Speaker 1: Welcome to Kobe Time, a podcast series on Markets and
Speaker 1: Economies from D BS Group Research. I'm Tamur, be chief economist.
Speaker 1: Welcoming you to our 128th episode.
Speaker 1: Today, we will talk about payment trends in Asia as
Speaker 1: well as some broader trends around the world. And we
Speaker 1: have a veritable source of data from the horse's mouth.
Speaker 1: If you will. Mastercards. Chief economist David Man is with us.
Speaker 1: David has been with Mastercard for a few years, but
Speaker 1: I have known David for a long time as the
Speaker 1: chief economist, both Asia, as well as global chief economist
Speaker 1: for Standard Charter. I think you spent over 20 years there.
Speaker 1: That's right. That's right
Speaker 2: time.
Speaker 1: But Mastercard also quite a few years now.
Speaker 2: Yes, it's close to four years now at Mastercard too.
Speaker 2: So yeah, it's been quite a ride.
Speaker 1: David Manne. Welcome to copy time. Thanks for having me.
Speaker 1: It's great to have you, David. Let's start with the
Speaker 1: data that we're going to talk about today. How large
Speaker 1: is the universe of Mastercard data?
Speaker 2: Well, it's something where it really is one of those
Speaker 2: truly global companies where if you think about payments in
Speaker 2: particular it's very hard not to think of mastercard as
Speaker 2: being a key
Speaker 2: part of that. But I would stress that it's not
Speaker 2: just to do with the card side in the same
Speaker 2: way that say Apple doesn't sell Apple. It's just the
Speaker 2: name of the actual company itself doesn't quite capture just
Speaker 2: all the different areas that it's actually in. But just
Speaker 2: for context, it has about 143 billion transactions. For example,
Speaker 2: there's about $9 trillion of gross dollar value of that
Speaker 2: actually is going through the system. And we also do
Speaker 2: have 100 million
Speaker 2: acceptance locations around the world. So it is a very
Speaker 2: significant sized business with more than 3.4 billion cards outstanding worldwide. Now,
Speaker 2: of course, it can vary country to country of just
Speaker 2: how many cards are actually in use. I would say
Speaker 2: in general advanced economies, you would see a much higher portion,
Speaker 2: for example of card use and therefore it's much easier
Speaker 2: to see it. But there are increasing numbers of different
Speaker 2: rails and payment rails. The mastercard is involved in, I
Speaker 2: would probably say even just beyond
Speaker 2: just actually confirming a transaction and having that ability to
Speaker 2: think of it. Like a tech company in the payments
Speaker 2: space is probably the best way to really go about it.
Speaker 2: So all the new things that you're seeing would say
Speaker 2: digital wallets, use of tokenization, anything that helps to make
Speaker 2: transactions secure online, all of these things mastercard has been
Speaker 2: involved with for a very long time all the way
Speaker 2: through to things like central bank, digital currency and even
Speaker 2: Blockchain applications,
Speaker 1: right? In terms of the different rails being used, I
Speaker 1: was in China a couple of weeks ago and I
Speaker 1: got to connect my Apple Alipay QR code to mastercard.
Speaker 2: Oh, that's great. Well, that was actually one of the
Speaker 2: most exciting times actually is in the last few months
Speaker 2: and even just in the last week or two where
Speaker 2: we actually have just launched the domestic switching as AJ
Speaker 2: V in China and we're adding huge amounts more I
Speaker 2: would expect of the acceptance locations because previous
Speaker 2: you would have been say having a card issued in
Speaker 2: China that was being able to be used internationally on
Speaker 2: the Mastercard Rails. Now it would be one where that
Speaker 2: same uh the Mastercard switch which is doing all of
Speaker 2: the uh the, the I would say the approval and
Speaker 2: the clearing and the settlement. Now all of that can
Speaker 2: be done too. And that just means that we're able
Speaker 2: to really understand even more about what's going on domestically
Speaker 2: as well as internationally. A
Speaker 1: little later, I want to talk a little more about
Speaker 1: what took China so long
Speaker 1: and now that they've done it what it means. But
Speaker 1: before that David in mid June, you spoke at NRF
Speaker 1: 2024 National Retailers
Speaker 2: Federation. Ok. Yes, that's right. So it was, it was
Speaker 2: very exciting in that the folks from the, from the
Speaker 2: NRF that were organizing, the event were saying they were
Speaker 2: planning to have this first major event outside of the
Speaker 2: US where it's been running for more than 100 years
Speaker 2: and it has thousands of participants and anyone in the
Speaker 2: retail space seems to know all about
Speaker 2: conference even around the world. But then COVID happened and
Speaker 2: so they had to wait until they got to the
Speaker 2: right time when it would feel a bit easier to
Speaker 2: be going ahead with something like this. And so it
Speaker 2: was thousands of people at the Marina Bay sands coming
Speaker 2: in from, as the organizers told me around 40 different markets,
Speaker 2: people were coming in
Speaker 1: from not just American retailers. Oh no,
Speaker 2: this was retailers from, you name the place, there was
Speaker 2: someone there from literally anywhere I could think of. They
Speaker 2: were like, yep, there's someone who's come in from there
Speaker 2: and you had this sort of the, the, the sort
Speaker 2: of set up where you have the whole exhibition hall
Speaker 2: with the various vendors and people from all types of areas.
Speaker 2: But then also the actual main event space where they
Speaker 2: had speakers, for example, uh the head of Don Don Donkey,
Speaker 2: for example. And that was very exciting to uh to
Speaker 2: hear the story of how Japan and, and a company
Speaker 2: that's been so successful in Japan, how they've done it
Speaker 2: and also what their plans are for the future. Ok,
Speaker 1: we
Speaker 1: can probably spend many hours just
Speaker 1: talking about the scope of a conference like this. I'm
Speaker 1: super curious but give me some top line takeaways. How
Speaker 1: are the retailers feeling in the middle of 2024?
Speaker 2: Well, it's, it's,
Speaker 2: it's one of these times where there's plenty of reason
Speaker 2: for excitement in particular for this region, sort of things
Speaker 2: that we would have been talking about. So from a
Speaker 2: broader growth drivers perspective even say 10 years ago where
Speaker 2: it was quite clear, the center of economic gravity had
Speaker 2: been shifting east and it's not really changing. I would
Speaker 2: argue even with the slowdown
Speaker 2: in the trend pace of growth in for example, China,
Speaker 2: you do still have the strength, for example, in India
Speaker 2: and the contributions to global growth being so big. That
Speaker 2: exciting story, I think is something that retailers are still
Speaker 2: very focused on the rise of consumers, the growth in
Speaker 2: middle class and higher income consumers that I would say
Speaker 2: is the biggest long term part of the story that
Speaker 2: people were were really really wanted to talk about. But
Speaker 2: of course, there are shorter term challenges that come from
Speaker 2: the rise in the cost of living
Speaker 2: the higher levels of interest rates, the persistence of particularly
Speaker 2: us interest rates being as high as they are, how
Speaker 2: long and how quickly they come down. Of course, was
Speaker 2: a major question that was coming up quite often because
Speaker 2: it matters for markets in this region. Too take, for example, Indonesia,
Speaker 2: where we've seen interest rates going up, where really it
Speaker 2: was more about the external defense that the keeping the
Speaker 2: currency from going much weaker rather than it being for
Speaker 2: domestic reasons themselves. Even here in Singapore, we're seeing with
Speaker 2: say the retail sales numbers
Speaker 2: year on year have been softening and we know the
Speaker 2: cost of living, the cost of interest are major factors
Speaker 2: that are playing a role in that. So for a
Speaker 2: lot of retailers, what they're trying to do is navigate
Speaker 2: this challenging short term environment space. And a key way
Speaker 2: to do it is to think about how they can
Speaker 2: retain and gain new customers, draw customers in through personalization
Speaker 2: services or loyalty programs.
Speaker 2: What types of offerings they can actually come up with
Speaker 2: how to segment the customer groups and also how to
Speaker 2: think about what else they could be doing for alternative,
Speaker 2: not just marketing but direct sales channels getting involved in
Speaker 2: say marketplaces or directly selling and that role of ecommerce.
Speaker 2: Of course, all with these things coming up, talking to
Speaker 2: someone like mastercard was ok. We want to do more
Speaker 2: of this. But also how do we do it in
Speaker 2: a safe and secure way?
