Wednesday, 19 January 2022

2C2P's Aung Kyaw Moe on transforming payments and the evolving roles of payment service providers

5 min read

Interviewed By Foo Boon Ping

Aung Kyaw Moe, founder and CEO of 2C2P, discusses the transformation of the payments landscape and how the company has evolved from a payment security solution provider to a full-fledged payment processor that facilitates the cross-border payment transactions between merchants and consumers across Europe, the Middle East and Southeast Asia. He also shared the company’s plans to list publicly in the next two to three years.

Payments processor, 2C2P, continues to expand its global presence and targets to tap global funds through its planned initial public offering in the next two to three years.

Aung Kyaw Moe, founder and CEO, said, “We intend to become a publicly listed company in 24 to 36 months. We are looking at all possible exchanges, US exchange and regional exchanges, including Singapore Exchange (SGX), Stock Exchange of Thailand and Australian Stock Exchange”.

The computer engineer turned CEO built the company’s first payment security product 18 years ago, when it was established in Thailand in 2003, serving mainly the smaller local banks. As its business expanded across Southeast Asia (SEA), it moved its headquarters to Singapore in 2009, and has since become a full-fledged payment processing service company.

The following key points were discussed during the interview.

Here’s the edited transcript of the interview:

Foo Boon Ping (FBP): Good afternoon, everyone. Today we are very happy to be speaking with Aung Kyaw Moe, the founder and CEO of one of the earliest indigenously created payment companies in Southeast Asia (SEA) and wider Asia, 2C2P.  We’re very happy to be talking to him to get his sense of the development that’s happening in the payment market and the sector in SEA and wider.

The journey that 2C2P has taken from its earlier inception when it was servicing the financial services industry, specifically in security and fraud prevention for payments to being a full suite payment platform. Along the way, the role of payment service provider has changed as well. His company is originally founded in Bangkok, but has since shifted its headquarters to Singapore, amid the fintech boom back then.

I’m very interested to find out from Aung about the evolution of the business. In a payment business where payment technology provider was serving mainly banks and financial institutions in their early days to during the fintech boom, they were seen as a challenger and to the current day amid the pandemic, where there are exploding opportunities for payment integration, and wider digital payment service provider.  Now, they are standalone payment service provider in their own right. I’d like to ask Aung about the evolution of the role of the company, 2C2P, and his role as well. He started out as a technology person as a coding expert, and now to running the business with the ambition of growing it bigger and wider, not just in SEA or Asia. Could you trace the evolution of both yourself and the company has taken since its founding?

Aung Kyaw Moe (AKM): Thank you so much for having me. Before 2003, I worked as a computer software engineer in Bangkok. When I started the company in 2003, I was the computer engineer – founder and then started to build this payment security product and licensed the product to banks initially in Thailand, and then many banks across the region for them to secure their credit card holders’ purchase transaction every time they are buying something online. That’s where the journeys begin.

Eventually, 2C2P became a payment processor in the region. In 2009, we moved our headquarters to Singapore to seek support from the Singapore government, along with that, many investors invested in the company. Thanks to the knowledge we have built from this payment security platform. We have a chance to build a few other platforms connecting to this payment security platform.

Today, we are providing full-fledged payment processing service not only for pay in or acceptance for merchants, but also for pay out. Merchants can pay their partners and customers and suppliers with ease, fast and within the compliance of the regulation. It has been a long journey nearly 19 years now, but we are enjoying the ride.

FBP: One of the reasons is that there’s a continued to be exciting developments in innovation that is happening within the payment space with the introduction of real-time payment, domestic market, new opportunities for cross-border payments. You have new payment standards, ISO 20022, new payment infrastructure and over the horizon, there are even more developments that are happening that will potentially transform and disrupt payments. We are talking about distributed ledger technology (DLT) and cryptocurrencies. The way we do business is never static, its constantly changing. That’s keeping you very busy and very excited as well.

Integrate over 250 different types of payment options in Southeast Asian region for global merchants

AKM: Payment has evolved for the past 20 years and it has continued to evolve. We are right in the middle of it. We don't even know it is evolving, yet, we are busy implementing new solutions, integrating new payment options. This has been a very exciting journey.

To date, we have integrated over 250 different types of payment options from the region, so that our global merchants can have access to these options and sell to everyone in SEA. Every Southeast Asian customer who would like to buy their products and services can pay with the option they want to get and use to pay. It can be cash over the counter and ‘mom and pop’ store all the way to app and trendy digital banking, digital wallet or even buy now pay later (BNPL) options, and everything else in between.

