The digital payments sector has seen massive growth and adoption in the last few years, lowering our dependence on cash.
In Singapore, ATM cash deposits and withdrawals fell by 30% between March and November last year. This has been made possible due to the country’s emphasis on modernising its payments infrastructure and being an early adopter of new technology.
Singapore is not the only country in the region making steady progress on the digital payments front. In fact, Asean is arguably one of the world’s most advanced digital payments markets. Most governments and central payments infrastructures in the region are already several years into modernising for digital and real-time payments.
These efforts — including initiatives like mobile banking and electronic know-your-customer (e-KYC, or identity verification) — have been game-changers in reaching the region’s 290 million unbanked individuals.
India, the world’s biggest real-time payments market, is a great real-world example of the value of these initiatives. Spurred by the government’s payments modernisation efforts, real-time payments have gained significant traction. Today, 80% of Indian adults report having a bank account, up from just 53% in 2014.
Digital payments have also given micro-business operators, particularly women entrepreneurs in the country, greater access to the labour market. This is a lesson to the rest of the world on how a vibrant and open payments ecosystem can drive innovation, spur economic growth and most importantly, empower the poorest and most vulnerable sections of our society.
What’s next for the payments ecosystem?
Covid-19 has accelerated the uptake of digital payments across Asean, putting the spotlight on real-time, contactless and frictionless payment experiences. The efforts put in before the pandemic struck allowed most of the region to migrate to digital payments en masse.
Of course, the region has not emerged unscathed from the pressures of Covid-19 and related measures.
Reduced economic activity — which has particularly harmed small and medium businesses (SMBs) and the crucial hospitality and tourism sectors — will ultimately manifest itself in strained budgets and resources for all companies.
Last year, governments, banks and payment providers all banded together to offer immediate economic relief in the form of faster settlement times, customer-fee waivers, short-term funding support and educational resources.
As we move into the second half of 2021, this collaboration needs to continue so that central infrastructure-led payments modernisation strategies can stay on target.
It is also now even more vital for the region to come together and realise its plan for a regional payments network.
A pan-regional payments network
Establishing a robust pan-regional payments network will be one of the key ways that the industry can enable the region’s post-pandemic recovery. It will enable seamless cross-border transactions and open up new international markets for businesses to target. Greater transparency and ease of use will also ensure that consumers can transact with peace of mind.
At first glance, the Asean market might look too complex for this initiative to be realistic. After all, there is no single currency like the Eurozone, no unified regulatory environment, and no alignment on economic priorities across the region.
But there is hope. Unencumbered by the legacy payment systems that impede innovation in mature markets, Asean is ideally placed to leverage domestic central payment infrastructures as the foundation for cross-border linkages.
The beginnings of this network are already in place. Several bilateral memorandums of understanding (MOUs) have been signed between Asean countries to connect their domestic payment systems as part of the push for greater collaboration and interoperability.
The most recent is the linkage between the real-time payment systems of Singapore and Thailand (like PayNow and PromptPay), which is an incredible key milestone for both countries in their digital payments journey.
By allowing customers of participating banks to transfer funds seamlessly and securely between accounts, transparent cross-border remittances will be enhanced for consumers and businesses in both countries.
There have also been similar partnerships prior to this year. In 2017, Singapore’s NETS, Malaysia’s PayNet and Thailand’s ITMX came together with other local schemes to sign an MOU to push regional collaboration for real-time, cross-border payments.
In 2019, Malaysia and Singapore’s payment service infrastructures (like PayNet and NETS) officially launched real-time, cross-border debit card payments, offering the option of cross-border instant credit transfers and QR code payments between the two neighbours.
These developments have set the scene for a region-wide, seamless and interoperable payments ecosystem.
Keeping the momentum going
Covid-19 continues to have a significant impact on budgets and organisational resources, impacting financial institutions and merchants. This has made it harder to justify expensive modernisation projects.
While it might be tempting to put long-term projects on hold for the time being, it is more relevant than ever for organisations to innovate and transform, and at the same time, reduce the cost of their infrastructure and operations.
Another potential roadblock is that some mature organisations may find it difficult to innovate quickly due to their legacy payment systems. Simultaneously, the shift to digital and increasing cross-border trade means that payment processing has become more complicated.
For SMBs, there is an ongoing struggle to keep up their offline and online presence. They will need to ensure back-end connectivity to a variety of payment acquirers and methods as well as increasing payment options for customers, especially with many customers now preferring contactless payments.
Solutions to these challenges would ordinarily point to a new approach: Utilising the cloud.
However, the region’s regulatory environment, technology infrastructure, knowledge and experience are not yet ready. So instead, the best path for payment modernisation lies in creating new applications — refactoring and recalibrating over time — and utilising existing ones that are cloud-ready, containerised and use microservices-based architectures, while keeping them on-premises for now.
Take advantage of opportunities
Technology providers can also provide the appropriate guidance and solutions to help legacy payment players and SMBs fully take advantage of these opportunities. This will make for faster, lower-cost implementations and reduced management costs now — and will further minimise cross-border business costs until the cloud is a more viable option.
In addition, ongoing payments system modernisation — including the wide and growing adoption of the ISO 20022 messaging standard — will empower real-time payments and open banking initiatives through open APIs and improve payments efficiency.
This will lead to further bilateral cross-border connections and linkages, which will eventually coalesce into a larger payments network. Financial institutions will be able to leverage the interconnectivity and consolidate their payment rails for real-time retail, corporate and cross-border payments, bypassing incumbent networks domestically and regionally.
The vision for a region-wide, seamless and interoperable payments ecosystem is within reach, and leading countries in the region are becoming more unified on their technology strategies.
Overall, the region is set to maintain its edge when it comes to real-time payments. It will no longer be a question of how quickly Asean will rise — but how quickly it will lead.
Under the surface of this diverse and populous region is a payments juggernaut-in-waiting, one that could eventually reach beyond Southeast Asia and connect a quarter of the world’s population in real time.
Leslie Choo is the senior vice president and managing director for Asia at ACI Worldwide
Photo: Bloomberg