Speaker 1: Sure, I just hope they're not pushing BNPL more because
Speaker 1: this whole buy now pay later in my view at
Speaker 1: this time, the cycle was raised being where they are
Speaker 1: is a recipe for stress.
Speaker 2: Well, it's one of those things where you look at
Speaker 2: the different sources say B NPL, that had been certainly
Speaker 2: something that grew very strongly, I think at first in Australia.
Speaker 2: But what's interesting about it though? And I, I do
Speaker 2: agree that there are certain areas where you've,
Speaker 2: it's just got to be cautious on adding to the
Speaker 2: amount of what is effectively credit at times when consumers
Speaker 2: are more stressed. But at the same time, it was
Speaker 2: offering something where at least consumers were feeling ok. I
Speaker 2: just have four equal payments to make. There's no interest
Speaker 2: on it. But of course, it needs to be done
Speaker 2: in a way where people actually are able to do
Speaker 2: that and it actually just helps them with their cash
Speaker 2: flows rather than ends up seeing
Speaker 2: them in more stressed positions. But it is an interesting
Speaker 2: application of an older type of idea that's been reapplied
Speaker 2: with modern technology thrown in. And I think from that perspective,
Speaker 2: I think that's quite interesting, right?
Speaker 1: I
Speaker 1: mean, I think I've seen reference to installment payments, you know,
Speaker 1: in South Asia, you know, decades ago, even before the
Speaker 1: ecommerce was a thing. I also know that Apple recently
Speaker 1: discontinued doing B and P I think it came out
Speaker 1: just a week ago or so.
Speaker 1: Um So David uh from these, these retailers who have
Speaker 1: gathered from all over the world in Singapore, I mean,
Speaker 1: did they pick Singapore because it's just a nice comfortable
Speaker 1: travel destination or they see
Speaker 1: regional hub for retail being in Singapore as a business proposition.
Speaker 2: I think it was a little bit of both. Certainly
Speaker 2: the organizers that when I was talking to them, they
Speaker 2: did their homework on where should this be based? And
Speaker 2: they came back with the overwhelming feedback. It should be Singapore.
Speaker 2: That made the most sense. I think you're right. The
Speaker 2: ease of travel in and out is clearly playing a
Speaker 2: big role in that wherever you want to come from
Speaker 2: around the region, it's a, it's a
Speaker 2: key hub in that regard. And also I think the, well,
Speaker 2: the the the the actual conference space itself, the ability
Speaker 2: to network the sort of availability of of accommodations made
Speaker 2: it much, much simpler. Um But I think also it
Speaker 2: is a place where you still do see that bias
Speaker 2: on having regional hubs and picking Singapore as a location
Speaker 2: for that. I think that's something that is, is very,
Speaker 2: I think quite persistent really, even though there's lots of
Speaker 2: other places that are
Speaker 2: looking to try and take some of that sort of role,
Speaker 2: it does look like Singapore is still in a leading position,
Speaker 2: especially at a time when there's been more problems and
Speaker 2: issues or questions over elsewhere, including say in Northeast Asia,
Speaker 2: including Hong Kong.
Speaker 1: That's
Speaker 1: right. And I hope I'm not wrong when I say
Speaker 1: that mastercards Regional Headquarters also Singapore. Yes,
Speaker 2: that's right. Yes. Yes,
Speaker 1: travel trends. 2024. You send me a link to the
Speaker 1: report. I found it really interesting. I wish we could
Speaker 1: have done like an interactive show where we can show
Speaker 1: off your charts. But this time audio podcast with, on
Speaker 1: the video, only us showing our faces tell me about
Speaker 1: travel trends. 2020
Speaker 2: four. Yeah, I mean, maybe next time next to this
Speaker 2: nice greenery in the background, we can put a screen
Speaker 2: up and I can start out with some of the Absolutely.
Speaker 2: And it's actually on the Mastercard Services website. It
Speaker 2: there's no gate gating on
Speaker 2: it.
Speaker 1: We'll put the link in the show notes of the great.
Speaker 2: So what we do each year is and I think
Speaker 2: it's now the fifth year that we've done this where
Speaker 2: we've done a travel report for the world. And what
Speaker 2: we try and do each time is think of what's
Speaker 2: the new view that we could build? What are the
Speaker 2: extra points that would reinforce some of the interesting thematics
Speaker 2: that are coming out. So part of the story, firstly
Speaker 2: on travel
Speaker 2: is that while there are challenges on broader consumer stories,
Speaker 2: we are still not done on the recovery of travel
Speaker 2: in this region that the pandemic since the pandemic, like
Speaker 2: levels of say just passenger volumes are not in general.
Speaker 2: Some exceptions, which I'll come on to especially the Japan story,
Speaker 2: which has been dominating a lot of the stories and
Speaker 2: and attention for good reason.
Speaker 2: Actually, we're not fully recovered. If you take the example
Speaker 2: of China, we're only around 83% recovered of passenger outbound
Speaker 2: international volumes versus 2019. You compare that to domestic volumes
Speaker 2: that had fully recovered even more than a year ago.
Speaker 2: So there's a big divergence story that we're seeing there.
Speaker 2: And of course, this matters the most because
Speaker 2: pandemic China was the most important spending traveler worldwide. It
Speaker 2: was actually even a big macroeconomic topic actually of just
Speaker 2: how much of the services balance on the current account
Speaker 2: actually was being dragged down by the expenditure of travelers
Speaker 2: abroad on a net basis right now. Interestingly, we just launched,
Speaker 2: relaunched the priceless Beijing experience
Speaker 2: uh just literally a few days ago. And part of
Speaker 2: the timing of doing it, one was uh with our
Speaker 2: operations in China growing in that way, more acceptance points
Speaker 2: uh that it was becoming a big story. But also
Speaker 2: you may be noting, I I certainly have been seeing
Speaker 2: more adverts uh for the wonderful things you can do
Speaker 2: on a trip as a tourist coming into China. And
Speaker 2: to your point earlier, the big challenge had been making
Speaker 2: payments as a foreign visitor in China has not always
Speaker 2: been so easy. It's changing right now. It's changing in
Speaker 2: a big way. You mentioned, you're able to say put
Speaker 2: your mastercard into big relief into your wallet that is
Speaker 2: accepted and that means all the acceptance points just light
Speaker 2: up straight away, but even
Speaker 2: directly to be able to just go in and use
Speaker 2: the mastercard directly in multiple more acceptance points. That's something
Speaker 2: that's growing very rapidly. So now what, so that net
Speaker 2: number might get a little bit more balanced if indeed
Speaker 2: we do start to see a lot more travelers coming in.
Speaker 2: There's certainly plenty of exciting, interesting things to do uh
Speaker 2: when visiting China, many cultural uh locations that I think
Speaker 2: many people would love to, to go and see. Uh
Speaker 2: now on the travel side though, coming back to it,
Speaker 2: the full recovery was seen in Japan.
Speaker 2: So inbound travelers in particular, coming from places where the
Speaker 2: FX had become particularly attractive. And a great example of
Speaker 2: this is Singapore into Japan as a corridor
Speaker 1: armstrong exchange rate vis over the yen.
Speaker 2: That's right, that sort of move that, that it's been
Speaker 2: a 38% move since early 22
Speaker 2: 22. That type of move actually, not only did it
Speaker 2: attract that extra volume. So that corridor has been really booming.
Speaker 2: It's more than 40% above where it had been pre
Speaker 2: pandemic compared to other corridors that have not really come back.
Speaker 2: And we can talk about the Thailand story as well
Speaker 2: if you like a little bit later. But on the
Speaker 2: Japan one
Speaker 2: that F FX rate has not just been this big move,
Speaker 2: attracting people in to just go and have their holiday there,
Speaker 2: it's even changed what people do when they go there
Speaker 2: because in general, since the ending of COVID restrictions worldwide
Speaker 2: when it comes to travel, we have been seeing experiences
Speaker 2: dominating what people wanted to spend on. It was all
Speaker 2: about go to that fine dining experience or go to
Speaker 2: the restaurant be with people concerts. Of course, the Taylor
Speaker 2: Swift concerts were a big one. We've been focusing on
Speaker 2: a lot over the last uh last 6 to 12 months.
Speaker 2: But I think
Speaker 2: this story of inbound into Japan was not just experience it.