FBP: A lot of that innovation has been in improving the whole customer experience, bringing an unprecedented level of convenience to consumers who shop to pay different options that bring convenience to them, and to merchants. Now, it's possible for even small value transactions to be processed through digital payments. It’s very good for consumers, merchants, but at the same time for processes. For the longest time, banks have been issuing payments, doing collections, cash management for corporates or small and medium-sized enterprises (SMEs). But margins have never been more competitive. Service providers are also hard-pressed. Tell us, there's more to do about your business partners. Clients are demanding more. Margin is constantly being driven down and all the innovation, the first promise is that it will make it more efficient. It will make it more convenient. You'll make payments more ubiquitous. But at the end of the day, it comes at a lower cost and margin to providers. How do you confront that challenge as an ongoing and sustainable business?

AKM: I agree with all that because of transactions, it has to be cheaper or even more affordable for every merchant to participate in digital commerce. Cash seemingly has no cost, although they have some hidden costs, but digital payments should be similar to cash where costs of transaction will be close to zero or zero. But for payment processor like us, our role is to add value to our merchants. Our merchants are paying us not for the cost of transaction. Our merchants are paying us the fees for the value we are adding and the service we are offering to them.

Yes, at the point of checkout, we provide them a variety of payment options. In exchange, we will have a chance to earn the processing fees. That's only the beginning of the journey because after that, we need to talk about how are we going to settle funds to these merchants in multiple types of currency. In a very complex transaction, it can be three different currencies.

In Singapore, a merchant selling a product in Singapore dollar may be purchased by a Thai customer using Thai baht and that particular Singaporean merchant may want to be settled or paid in US dollar because their supplier wants to be paid in US dollar. In one transaction alone, we are talking about three different currencies, transaction, payment and settlement currencies. For that, they need a processor who can add value and help them manage all these three different currencies. On top of that, every trade transaction will have this kind of business: refund and return. Every time, there's a refund or return, we got to make sure that the direction the other way around to paying back to the customer is as efficient as one customer pays to the seller. This refund and return processing is a very important part of our service offering. This kind of value add will help us get service fees from our merchants.

We are not only talking about at the point of checkout and settlement and refund or return. When we are integrating with the very complex merchant, say merchant like Ikea or Thai Airways International, what we do is we help them connect to their back office enterprise resource planning (ERP) system or back office ticketing system so that they can automate the inventory management process. They can automate the process for their internet team to segregate between digital payment and other forms of payments. We look at different levels of value we can add for merchants, so that we deserve to earn fees for all these value-adds we are making. Transaction costs is just the first layer of that. We understand that the whole market, including us would like to have near-zero transaction costs.

FBP: That's one of the characteristics of payment, cash management in Southeast Asia. Many of the markets still have restricted currencies. That value add that you bring comes with it knowledge of the different markets that you operate in and how you've been working with the industry in the past 18 years. Some of the innovations that has come on stream that has allowed more players, and potentially more competitors to enter the space has been in this whole movement towards open application programming interface (API)s. This unprecedented level connects merchants to their payment providers to all the participants in the entire ecosystem. This whole movement towards the cloud has made the payment, financial services more agile as well. How are you tapping all these different kinds of enabling technology, as you build your business?

More payment options and innovations are in the pipeline

AKM: For us, we are the matchmaker of these up and coming and all these new innovations with the large enterprise merchant. You will see many different payment options like you’ve mentioned earlier. Digital banks, mobile wallets, BNPL, domestic payment networks, like fast and secure transfers (FAST) and Singapore quick response (SG QR) in Singapore, and many other neighboring countries of Singapore have their own payment methods like PromptPay in Thailand, DuitNow, in Malaysia. These are up-and-coming innovations led by respectable technology companies, sometimes by the government. That innovation would like to get, serve their payment options to the merchants we currently serve. We help them connect with our merchants. These are global merchants selling to many different customers around different regions. By consolidating or aggregating all these payment options, by one point integration to these large merchants, that's how we are adding value to this new up-and-coming innovation and ecosystem. We will continue to do that going forward because we don't see that innovation uptrend stopping anytime soon.

FBP: Those innovations are enabling the provider and the supplier or the supply side. On the demand side, on the consumer side, it's rapidly transforming and the current pandemic has given a leg up in helping consumers move from physical transactions or the usage of cash to more digital transactions.  But when you look beyond that, there is the entrance of a whole big group of previously unserved or underserved consumers. This whole movement towards financial inclusion and they are not just consuming but in social enterprises, they are providing services as well. For the very first time, they're able to plug into a formal payment and financial services ecosystem.

