first half of the year in FinTech industry in the new issue of Money of the Future 1H’2016 (Chinese, Korean and Japanese versions available on