Speaker 2: We actually were seeing the share of wallet going up
Speaker 2: quite dramatically, particularly on retail for the markets, the inbound
Speaker 2: markets say Singapore or us where the FX was so
Speaker 2: attractive because you can go there and it's really good
Speaker 2: value going to the stores. So it was not just
Speaker 2: about experiences. It was also about things
Speaker 2: when it came to Japan, the transaction volume sizes were there,
Speaker 2: the growth rate was clearly there. You could really see
Speaker 2: the impact of big FX moves in driving traveler behavior
Speaker 2: even actually, it was just in Thailand recently talking this
Speaker 2: through on that corridor and actually even Thai visitors to
Speaker 2: Japan were also breaking with the cliche of it all
Speaker 2: being about experiences and you were seeing there also retail
Speaker 2: spending doing particularly well because even though the Thai baht
Speaker 2: has not exactly been very strong, it has been against
Speaker 2: the yen. That's right. I think that's the other big
Speaker 2: one that along with the Korean one actually or two
Speaker 2: that have actually become quite attractive in that way because
Speaker 2: of the pricing moves in the FX
Speaker 1: rate, right? In my China trip. A few weeks ago,
Speaker 1: first thing I realized that Shanghai is only a couple
Speaker 1: of hours by plane from Tokyo
Speaker 1: and in Tokyo, if you go to a retailer coming
Speaker 1: from mainland China, they will immediately show you the price
Speaker 1: comparison that in RMB, you pay this much in yen,
Speaker 1: you pay this much. So it's of course, a value
Speaker 1: proposition you should buy. So to your point of patterns
Speaker 1: of spending changing and the orientation of tourists changing.
Speaker 1: Um Do you see this like as you just mentioned
Speaker 1: in Thailand, perhaps also if you can share some views
Speaker 1: on Indonesia, Philippines, Vietnam and so on that, this slowdown
Speaker 1: in Chinese outbound tourism into this part of the world.
Speaker 1: Um How deep is it uh is it being offset by,
Speaker 1: I don't know Russian tourism or American tourism?
Speaker 2: Well, certainly into Japan, the US inbound tourism has also
Speaker 2: been helping to make up for some of the, the
Speaker 2: the the gap left behind, let's say by not yet
Speaker 2: being fully recovered on the China inbound uh China tourists
Speaker 2: going in to Japan,
Speaker 2: that's for sure. Now, whether we're going to see with
Speaker 2: some of these changes, that's being also the long term
Speaker 2: story too. Uh I think actually we probably will where
Speaker 2: actually yes, the China side will come back. But the
Speaker 2: strength of the ASEAN demand particularly say it was just
Speaker 2: in Thailand, that corridor of other ASEAN economies with tourists
Speaker 2: coming into Thailand from the ASEAN has already
Speaker 2: exceeded where it was. And the spending numbers are quite
Speaker 2: strong too. And I think this actually comes back to
Speaker 2: the point I mentioned at the beginning about the excitement
Speaker 2: of retailers, which is, it's not all about just thinking
Speaker 2: of when global growth comes from thinking, oh, the US
Speaker 2: and then Europe, they're really thinking about, well, what's the
Speaker 2: India story? What's the story in Indonesia? And actually the
Speaker 2: a story another one again, in terms of inbound into
Speaker 2: Thailand has become exciting because for travelers from India, a
Speaker 2: number of markets had been easing off on visa restrictions.
Speaker 2: Part of the reason being, well, that's a great way
Speaker 2: of making up for some of the relative underperformance of
Speaker 2: travelers coming in from elsewhere. And when you look at
Speaker 2: the sheer volume of say
Speaker 2: infrastructure build out air airplanes on order. Uh that we
Speaker 2: think about the India market, we think of the volumes
Speaker 2: of extra people, middle class and above that is just
Speaker 2: growing continuously over the next five years, more than 20
Speaker 2: million people we think will be added into say the
Speaker 2: middle class groups. It's not just for domestic travel that
Speaker 2: they'll want to do, they'll go beyond the things and
Speaker 2: into the experiences realm. It will be doing these international
Speaker 2: trips as well.
Speaker 1: It is absolutely fascinating. I fully agree with you, the
Speaker 1: increasing purchasing power of the upper middle class and the
Speaker 1: high income cohort of Indians. I think it's going to
Speaker 1: be if not as transformational as the Chinese wealth impact
Speaker 1: in the two thousands. But it will be pretty big
Speaker 1: up there. From a value proposition perspective, hosting a wedding
Speaker 1: in Goa is more expensive than hosting it in Phuket.
Speaker 1: So for Indian
Speaker 1: festival goers and people who want to arrange special family events,
Speaker 1: I think talent is a very good value proposition. Even
Speaker 1: though the bath is not as weak as the yen,
Speaker 1: they still offer great
Speaker 2: value. There's still good value in there. And actually you
Speaker 2: mentioned that story. I think I literally saw two or
Speaker 2: three weddings in the week and a half that I
Speaker 2: was on a holiday in one of the hotels in.
Speaker 2: There
Speaker 1: you
Speaker 1: go, there you go. Um Let's talk a little bit
Speaker 1: more about Singapore. If I'm not mistaken, Singapore is the
Speaker 1: only country in ASEAN where the travel
Speaker 1: tourism is basically back to pre pandemic levels everywhere else.
Speaker 1: It's still lagging.
Speaker 2: There is still, well, we had almost fully come back
Speaker 2: and then it eased off a little bit in the
Speaker 2: most recent data. So we're still below say 90% in
Speaker 2: terms of the volumes. But you're right in terms of say,
Speaker 2: total expenditure that's coming in from the inbound tourists. It
Speaker 2: has made that that pretty much full comeback, but we're
Speaker 2: not fully, we're not all the way over where we
Speaker 2: were in 2019, I would say part of the reason
Speaker 2: is actually the flip side of the Japan story. It's
Speaker 2: expensive here when you have a currency. And even, let's
Speaker 2: say the Singapore dollar broadly, it's been as strong as
Speaker 2: the US dollar, let's say, certainly it's been stronger than
Speaker 2: any of the other currencies around the region. It has
Speaker 2: meant that there's been this uh and it's actually changed
Speaker 2: some of the consumer spending behavior for Singapore as well
Speaker 2: because we know, let, let, let's think about firstly the
Speaker 2: outbound story for Singapore and then we can go on
Speaker 2: the inbound outbound
Speaker 2: for the uh broader mass market consumers. We actually have
Speaker 2: noted there's been a slight drop in the share of
Speaker 2: the wallet of spending actually going on travel. And now
Speaker 2: we're thinking, well, why would this be Singapore dollar so strong?
Speaker 2: It's particularly strong against regional currencies. So actually, there's more
Speaker 2: of that attractiveness of taking the budget flights, taking the
Speaker 2: shorter haul flights,
Speaker 2: let's say around the region and doing your holidays there,
Speaker 2: maybe as far as Japan. Of course, we know that's
Speaker 2: the case but elsewhere to say Thailand, because it's such
Speaker 2: good value. And so the the consumers for sure with
Speaker 2: this world, we've been in with the spike in inflation,
Speaker 2: the spike in interest rates, everyone looking at some ways
Speaker 2: of trading down on certain essential goods, which has even
Speaker 2: with that being the case,
Speaker 2: taking up a bigger portion of the share of wallet.
Speaker 2: What we really need to see next that consumers are
Speaker 2: looking at is where can I find some of those savings?
Speaker 2: And of course, traveling regionally, you still get your travel
Speaker 2: experience and you've got the value proposition as well right
Speaker 2: now on the inbound side, of course, yes, it's become
Speaker 2: a more expensive place for coming in to visit. And
Speaker 2: because of the exchange rate, that does mean that for example,
Speaker 2: say travelers coming in from say Indonesia, do you find
Speaker 2: more expensive at this point? Of course, everything can change,
Speaker 2: let's say in another year from now as and when
Speaker 2: we may get the interest rate cutting cycle actually really
Speaker 2: getting going from the United States.
Speaker 1: But also for the Indonesians. If they want to watch
Speaker 1: Taylor Swift, there's only one place to go in Asia,
Speaker 2: right? And
Speaker 2: actually we did note on that front that when we
Speaker 2: look into say the restaurant spending around the sort of
Speaker 2: areas that were close enough to the venue for the
Speaker 2: of concerts, we saw a major lift like 25% plus
Speaker 2: lift in spending over that period of the Taylor Swift
Speaker 2: concerts with the biggest driver on the cross border coming
Speaker 2: actually from the Philippines.
