Telcos could bank on e-payments despite stagnant market growth

The dominant telco mobile wallet, Singtel Dash, ate up only 6% of the market despite having launched early in 2014.

Singtel might have been banking on first-mover advantage when it launched its mobile wallet platform in 2014 as the earliest in Singapore, but the telco has so far failed to capture the whole population’s interest in e-payments.

Ever since its launch, it was able to grab only 6% market share and accumulate 500,000 downloads and 500,000 monthly active users. However, it pales in comparison to its peers like GrabPay (64%), DBS PayLah! (17%), and UOB Mighty SG (9%).

This was what Morgan Stanley tried to establish in its report, wherein it argued that banks are widely expected to be the top gainers in the heating e-payments battle as telcos which are rolling out similar models fail to pose sufficient threat to banking heavyweights. However, telcos are still expected to bank on mobile platforms and eke out gains worth US$160m-US$236m by 2022.

In the ASEAN, telcos are expected to gain between US$2b to US$2.9b. With Singapore's extensive mobile penetration rates, Morgan Stanley forecasts that every person could have two wallets in 2022, pushing usage rate to 200%.

Users are currently making five e-wallet transaction per annum today, it said, and this figure could grow to 61 by 2022. The price per transaction is assumed to be $0.10 in 2017, which falls to $0.05 by 2022.

Previously, Singtel has chosen to partner with Razer to launch RazerPay in 2H18. This boosted Morgan Stanley’s earnings estimates for telcos engaged in mobile wallets.

According to Nick Lord, Morgan Stanley equity analyst, the value of Singtel’s Dash which could eat up $381m or $0.02 per share, whilst M1’s mobile wallet could rake in $24m or $0.03 per share. “We assume that the telcos can generate $0.30 advertising ARPU per month per customer, which grows to $0.8 per month by 2022.”

There are roughly 600,000 telco e-wallet users today, which represents ~7% of total smartphone subscribers in Singapore, the analyst said. “By 2022 this will grow to 1.5 million or ~17% of total smartphone users. We do not forecast higher take-up because of the multiple choices for customers,” he added.

Lord identified four revenue opportunities for telcos — remittance, payments, advertising, data analytics — but the last three would only be able to generate revenue, with advertising and data analytics providing the bulk of the streams.

“Remittance exists in all ASEAN markets but is clearly much larger in Singapore because of the larger volume of remittance transactions. Unfortunately this window of opportunity is already closing. Fintech players, which may charge only a very small transaction fee and make no money on the FX spread, are moving in,” Lord said.

Meanwhile, Morgan Stanley is far less bullish than the telcos which believe there is an opportunity for them to win market share in the payments market. “We believe that over time, payments will purely become revenue and cost neutral for telcos because already in these markets there are payment platforms with either zero or very low cost, like FAST (in Singapore),” Lord added.