AKM: Yes, we are seeing that agility trend from both sides. Like you rightly indicated, the pandemic has accelerated this adoption of digital payment. More consumers are using digital payments. According to International Data Corporation (IDC) report, we are going to add about 180 million consumers by 2025. When you look at the enterprise side, companies like Chanel, H&M’s focus before pandemic was to provide experience to the customer in their store. The customer is enjoying their products in their store and try it on and purchase the product. They have adopted new digital payments and e-commerce trends. We are serving this kind of customer where they are selling their products online. These fashion brands are now selling these products online directly to the end-consumer because of the pandemic. We are seeing a good uptake trend in that area as well, where the customers are engaging with the global brands directly through the online website. Both large brands and consumers are embracing these new digital payment trends and e-commerce trends. That is the reason we are seeing; huge growth came up in the past two years. I don't see that it would stop.

FBP: Tell us, with these emerging trends, what are some of the key challenges that you see your merchant-clients are facing? How are you helping them get through it? There is a value-added service in being able to better understand consumers and serve them through the ecosystem. On the other side of it is there's a greater kind of regulatory scrutiny over technology providers’ use of data. What are the industry challenges, pain points that you are targeting, and in building, scaling your business?

Focusing on consumer data privacy

AKM: Yes, our company route came from the security payment processing. That's how we evolved into a payment service provider today. Security and data privacy is always at the forefront of our company and payment companies. We see that they are more focused on consumer data privacy. We follow all the necessary data security standards set by card schemes around global card schemes like Visa and MasterCard, and local regulators’ requirements. Each and every central bank has its own security and privacy requirements, which we comply. They usually audit us every year so that we can continue to comply. We are consistently doing that. With that capability, we are helping our merchants, so they don't have to worry about security and privacy of the customer data. They can focus on doing their business. We focused on helping them with all these additional requirements by the regulator and market in general.

FBP: In April 2020, you set up a venture capital (VC) fund to look at an investment opportunity. Is it just in the payment space or the wider financial technology space. How does that complement your core business, revenue, and financial value add to your business, the VC part of the business and how you are expanding? There is an enormous opportunity to grow and scale still in SEA and wider Asia. At the same time, you are expanding into international markets, Middle East and Europe. Tell us how you’re thinking behind that?.

On the lookout for investment opportunity

AKM: Yes. Our venture arm is set up so that we can accelerate our growth. We partner with a few companies in the market we currently focus on so that we can gain access to the market. We can increase our capabilities both technical and commercial capabilities right away. We are not limited to only doing the financial services sector. If we have a chance to invest in other verticals that is linked to our product or service, we are exploring all these investment opportunities. Two or three investments we have made which we are about to make an announcement are not from the financial service industry. It is in the related industry where we have pretty good synergy and collaboration opportunities. I hope we would be able to announce that very soon as well.

FBP: Are those your first investments? Tell us how big is 2C2P VC? How much is invested already? Are you partnering with other VCs? Is it a joint fund?

AKM: Yes, our investment is, we have about two-thirds of our capital allocated to our investment arm, so that we can go out and make investments. As a profitable company, we have the necessary capital to make investment in a smaller company so that we can continue to find growth. We do co-invest with other investors, if there is an investment opportunity. A few investments we are making, we invest alongside other investors. For the case of Europe and Middle East expansion, yes, we are currently in the process of having our office established in these countries, so that we can better serve our existing regional customers, and help customers in this territory to enter SEA efficiently.

FBP: It’s two-pronged, it’s to serve customers from SEA whose got business in Europe or the Middle East. The other, is to serve customers who are from that region into SEA.

AKM: We may be helping an airline from SEA or a travel agent from SEA to sell their tickets and hotel room nights to European and Middle Eastern customers by accepting European and Middle Eastern payment options. Conversely, we can help European companies or a Middle Eastern company to sell their products and services efficiently to SEA customers by leveraging our more than 250 payment options in this region.

FBP: In 2019, you did raise $52 million for that purpose.

AKM: That is correct.

FBP: Among other investments that you make, part of that is for your international expansion. Is part of that in the VC?

AKM: Yes. The investment we took in 2019 was used for both international expansion and venture arm. We are a profitable company. We don't need to use it for the working capital.

FBP: Is that for growth investment?