Speaker 1: Yes, I should correct myself in Southeast Asia because she
Speaker 1: did go to Japan. But the reason I'm sort of
Speaker 1: focusing on this point is that for a country like Singapore,
Speaker 1: I think the contrast with Indonesia is interesting one Indonesia
Speaker 1: is cheaper, the has been weak. But the
Speaker 1: specific unique experiences that Singapore offers still keeps it in
Speaker 1: the sort of the planning horizon of tourists even though
Speaker 1: Singapore is considered expensive. So it's both value but also
Speaker 1: the quality of things that are being offered.
Speaker 2: Yeah, that's right. And
Speaker 2: also I think a lot of people see it as
Speaker 2: a place to start, let's say if you're coming in
Speaker 2: from Europe or the US, a great place to start
Speaker 2: or maybe finish your holiday or maybe a little bit
Speaker 2: of both at each end where you've done the long
Speaker 2: haul flight into Singapore, then you might do a shorter
Speaker 2: haul flight,
Speaker 2: the destination you were looking for around the region and
Speaker 2: then you see where you go from there that I
Speaker 2: think is the the way round that people I think would,
Speaker 2: would think about it, especially you've got the attractions, for example,
Speaker 2: the night safari, that's quite a unique sort of proposition.
Speaker 2: The Universal Studios, there's plenty of these sort of experiences
Speaker 2: and just going around the Marina Bay area as well.
Speaker 2: And of course, during the Taylor Swift Concert period, no
Speaker 2: surprises the locations wise.
Speaker 2: Of course, the Marina Bay area in particular. So the
Speaker 2: biggest Swift
Speaker 2: lift.
Speaker 1: So David, you may have touched upon this earlier, but
Speaker 1: I just want to be a little more granular. So
Speaker 1: we are talking about two things. One is number of
Speaker 1: tourists moving around the region and second is sort of
Speaker 1: the per capita spend the spending more or less. So
Speaker 1: just round it up for us both in those two metrics. Yeah.
Speaker 2: So let's say we're thinking about firstly, passenger volumes, most
Speaker 2: places have not fully
Speaker 2: broken even on where they were in 2019. I think
Speaker 2: the only one off the top of my head that
Speaker 2: has for sure was Japan around October, November of last year.
Speaker 2: Passenger volumes exceeded certain corridors exceeded way more than 2019.
Speaker 2: Didn't just break even a great example, say being Singapore.
Speaker 2: So as a destination, Japan has really been the most
Speaker 2: popular choice and we've seen that clearly when you look
Speaker 2: across anyone in the travel industry, they would not see
Speaker 2: that as a remotely uh say controversial idea. Um The
Speaker 2: issue with say uh Thailand has been that total passenger
Speaker 2: volume arrivals, numbers um have been a bit more uh
Speaker 2: a bit softer and than they were in 2019. Even today,
Speaker 2: there is still the upside on the way that will come.
Speaker 2: We think from the next leg up in China's outbound
Speaker 2: tourist story. It's interesting when China first opened up about
Speaker 2: a year ago, we saw an ongoing surge up to
Speaker 2: about 50% of prepa levels for international travel
Speaker 2: and then it stalled uh from around July all the
Speaker 2: way through to late last year. And then it had
Speaker 2: another jump higher and we're now around 83% now, maybe
Speaker 2: it stays around there and then has one more leg up.
Speaker 2: I don't know exactly when, but we think we'll be
Speaker 2: seeing that by the end of the year. So that
Speaker 2: should mean in general, the passenger volumes are all have
Speaker 2: been quite successful in their comeback. Uh Now for say,
Speaker 2: Thailand visitors from the ASEAN that's already been doing very,
Speaker 2: very well. Visitors from India
Speaker 2: has also been doing well and actually the cross border flows,
Speaker 2: I guess it's no surprise. Once you start adding in
Speaker 2: direct flights, you get a lot more visitors from that location.
Speaker 2: The best example of this, which we did feature in
Speaker 2: the report actually was India into Vietnam when we saw
Speaker 2: those volumes surging. I think it's 2.5 times the amount
Speaker 2: of visitors. But actually even India, in terms of the
Speaker 2: strength of consumers and the sort of diaspora
Speaker 2: around the world too, actually India into the US was 59%
Speaker 2: above where it had been pre pandemic and into Japan
Speaker 2: was not too far off either. So again, you're seeing
Speaker 2: those clear preferences where either it's the FX rate that's
Speaker 2: really driving it though. Of course, Japan has many things
Speaker 2: to offer beyond just while it's good value. And also
Speaker 2: it is uh these extra corridors being added or indeed
Speaker 2: getting rid of visa restrictions. So you can see all
Speaker 2: of these moving parts making a very big difference.
Speaker 1: So now um we know high interest rates in economies
Speaker 1: that have a lot of leverage should, at least in theory,
Speaker 1: have a negative impact on people's desire to consume. Uh
Speaker 1: We haven't really seen that in the US. Despite a
Speaker 1: historic rise in interest rates, retail sales have been pretty robust,
Speaker 1: although I don't want to talk about us later on
Speaker 1: with you
Speaker 1: and then we see it in Hong Kong, for example,
Speaker 1: high interest rates are really hurting consumption. Now, elsewhere in
Speaker 1: Asia we've seen rates go up with the exception of Japan. Yeah. Well,
Speaker 1: they have done a little so there's zero now. Yes,
Speaker 1: the impact of high interest
Speaker 1: rates on spending in Asia. Do you have any views
Speaker 1: so
Speaker 1: far?
Speaker 2: Well, I think the there's no doubt that it does
Speaker 2: weigh on consumers when you have higher interest rates. It
Speaker 2: makes a big difference. I think the thing that's been
Speaker 2: most interesting in,
Speaker 2: well, in, in le le let's take a step back
Speaker 2: and start with, say the story everywhere that we had
Speaker 2: before we then had the reopening. And we know in
Speaker 2: Asia we opened a bit later during that period where
Speaker 2: you are effectively more restricted on what you can do.
Speaker 2: And especially for consumers, especially middle or higher income, consumers
Speaker 2: spend
Speaker 2: a decent portion of their expenditure going on travel if
Speaker 2: you weren't doing it for a few years and then
Speaker 2: suddenly you have room to do it during that period
Speaker 2: of effective extra savings, the excess savings that accumulate. That's
Speaker 2: where I think we've seen the extra disorientating part of, well,
Speaker 2: shouldn't there be already much more of a response from
Speaker 2: higher interest rates on consumer spending? I think the US
Speaker 2: is a great
Speaker 2: where that really did play out. We had $2.5 trillion
Speaker 2: of excess savings accumulate by 2021. And it has been
Speaker 2: in the process of being used up. Obviously, there's debates
Speaker 2: out there of exactly how much is still left and
Speaker 2: to what degree it even accrues any more to anyone
Speaker 2: other than the higher income groups. And we know that
Speaker 2: always and everywhere we look at this data, it always
Speaker 2: usually is the higher income consumers that did accumulate more
Speaker 2: of those excess savings.
Speaker 2: I think some of that buffer is there in some economies.
Speaker 2: But that only really I would say in emerging markets
Speaker 2: probably applies to again, the higher income consumer groups, I
Speaker 2: think middle, lower income, it's not as obvious, but the
Speaker 2: other thing separate to excess savings. There has been a
Speaker 2: buffer which is not something we're used to. Economists usually
Speaker 2: don't pay attention to savings. Like
Speaker 2: historically, it's a very boring thing, but it became very important.
