In Southeast Asia’s fast-paced financial services sector, payments present a compelling avenue for revenue and inclusion, fueled by the growth of e-commerce, improved trade flows and a strengthening regional regulatory agenda. The transition from traditional payment methods to online, fuelled by the progress of technology, telecommunication and financial inclusion, is greatly reshaping the region’s payment landscape.
However, there has been uneven adoption of real-time payments. Mature economies like Singapore and Malaysia are moving towards becoming truly cashless and doubling down on cross-border payments. Meanwhile, markets like Vietnam and Indonesia, which currently has the world’s third-largest unbanked population, continue to heavily rely on cash.
In a fragmented market where the payments landscape and consumer needs are so diverse, it is crucial for financial institutions to remain innovative in developed markets and promote financial inclusion in less developed countries.
Building payments infrastructures with intention
The growth of super apps and e-commerce has made innovative payment methods a necessity. In Asia Pacific, digital and mobile wallets accounted for 69% of all e-commerce payments in 2022, and this is expected to reach 72% by 2025. This breakneck speed of development leaves no space for laggards, and digital transformation -- or a one-and-done approach, is no longer enough.
Customers now have more ways to pay than ever before. By offering multiple payment options beyond just cash and card, as well as being able to accept a variety of payments, merchants can improve their customer experience and expand their client base.
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In a bid to digitalise quickly, organisations often carry out automation in silos, not realising the deployment of these quick automation fixes may not be agile enough to be part of their core infrastructure. It is essential for businesses to include digital elements as a non-negotiable part of their go-to-market strategy from the get-go rather than considering it as an afterthought.
In order to ensure long-term success, financial institutions must focus on digital acceleration or a series of practical processes. This allows organisations to better plan and execute the technical solutions they require, taking the time and resources to carefully deploy solutions that are flexible and easily adaptable to cater to changing business goals.
Solving payments fragmentation offers opportunities for financial inclusion
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While the surge in e-commerce has accelerated the adoption of digital payment methods, it has also compounded the problem of isolated and disconnected payment systems. The fragmented payments landscape in Southeast Asia has made it even harder for businesses to deploy and integrate their payment systems to offer various payment methods across the region.
Having a robust and interconnected regional payment system is crucial for enabling seamless and accessible cross-border transactions. Recognising this, the central banks of Indonesia, Malaysia, the Philippines, Singapore and Thailand signed a Memorandum of Understanding on Cooperation in Regional Payment Connectivity in 2022, with the aim to improve regional synergies and economic opportunities.
Despite these developments, the current state of cross-border payments still depends heavily on an outdated network of correspondent banks, which can be slow, costly and inefficient. This makes it challenging to track payments, increasing the risk of errors and fraud.
Improving payment infrastructure has wider implications than just better customer experiences. It can help expand access to financial services for the unbanked and underbanked populations, stimulating smoother trade and investment flows across the region to drive economic growth.
Winning the regulation game
Buy Now Pay Later (BNPL) is also playing a vital role in increasing financial inclusion in the region. It provides easy access to credit for many customers and small businesses in Southeast Asia who have limited access to traditional forms of credit. For retailers, BNPL offers temporary credit lines that help boost sales and increase customer loyalty without any risk to the merchant.
However, there are increasing concerns about hidden fees and long-term effects like debt accumulation. The need for proper regulatory measures has become more apparent -- not to impose limitations on BNPL but for the financing plan to work in the best interests of both businesses and consumers. By recognising the potential risks that lack of regulation can create, regulators can help BNPL providers ensure that they operate fairly and transparently while protecting consumers from being exploited.
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Organisations looking to implement BNPL options must adopt digital strategies early and ensure they are flexible enough to keep up with the local regulatory and compliance landscapes that may continue to be refined as adoption for this new payment service picks up.
Energised by the reopening of borders and steady economic recovery, payments have become an essential medium that connects consumers, businesses and economies. The future of payments will be facilitated by advanced cross-market digital channels, new sources of credit and modern ecosystems.
There must then be a mindset shift for financial institutions that digitalisation is an ongoing process, and the technology and digital strategies they adopt must be agile enough to change in tandem with market demands. Only by doing so can they unlock new opportunities at speed and scale, ultimately securing their position as head of the pack.
Adrian Bugaian is the delivery Partner at Endava