AKM: Yes.

FBP: Talking about the growth in digital payment and e- commerce, how do you see that growing?

Reports coming out from China is that it's somewhat muted compared to last year, but some of the platforms are recording historic record sales, like JD. JD topped last year's performance. Tmall (Alibaba) because of that clampdown on big tech is keeping a bit muted. They can report their numbers because of new data privacy laws and stuff. Double 11 is big here in Singapore too. Well, what are you seeing?

Expanding system capacity to handle the growth in transaction volume

AKM: The team was busy reporting. Our system capacity was increased to a rather large size because we serve nearly all the marketplaces and large enterprises in the region. They are all doing Double 11, at the same time. If everyone has the increase of 10 times of that total transaction amount, and we don't want to become the bottleneck, therefore we increase our size, to a significant size so that we can facilitate traffic for everybody. We have done that successfully, very well. I see a large increase in transaction volume from nearly all the marketplaces and all the brands, who has performed this Double 11 promotion. We are still looking at all the numbers, but what I can tell you is that it was a very successful Double 11 event for most of our merchants. I'm very excited to see that traffic on our system as well.

FBP: That's been talked about, the supply chain disruption. But as far as e-commerce around the region is concerned, goods continue to be delivered on time. Payments are flowing properly so e-commerce hasn't been that much affected as opposed to more traditional commerce. Why do you think that is so?

AKM: In order for e-commerce to be successful, there are three or four major key criteria. One, is the platform itself, and marketing of it. Most of our customers have solved that. The second one is payment, and we are here to help them. The third is logistics. If you look at the past five years, logistics companies have evolved. In addition to the traditional logistics company, we have a new startup logistics company entering into the marketplace and compete aggressively. With that, the deliveries become much faster, quality is much better, and with affordable costs, that's what we are experiencing. Before, we don't receive our personnel on Saturday, Sunday. They deliver seven days a week, All these three components, payments we have a little contribution because of this platform readiness. Consumers are ready to transact, and logistics readiness is helping the entire e-commerce ecosystem.

FBP: Are you looking to plug into these two other legs in the platform, the e-commerce platform and logistics at this point? You collaborate with them a lot as partners.

AKM: We have a very deep collaboration with many platform providers. Not so much with the logistics because logistics is not directly integrated with a payment. Logistics integrate with the checkout page of our platform provider, but we do have many ongoing collaborations with a lot of platform providers.

FBP: With accessibility to technology and funding, there are payment tech companies. How do you see yourself holding to your market and defending your position?

AKM: We are not only defending our position but expanding across the region. We are executing our regional expansion strategy. Regardless of the pandemic, we see our growth and continue to see profitability regardless of the pandemic. Yes, we welcome competition, this improves our quality, sharpness, but we are not in a defensive position here. We are here to further expand our reach and position across SEA and beyond.

FBP: Today, you are still a private company. In your financial reporting, it would be interesting. Looking at your financials, profitability, but you have the ambition of going public. That was mentioned in one of your previous interviews. Are there specific timelines as to when this will happen? Where's a good place to list. The favourites tend to be in New York or Hong Kong. Is Singapore a possibility, the liquidity in the Singapore exchange?

Targeting an IPO

AKM: We intend to become a publicly listed company in 24 to 36 months. We have a dedicated team preparing for that. We are looking at all possible exchanges, US exchange and regional exchange, including Singapore Exchange (SGX), Stock Exchange of Thailand and Australian Stock Exchange. But different exchanges have different pros and cons. We are working with our financial advisor and our initial public offering (IPO) team very closely so that we will pick the best option.

FBP: Will you go the traditional route of a public offering or these newfangled special purpose acquisition companies (SPACS) and whatnots that you have?

AKM: We intend to do the traditional route at this moment? But we haven't ruled out all the options. At this moment, we intend to go “traditional”.

FBP: Traditional. In the next 24 to 36 months, are you looking at listing, and the management direction will remain very much focused as it is today?

AKM: We have an extremely strong management team. They are payment veterans. They know the product inside out, industry inside out. That's how we win our merchants because our merchants especially the larger ones  have their own payment department or payment specialists within it. We talk the same language, exchange ideas, collaborate and help them. This will continue. We will be at the same time have additional management team members so that we can even become stronger when we are growing beyond our borders.

FBP: Great. Thank you so much Aung for speaking with us for sharing with us the future direction, operational strategy of 2C2P in the region and beyond.

AKM: Thank you so much for the opportunity.


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