Speaker 2: I think during this uh pandemic period. But the other
Speaker 2: one has been the labor markets in general. We've seen
Speaker 2: relatively tight labor markets. There was the surge in demand,
Speaker 2: people couldn't find enough workers, there was a relative lack
Speaker 2: of migration flows. And actually this brings me on to
Speaker 2: the point that
Speaker 2: when we think about all the variables. Since the pandemic,
Speaker 2: everything has really been fitting very nicely with the metaphor
Speaker 2: of the bungee jump in my view. And what I
Speaker 2: mean by that is we had to jump off the bridge,
Speaker 2: the collapse in activity, the f the, the, the, the
Speaker 2: worst uh global economy growth rates in 75 years, then
Speaker 2: we knew we would rebound. That's the equivalent of jumping
Speaker 2: off the bridge and the first bounce, you know what's
Speaker 2: going on then that's the predictable part, getting direction, right
Speaker 2: is fine. But after that, anyone say he's done a
Speaker 2: bungee jump
Speaker 2: myself, not included, would actually say they lose all orientation
Speaker 2: of even where the ground of the sky is, they've
Speaker 2: lost track. And because we've had such dramatic swings in
Speaker 2: so many variables all at the same time, it's been
Speaker 2: much harder to really definitively say, well, therefore this must
Speaker 2: come eventually, it will eventually the bungee finishes and you
Speaker 2: settle down. I think that will be the story of
Speaker 2: next year where we're settling into the new, the way
Speaker 2: it is
Speaker 2: the last few years have not been normal in that way,
Speaker 2: high excess savings, ultra tight labor markets in some locations
Speaker 2: around the world. Major swings in migration flows to make
Speaker 2: up for the pent up migration demand that was just
Speaker 2: not able to be met in previous years, huge swings
Speaker 2: in inflation and interest rates in again, the jobs market,
Speaker 2: almost any variable. We look at has had these wild
Speaker 2: swings that we're finally setting settling down into.
Speaker 2: So I think the final piece of this will be
Speaker 2: on the labor market front. If we start to see
Speaker 2: that softening a lot more than that combined with the
Speaker 2: cost of living challenges that are clearly there that are
Speaker 2: impacting consumers and also more time going by where if
Speaker 2: there were an excess savings story to be used up,
Speaker 2: it would have happened by now. Then I think we
Speaker 2: come exactly back to your point where there will be
Speaker 2: more challenges but doesn't mean we have to have a recession.
Speaker 2: I would say no,
Speaker 2: the main reason being we didn't really have a boom.
Speaker 2: So why should we have a bust? We were shut down,
Speaker 2: we reopened. That's a base effects story. That's a disorientating feeling,
Speaker 2: but that's not the same as a regular economic boom
Speaker 2: that should therefore end in, in a
Speaker 1: bus, not at all. Let me expand on that issue
Speaker 1: a little bit, David. So you touched upon some of
Speaker 1: these travel and tourism numbers being more relevant in the
Speaker 1: context of middle and upper income uh part of the
Speaker 1: population
Speaker 1: with your data. Can you get a sense of this
Speaker 1: um uh sort of the cost of living issue, how
Speaker 1: it's affecting spending pattern among the lower income groups?
Speaker 2: So you, I mean, you can depending on the market,
Speaker 2: depending on say card penetration in different markets. Uh I mean,
Speaker 2: certainly we're we, we, we know that there is a
Speaker 2: growing amount of use of say digital wallets. Uh We're
Speaker 2: seeing a lot more use of say account to account
Speaker 2: the ach payments, uh where say in Singapore, that would
Speaker 2: be the pay. Now for those who are based in
Speaker 2: Singapore prompt pay in the case of Thailand.
Speaker 2: And actually, uh mastercard is involved in the operations of around,
Speaker 2: in around 13 different countries around the world of these
Speaker 2: sort of real time payments, uh type systems. And the,
Speaker 2: and that is certainly one that can be used a
Speaker 2: lot more, I would say by a broader swathes of society,
Speaker 2: it does a lot more of, of bringing even more
Speaker 2: people into the system.
Speaker 2: Um But it's still, it's a little harder for us
Speaker 2: to be able to, to draw, I would say full
Speaker 2: analogies of exactly what's going on, say across all of, say,
Speaker 2: Indonesia or all of say, India when you get such
Speaker 2: huge differences between, say what's going on anyway and say
Speaker 2: the cities, the tier one cities or
Speaker 2: the way through down into the more remote parts of
Speaker 2: the country. So that one is a little bit more tricky.
Speaker 2: Uh But certainly if we're talking about the major metropolitan
Speaker 2: areas in most places and certainly, um, anyone who is
Speaker 2: doing any kind of say, travel in particular, that's where
Speaker 2: I think we really, uh we, we would, we would
Speaker 2: be able to see a lot more,
Speaker 1: right.
Speaker 1: Um we have talked about China a bit earlier. Let's
Speaker 1: talk a little more. First of all, why were the
Speaker 1: Chinese so resistant to getting like a Mastercard or Visa
Speaker 1: interface in their payment system for all these years? And
Speaker 1: how come they capitulated all of a sudden? And now
Speaker 1: we're seeing rapid acceptance, which is good news for mastercard.
Speaker 1: But what's your sense behind the political economy of all
Speaker 1: this
Speaker 2: that I'm not so sure on what the exact story
Speaker 2: actually is in any way. I think the one thing
Speaker 2: I would say that looks quite clear at this point
Speaker 2: is actually
Speaker 2: that one, if you want to have a lot more
Speaker 2: of those inbound tourists and travelers, then you do need
Speaker 2: to provide a system and have a lot more choices
Speaker 2: being made available to consumers, at least for the international
Speaker 2: inbound travelers as well as for the domestic consumers as well.
Speaker 2: So adding in an extra network in that way to
Speaker 2: enable that extra competition where the banks can play an
Speaker 2: even bigger role versus the existing wallets that were there
Speaker 2: that had become so dominant. I think there was
Speaker 2: my, my my sense and this is just my sense
Speaker 2: is that it was more about seeing or wanting to
Speaker 2: have more competition, wanting to actually broaden out the choices
Speaker 2: for consumers and go beyond the two big players that
Speaker 2: really had created effectively this super app, which is funny
Speaker 2: because most places around the world want to build this
Speaker 2: super app. But actually in the case of China, they've
Speaker 2: had it where there's so many things and services you
Speaker 2: can do from these
Speaker 1: wechat for everything you
Speaker 2: name it and that sort of thing.
Speaker 2: Really. I think uh it's to diversify what the use
Speaker 2: cases are to allow a lot more of the foreigners
Speaker 2: coming in. If you want to have tourists, you make
Speaker 2: it much easier for them
Speaker 2: at the same time. Uh with the say the domestic
Speaker 2: providers that are there uh adding a bit more competition.
Speaker 2: Uh and it would probably be at the margins. I mean, again,
Speaker 2: there's about a 20 years uh head start there. At least,
Speaker 2: I think it is one where we we'll see, I
Speaker 2: think a lot more of those choices being provided and
Speaker 2: that probably I think is was a key driver of
Speaker 2: why that was happening at this point.
Speaker 1: So in parallel to those two large payment providers in
Speaker 1: China and their payment rails around the world, as we've seen,
Speaker 1: sort of e-commerce take hold, there are many alternative ecommerce
Speaker 1: companies that have come up, right. I can think of
Speaker 1: like paypal and others and revolut who are creating
Speaker 1: sort of an alternative value proposition if you will, for
Speaker 1: customers who want to have wallets who want to make
Speaker 1: payments is mastercard embedded in these things or these are
Speaker 1: parallel to mastercard entirely.
Speaker 2: I think it depends which, which one we're talking about.
Speaker 2: I think a great example of one where we're absolutely
Speaker 2: involved is the, and I think this is the key
Speaker 2: thing that as long as it's in an open loop
Speaker 2: network where we can be one of the providers and
Speaker 2: we're involved, that's what we're looking for is a sort
Speaker 2: of ability to be taking part in the system and, and, and,
Speaker 2: and really they
Speaker 2: us the opportunity to leverage our network including globally in
Speaker 2: more than 210 countries. That story. I think you mentioned
Speaker 2: earlier on the sort of more old fashioned idea of
Speaker 2: say the the installments, correct? What about prepaid cards? Sounds
Speaker 2: like something you would think that sounds a bit old fashioned,
Speaker 2: but actually, it's becoming very, very popular. And I think
Speaker 2: a key reason for it
Speaker 2: is that throwing some technology in there too, you have
Speaker 2: your app, I think one good example say would be
Speaker 2: Youtrip uh where even in say, Thailand, I was talking
Speaker 2: to people where there it's, it's we're seeing a lot
Speaker 2: more use of these different types of, of a technology
Speaker 2: for an existing idea. It's not a brand new idea,
Speaker 2: but redone in a, in a, in a, in a,
Speaker 2: in a really modern way that makes the user experience,
Speaker 2: you can have multiple currencies, all sitting on your wallet. Actually,
Speaker 2: the regulator here actually just increased the total amount that
Speaker 2: you can put into these wallets. Recognizing actually that it's
Speaker 2: not just people who are purely on a budget that are,
Speaker 2: you know, really, really need to be super tight. It's
Speaker 2: also the really affluent consumers want to use it too
Speaker 2: because they see it as a way of, ok, I'm
Speaker 2: going to go to Japan. I love this exchange
Speaker 2: right now. I'm gonna already buy my yen in advance.
