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Stepping Forward – the State of Cross-Border Payments in Southeast Asia

 
 

Payments | Adrian Bugaian |
16 December 2022

Even people operating in the Asian market sometimes forget just how big and diverse that market is: a large number of countries operating across 5 time zones, with a population of over 4 billion people. The current projections are that by 2030 about 3 billion people, or 70% of Asia’s population, will be part of the banked population. Combined with the progress of technology, telecommunication and financial inclusion, your clients will want more sophisticated and easy-to-use financial tools.

We are already accessing our bank accounts and e-wallets from our mobile devices, making instant transfers and buying goods and services online – thanks to a number of factors, like decreased mobile phone prices and the recent pandemic that has forced both transaction parties to reduce physical interaction and therefore move into the digital space. More recently, we have seen new countries entering the real-time payments space in the Asia-Pacific region, like Hong Kong, Cambodia, Malaysia, the Philippines and Thailand. Just based on Thailand as an example, we can see a high demand; Thailand’s real-time payments growth jumped from 3% in 2017 to 65% in 2022 for all non-paper-based transactions.

CHALLENGES FOR CROSS-BORDER PAYMENTS

All of this has been done and moving very well on a national scale, but the cross-border part has been slower, due to a number of problems that have to be overcome:

  • Fragmentation of data formats – Banks in different countries use different message types, a problem that the CBPR+ is meant to resolve, but its launch has been pushed to March 2023 – every bank has its priorities.
  • Legacy platforms and technology – These might be costly to maintain or could be impossible to integrate with newer systems built on modern technologies. This is where it’s important to have the right digital strategy and technology partner by your side.
  • Compliance checks and regulation – These can lead to delays in the final payment or potentially block the use of funds until additional documents are provided.
  • Transparency of the process – It is hard to tell how much time it will take and what the cost of the transaction will be. You don’t know how many correspondent banks are involved in the process (though the number of correspondent banks has generally decreased globally) and what foreign transaction (FX) fees you’ll have to pay in the end.
  • Low competition – Not many players can enter this market as it’s expensive due to a high funding cost (you need to have financial resources in the payment market) and the risk of FX between currencies.

So, what has been done to overcome these problems and move forward on the cross-border path?

CROSSING THE BORDERS

One of the biggest successes in Asia was in May 2021 when Singapore and Thailand connected their real-time payment systems PayNow and PromptPay. This partnership allows payments to be wired across the two countries through QR (Quick Response) codes. Each transaction is limited to 1,000 SGD, but this is something revolutionary and one of a kind globally since it enables both transaction parties to have more control over the funds and the process: the payer has full control over which account and at what cost to do the transaction, while the beneficiary receives the money on the same day, allowing them to restock their goods and maintain a healthy cash flow.

Based on that success, we are seeing more countries connecting their national real-time payments rails: Thailand’s PromptPay and Malaysia’s DuitNow are in the process of finishing their phase 3 link, and Singapore and Malaysia are in the process of linking PayNow and DuitNow by the end of 2022 – this will offer an opportunity to also make use of distributed ledger technology in the cross-border space.

Although most of these agreements are bilateral at the moment, the Philippine BancNet is looking to establish a trilateral agreement between Malaysia, the Philippines and Singapore.

The next milestone would be regional interoperability and connectivity – this is one of the topics that has been discussed earlier in October at the G20 summit and as a showcase of a regional implementation of the G20 Roadmap for Enhancing Cross-Border Payments. In November 2022, the ASEAN-5 countries Indonesia, Malaysia, the Philippines, Singapore and Thailand signed a General Agreement on Payment Connectivity among ASEAN-5 Central Banks.

The collaboration focuses mainly on the retail sector for small and medium-sized enterprises but has the potential to be extended into the wholesale sector. It will include several features, for example payments through QR codes, a much-loved feature on the national scale that is quickly replacing cash transactions – from in-store to hawker centre payments.

MOVING FORWARD

How the cross-border payments space will develop is foggy as there’s still work to be done, but one thing is clear: during the pandemic, countries were looking at ways to move forward and invest in their payments infrastructure so that when borders reopen, their users will have a better payments experience. There are both international institutions and companies that are looking to establish regional and interregional regulations and payment hubs to help countries connect and make cross-border payments more accessible and easier to use.

Interested in learning more about the state of cross-border payments around the world? Read more on the global status quo in this article by Peter Theunis and an Australian perspective in this article by David Marsh.

Want even more payments insights? Read our Global Payments Report to find out how industries and regions are adopting modern payment methods and what the future of payments might look like.

Adrian Bugaian

Delivery Partner

Adrian has 15+ years of experience in the IT industry and started his career in the Banking space. He joined Endava in 2007, quickly moved to a managerial role, and then further up to the position of Delivery Partner for some of the biggest Payments companies in the fintech world. Since 2017, he has been working on providing innovative solutions for Trading and Exchange platforms in the Asian market, being a strong pillar for Endava’s expansion in the region. If Adrian were to summarise his life so far: made in the USSR, grown in Eastern Europe, matured in the Square Mile, inspired by Marina Bay.

 

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