Speaker 2: I know what my exchange rate is. And then you
Speaker 2: feel a little bit, you could argue, maybe it would
Speaker 2: be a sense of extra security around it too, of
Speaker 2: using something that's prepaid when you're traveling. And of course,
Speaker 2: the acceptance points with the example of U Tripp is everywhere,
Speaker 2: Mastercard
Speaker 1: is accepted. I see, I see. Um and uh related
Speaker 1: to payments is of course security.
Speaker 1: I mean, not a day goes by that we don't
Speaker 1: hear things about, you know, the ransomware and fishing and
Speaker 1: uh scams and so on. I'm sure this is something
Speaker 1: that mastercard has to worry about in a real time
Speaker 1: second by second basis. So give us a sense of
Speaker 1: your challenges and your solutions.
Speaker 2: I would say that the, when we think about the
Speaker 2: global business, the mascot has got the core payments division.
Speaker 2: Of course, the what everyone assumes that's all there is.
Speaker 2: And then you have services and the services part has
Speaker 2: been the one that's been growing rapidly. And particularly of course,
Speaker 2: the cyber and intelligence sort of group
Speaker 2: to your point as we've seen this rise of digital
Speaker 2: payments of e commerce, we also have been seeing the
Speaker 2: rise in the security risks that go alongside that and
Speaker 2: any way of particularly say, feeling more secure when making
Speaker 2: those payments, of course, that's the key thing that we've
Speaker 2: really been focusing on in a very big way.
Speaker 2: So a great example of this was say, click to
Speaker 2: pay that was launched not that long ago or tokenisation.
Speaker 2: So imagine something where you're much more secure online because
Speaker 2: let's say uh in the past, you would have say
Speaker 2: left a card on file with a merchant instead of
Speaker 2: leaving your actual card details with them. Think of it
Speaker 2: instead as you can just leave a token with them
Speaker 2: where even if that is somehow intercepted or taken at
Speaker 2: some point later, it only works with that merchant anyway,
Speaker 2: it's worthless to anyone else. And so coming up with
Speaker 2: more of those uh solutions for tokenization for confirming a
Speaker 2: digital identity, in particular, the combination of all types of
Speaker 2: things that we see are coming through. That's something that
Speaker 2: Mastercard has been doing a huge amount of work on
Speaker 2: this whole,
Speaker 2: teams of people that are very, very focused on that
Speaker 2: on the spotting fraud, particularly in e commerce using all
Speaker 2: types of machine learning or A I, you name it.
Speaker 2: That is a very, very big part. On the security side,
Speaker 2: the other parts though on the services division that I
Speaker 2: hadn't realized even myself until joining that are so dominant
Speaker 2: are on the marketing services to be able to help
Speaker 2: a retailer add more customers or it could be any
Speaker 2: type of entity. Actually, it could be an F I
Speaker 2: as well or indeed the loyalty programs where we run
Speaker 2: billions of points around the world and making those sort
Speaker 2: of much more seamless and really get used and drive
Speaker 2: a lot more of the loyalty of consumers knowing that
Speaker 2: also that since the pandemic, we have been seeing an
Speaker 2: increase in
Speaker 2: the in many markets, Australia is a good example where
Speaker 2: we looked at this recently of the share of all
Speaker 2: the cards outstanding that are shopping at more than a
Speaker 2: set number of merchants, let's say 20 or 30 that
Speaker 2: share has been going up since 2019. Now part of
Speaker 2: it could be, well, there's just more say maybe ecommerce
Speaker 2: providers out there. But part of it also is people
Speaker 2: are changing their spending habits because
Speaker 2: in some places, we have hybrid work. So instead of
Speaker 2: everyone coming in the same routine every day, Monday to Friday,
Speaker 2: if they have a bit more variety in that, there's
Speaker 2: also a variety of where people are even living working
Speaker 2: and spending depending on which part of the world we're
Speaker 2: talking about. I think it was much more of an
Speaker 2: obvious story that was much stronger in say London or
Speaker 2: New York or even Melbourne Sydney than say was the
Speaker 2: case here in Singapore. But we even see evidence of
Speaker 2: it say in Hong Kong.
Speaker 2: So that, that's another, if I sort of run through
Speaker 2: the list of the different services that, that, that, that
Speaker 2: services division, let's say really counts uh included in its business.
Speaker 2: Definitely the, the, the, the security and the cyber cyber
Speaker 2: security is, is, is very high up on the list. Uh,
Speaker 2: loyalty marketing. The other ones are interesting in that there is,
Speaker 2: uh we bought yield last year, a personalization service to
Speaker 2: be able to try and help
Speaker 2: a lot of folks trying to get a lot more
Speaker 2: of the right sort of offers and, and uh and
Speaker 2: show the right things to consumers and do it in a,
Speaker 2: in a real time testing environment and then separate to
Speaker 2: that is a test and learn where they do experimentation
Speaker 2: for businesses which you can run regularly to be able to,
Speaker 2: even if it's just to get a little bit more
Speaker 2: of uh enhance your business because maybe you're changing what
Speaker 2: you change your prices on even to try and do
Speaker 2: it with a scientific
Speaker 2: evidence based work on the back of that to test
Speaker 2: A B testing in that way. That's another offering that's
Speaker 2: been going down very well worldwide. Actually,
Speaker 1: that's
Speaker 1: absolutely fascinating. One more facet around that is of course,
Speaker 1: data privacy. You obviously hold a huge amount of sensitive
Speaker 1: financial data of consumers all around the world and starting
Speaker 1: with the EU but becoming a broader trend is this
Speaker 1: issue of data privacy that you know, countries are asking
Speaker 1: companies like yours to have servers, domestically localized servers can
Speaker 1: share the data across jurisdiction and so on. But I
Speaker 1: would think that this is a particular challenge for a
Speaker 1: company like mastercard, which is truly global in nature. I
Speaker 1: can have a Mastercard issued in Singapore, but I want
Speaker 1: to use it all over the world. But if Singapore
Speaker 1: demands all the data to be stored in Singapore, can
Speaker 1: you run risk analytics of my expenditure pattern across the
Speaker 1: border or do you have to like
Speaker 1: bring the data back to Singapore all the time? And
Speaker 1: does it then add extra costs of doing business?
Speaker 2: Well, it
Speaker 2: probably is the sort of thing where you know each
Speaker 2: location has their own regulation and of course, that's the
Speaker 2: regulation that we follow very well. And in some cases,
Speaker 2: it does add extra layers to the process, of course.
Speaker 2: But the key thing I would stress is that even
Speaker 2: with say what, what you know, what we would be
Speaker 2: working with, it's all been already through the system
Speaker 2: privacy filtered, we already it's aggregated and anonymized versions of everything.
Speaker 2: And I think so on that front, in terms of
Speaker 2: what the policies are, I think I've been really impressed
Speaker 2: actually with just how much time and attention and care
Speaker 2: is really paid onto those sort of areas. But yes,
Speaker 2: of course, if there's a different regulation that newly comes in,
Speaker 2: then you've got to of course change what you do
Speaker 2: on the back of that. Right.
Speaker 1: Um But in terms of policymakers around the world, being
Speaker 1: in support of innovation in digital payments settlement and so on.
Speaker 1: What's your sense that 10 years ago, it was a
Speaker 1: bit of a wild west and now it's kind of
Speaker 1: a level playing field between banks, non banks and other
Speaker 1: start ups, or do you still feel that there's a
Speaker 1: lot of arbitrage going on in the system?
Speaker 2: Um Well, I think the probably the most interesting stories
Speaker 2: that we see everywhere around the world probably would, would
Speaker 2: come into
Speaker 2: uh seeing a lot of innovation taking place maybe inside
Speaker 2: but a lot of the times also outside say the
Speaker 2: regular banks, but then the banks seeing, ok, this is
Speaker 2: a good use case we can adopt that too. And
Speaker 2: then there's competition that comes in and then some of
Speaker 2: the challenges that creep in can come from the fact
Speaker 2: that actually for say a lot of the um the
Speaker 2: the challenger, new entities, the new say digital banks or
Speaker 2: any of the other groups that are trying to see
Speaker 2: how they can play a role in in various,
Speaker 2: of course, there is an advantage of being that those
Speaker 2: bigger players, right? You have the lower cost of funding,
Speaker 2: for example, that really can be a big advantage almost
Speaker 2: anywhere I could think of. But I think that innovation
Speaker 2: is not just happening outside. I think even a lot
Speaker 2: of the banks are really paying serious attention because they're
Speaker 2: seeing what's going on elsewhere. They're realizing that they need
Speaker 2: to at least have say, let's take the average app
Speaker 2: that people use when they are doing banking, they want
Speaker 2: it to really work or when they want to make
Speaker 2: a payment,
Speaker 2: something that at least works every time for the extra authentication,
Speaker 2: let's say in Singapore, you're making a payment, you go
Speaker 2: to your banking app to authenticate that should be a
Speaker 2: seamless enough process to try and find ways of making
Speaker 2: it more efficient is really, I think something that all
Speaker 2: the banks uh anywhere that I can think of, they
Speaker 2: really are trying to do that as much as they can.
Speaker 2: But of course, challenges come alongside that when you have
Speaker 2: even more infrastructure
Speaker 2: and legacy issues that can make it a little bit slower.
Speaker 2: So there's, there are pros and cons depending on which
Speaker 2: part of the ecosystem you're really sitting in, I would
Speaker 2: say right,
Speaker 1: right earlier, when we were talking about consumers around the world,
Speaker 1: you touched upon us, consumers who got the biggest cash
Speaker 1: bonanza possible in history during the 2020 21 pandemic response.
Speaker 1: And
Speaker 1: we've seen fairly profound impact of that in consumption patterns.
Speaker 1: To your point, some of the savings has been worked off.
Speaker 1: Um What's your sense in your data? What do you
Speaker 1: see in terms of American consumer spending pattern and where
Speaker 1: do they stand right now? What's the outlook of spending.
Speaker 2: Yeah, it's, I mean, certainly we're, it's not as strong
Speaker 2: as it was, but at the same time, we're also
Speaker 2: not seeing any collapses. I think it's sort of settling
Speaker 2: down in that way where you, where we're going back,
Speaker 2: going towards a sort of sustainable pace of growth. And
Speaker 2: I think
Speaker 2: in, in that way to your point, the amount of, of, of,
Speaker 2: you know, the kitchen sink and the kitchen being thrown
Speaker 2: at fiscal policy stimulus across multiple advanced economies around the
Speaker 2: world was this extra point about the bungee jump that
Speaker 2: was so disorientating to have had the lagged impact of
Speaker 2: having all this extra buffer.
Speaker 2: I think the key part there will will come down
Speaker 2: to the jobs market that so far it has been
Speaker 2: showing very, very mild signs of softening but from ultra
Speaker 2: tight to just still tight, it's still a good position
Speaker 2: to be in. Uh I think the challenge uh will
Speaker 2: will be over the next 12 months or so that
Speaker 2: we if we don't see any rate cuts,
Speaker 2: then of course, that adds to the extra financial pressures.
Speaker 2: And it's interesting in the case of the US is
Speaker 2: not as painful as it is say elsewhere on say
Speaker 2: mortgage rates, right? It would be of course for someone
Speaker 2: trying to take out a new mortgage where they have
Speaker 2: to then take the prevailing interest rate that they could
Speaker 2: lock in for 30 years. But actually all the existing
Speaker 2: mortgage holders
Speaker 2: be holding off. But that actually creates a bit of
Speaker 2: an interesting challenge here because if you're not choosing to
Speaker 2: move and there's therefore less supply less people selling as well,
Speaker 2: you get some weird dynamics that creep in in the
Speaker 2: market at that point. And then maybe people end up saying, well,
Speaker 2: I have to rent or I'll just buy it whatever
Speaker 2: that I can actually get. Um,
Speaker 2: on the assumption that rates come down and they can
Speaker 2: then refinance later in other places. Let's say most of
Speaker 2: the rest of the world by now, we have pretty
Speaker 2: much finished, not everyone, some people got say five year deals,
Speaker 2: but most people have probably finished whatever fixed rate, low
Speaker 2: fixed rate mortgage they might have taken out during the
Speaker 2: sweet spot time a few years ago
Speaker 2: and therefore they're at the higher rate. But I would
Speaker 2: stress this is another point of the bungee jump here
Speaker 2: once we do get those rate cuts and they've already
Speaker 2: got going. We think, uh that they, they, they should
Speaker 2: keep going in Europe. We think we'll get going in
Speaker 2: the US by the end of the year. That should
Speaker 2: mean that everyone benefits simultaneously as opposed to on the
Speaker 2: way up when many mortgagees were, say
Speaker 2: it's able to benefit from not feeling any of that.
Speaker 2: And only eventually they started to feel it when you
Speaker 2: get a rate cut, it should benefit all at the
Speaker 2: same time. Of course, the flip side of that would
Speaker 2: be true as well. If for whatever reason, in a scenario,
Speaker 2: not our view at all that you get a hike,
Speaker 2: then also the pain would be quite simultaneous.
Speaker 1: Right.
Speaker 1: So you are in the no recession camp. That's amply clear.
Speaker 2: Yes.
Speaker 2: Yes, we are
Speaker 1: um, around the world. Um, there are jurisdictions where leverage
Speaker 1: is higher than the American consumer leverage. American households and
Speaker 1: corporations deleverage substantially in the aftermath of the global financial crisis.
Speaker 1: So that could be another mitigating factor that the debt
Speaker 1: service ratio is not particularly high. But then when I
Speaker 1: think about European consumers or Korean consumers for that matter
Speaker 1: or consumers in Hong Kong, it's a very different proposition.
Speaker 1: So really that any insights on Korea or Europe, that
Speaker 1: their consumption seems to be a little more restrained than
Speaker 1: it is in the
Speaker 1: US.
Speaker 2: Yeah. Well, I think straight away that point as I
Speaker 2: mentioned that the US benefits from is exactly not the
Speaker 2: case in those locations. You mentioned Australia and New Zealand
Speaker 2: also have these relatively high levels also on leverage. And
Speaker 2: therefore the longer you have interest rates as high as
Speaker 2: they are even more of the prolonged
Speaker 2: say burden uh means that eventually you start to see
Speaker 2: a few more cracks coming through. But that's actually part
Speaker 2: of the whole uh policy objective here to actually calm
Speaker 2: down inflation. That's the the the key cha one of
Speaker 2: the key channels that's actually being used for it alongside,
Speaker 2: of course, expecting to see some softening in the labor market.
Speaker 2: So I think in all those locations, actually, I think
Speaker 2: Hong Kong is one that I think is a, is
Speaker 2: a standout from another point of view, which is we've
Speaker 2: now seen a full removal of all property market cooling
Speaker 2: measures there.
Speaker 2: Um And yet we've not been seeing certainly prices making
Speaker 2: a major recovery. We saw activity that made them come
Speaker 2: back but not on prices. The other challenge that Hong
Speaker 2: Kong has and it's a bit of a challenge even
Speaker 2: for Singapore too is with the also the move in
Speaker 2: FX Hong Kong dollar against Renminbi, move N FX Singapore
Speaker 2: dollar against Malaysian Ringgit. We've also been seeing some evidence
Speaker 2: of some leaking of spending cross border
Speaker 2: and in particular when, when we see some of the, the, the,
Speaker 2: you know, talk to people and they'll generally, they'll say
Speaker 2: either they were or they know someone who did uh
Speaker 2: cross over into the rest of the Greater Bay area
Speaker 2: and was spending on and it could be all kinds of, of,
Speaker 2: of goods and services. Uh People even say doing groceries.
Speaker 2: Uh And I think that's the interesting angle as well
Speaker 2: that with some of the ease of transportation that has
Speaker 2: gone up, say for the case of Hong Kong with
Speaker 2: the Greater Bay Area integration or in the case of
Speaker 2: say with Singapore, we're just a couple of years away
Speaker 2: from having a train connection where it will be that
Speaker 2: easy to go back and forth. It does mean that
Speaker 2: you then spread out some of the spending.
Speaker 2: Of course, you would expect it to come back the
Speaker 2: other way. But it's a bit more challenged with the
Speaker 2: FX rates being, having moved in the directions that we've
Speaker 2: seen in the last year or two.
Speaker 1: Right. So I think those two are the most prominent examples,
Speaker 1: Hong Kong, Shenzhen, Singapore, Johor. I think Shanghai Tokyo seems
Speaker 1: to be another 1 may not be that obvious. But
Speaker 1: you know,
Speaker 1: at least when I was in China, it felt like
Speaker 1: it maybe not for groceries, not for groceries, but maybe
Speaker 1: for sushi uh David um outlook uh looking at the
Speaker 1: spending patterns in the first half of the year. What's
Speaker 1: your sense for Asian travel and tourism? You said that
Speaker 1: other than a few jurisdictions, we're not back to prepa
Speaker 1: volume passenger.
Speaker 1: Are you optimistic that we're by the time December of
Speaker 1: 2024 comes, we'll be back to
Speaker 1: par.
Speaker 2: Well, the first thing, maybe I'll start with the travel
Speaker 2: and then talk about on the on the spending trends
Speaker 2: themselves um on the travel front. And as we mentioned
Speaker 2: in the travel report, that's on the Economics Institute website,
Speaker 2: the the services website, we actually pointed out that nine
Speaker 2: out of the 10 busiest travel days in history happened,
Speaker 2: I think it was this year. So we are still
Speaker 2: doing very, very well. On how much we're seeing the
Speaker 2: strength of travel demand, even having not fully recovered in
Speaker 2: this region. So there's more legs to that, we would
Speaker 2: argue that we will see even more of the tourism recovery.
Speaker 2: It's a persistent trend of consumer behavior that that seems
Speaker 2: to have been a big moments of reflection during the pandemic,
Speaker 2: turning
Speaker 2: more towards the being mode over the having mode. You
Speaker 2: could argue apart from when going to Japan and also
Speaker 2: retail therapy kicks right back in again. And that full recovery,
Speaker 2: I think will keep going. And particularly that strength of
Speaker 2: the consumer from India, the fastest growing major market in
Speaker 2: the world that could if it can get to 7%
Speaker 2: GDP growth, that would double its economy every 10 years.
Speaker 2: It's not quite there but could could could get there.
Speaker 2: Um That I think the travel side I think is
Speaker 2: still looking pretty good that that persistent demand now with
Speaker 2: broader consumer trends to enable some of that travel, with
Speaker 2: all these challenges we've been talking about, of course, still
Speaker 2: having a job and the labor market being strong matters,
Speaker 2: some excess savings that matters, but also some trading down
Speaker 2: has been taking place. And that comes into the story
Speaker 2: about what are we seeing on the wallet shares themselves?
Speaker 2: And we actually drew a doughnut type chart in the
Speaker 2: 2024 report with the Asia Pacific section. It's also on
Speaker 2: the website where we looked at mass market consumers and
Speaker 2: affluent consumers. And we saw the rise in the share
Speaker 2: of spending on essentials compared to 2019 as a share
Speaker 2: of the wallet for both. And in general, let's maybe
Speaker 2: let's give Singapore as a worked example. We did also
Speaker 2: see the share of wallet
Speaker 2: accounted for by food was eating into the wallet share.
Speaker 2: Food has been eating into the wallet share. That's the
Speaker 2: bottom line here, whether it's on dining or groceries. And
Speaker 2: we know on groceries when we look at places that
Speaker 2: do offer volume versus value numbers. Apart from the boom
Speaker 2: during the pandemic, where you saw people say buying uh
Speaker 2: toilet paper and loading up
Speaker 2: on tinned food. Maybe we've not really been seeing a
Speaker 2: boom in volumes and therefore it's just been some trading down,
Speaker 2: maybe moving from the branded to generic products to try
Speaker 2: to counter the rise in the cost of those essential items.
Speaker 2: But delivery also food delivery ordering in is so much
Speaker 2: easier
Speaker 2: and also going out to restaurants. That's been the very,
Speaker 2: I would say persistent trend. We even see it in
Speaker 2: the Singapore retail sales data, the official numbers, they're they're
Speaker 2: they're telling the similar sort of story that they're going
Speaker 2: out and about to eat particularly though trading down though.
Speaker 2: So it's not necessarily the broader, more
Speaker 2: full service restaurants. It's more the quick service and more
Speaker 2: say the Hawker Centers that have been doing a little
Speaker 2: bit better. They're the out performers versus regular restaurants. So
Speaker 2: we get a bit of a trade off there still
Speaker 2: getting to go out and about. But I think you'll
Speaker 2: still see that story while we still have this challenge
Speaker 2: of the high cost of living and high interest rates.
Speaker 1: So it's interesting on one hand, the affluent want more
Speaker 1: experience and they want to go to the Michelin restaurants.
Speaker 1: But on the other hand, for a vast number of
Speaker 1: the population, the cost of living is hurting and they're
Speaker 1: training down. So we actually have opposing dynamic within e society.
Speaker 2: We are seeing that and a good example in the
Speaker 2: case of say the US, we did see an out
Speaker 2: performance of say the category of groceries in the budget
Speaker 2: and compared to say the middle range or the higher
Speaker 2: range even in 2023 that was already a broad story.
Speaker 1: Uh David earlier, we were talking about um technological solutions
Speaker 1: available to consumers for ecommerce and payments and so on.
Speaker 1: And you talked about the B NPL and the complexities
Speaker 1: around that. Then you talk about some of these cold
Speaker 1: wallets that people are using to prepopulate their cards to
Speaker 1: go shopping. Uh So my final question to you is
Speaker 1: that just in terms of technology adoption, there's a lot
Speaker 1: going on out there. Uh What are you seeing as
Speaker 1: you know, interesting compelling trends out there?
Speaker 2: Oh, wow. Well, I think a big one, of course
Speaker 2: around the region has been on social commerce where you
Speaker 2: could get quite a lot of sales coming through social
Speaker 2: media networking channels. I think we'll see plenty more of
Speaker 2: that again though. I think we'll also see in the
Speaker 2: markets that had historically been a bit more biased towards
Speaker 2: say yes, an ecommerce order. But then it's cash on
Speaker 2: delivery that they find more and more ways of going
Speaker 2: digital on the actual payment front.
Speaker 2: Well, I think you'll see more and more of the,
Speaker 2: it's interesting even those innovative companies, as I mentioned, like
Speaker 2: say Youtrip, where you're seeing the prepaid idea but done
Speaker 2: in a really slick way, enabling a lot more of
Speaker 2: those payments and then leveraging a network such as ours
Speaker 2: to be able to then go, you know, increasingly global
Speaker 2: with it. I think you'll see a lot more of
Speaker 2: those types of ideas coming through. The key challenge though
Speaker 2: is that take the example of the buy now pay later.
Speaker 2: The big challenge for a lot of those players that
Speaker 2: didn't manage to,
Speaker 2: you do as well was to do with the cost
Speaker 2: of funding. Of course, the bungee jump story and these
Speaker 2: huge swings in variables such as interest rates and the
Speaker 2: cost of funding was not probably part of their assumption
Speaker 2: as was the case. Even in say the for folks
Speaker 2: who took out mortgages with a stress test that would
Speaker 2: have been done a few years ago, we've gone through
Speaker 2: the stress tests in multiple markets right now. So we're
Speaker 2: in that, that stress period. So I think that the,
Speaker 2: the new innovations need to also think through, as they
Speaker 2: think through their business plan.
Speaker 2: What about the scenarios that could be coming through? And
Speaker 2: I think we didn't really talk too much. I think it's,
Speaker 2: you know, it's probably material for some other time anyway,
Speaker 2: on just the sheer volume of different, what else is
Speaker 2: and what things should we really be worrying about? From
Speaker 2: say the geopolitical lenses or from how long do interest
Speaker 2: rates stay up? What if it stays here for an
Speaker 2: even more uh prolonged period than we've already had? Can
Speaker 2: you still say your business model is robust in those
Speaker 2: sort of scenarios? And I think
Speaker 2: companies are, I think getting a bit more savvy on
Speaker 2: thinking through a lot of these things as well
Speaker 1: savvy and perhaps worried because these are not easy challenges
Speaker 1: to solve.
Speaker 2: No,
Speaker 2: no, not, not, not everything has an easy solution,
Speaker 1: that's
Speaker 2: for
Speaker 1: sure. Not indeed indeed, David Mann. Thank you so much
Speaker 1: for your time and insights. Thank you. It's great to
Speaker 1: be here. Great to have you. Um Thanks
Speaker 1: to our listeners as well. Copy time was produced by
Speaker 1: Ken Del Rich Pilot, Lee and Daisy Sharma provided additional assistance.
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