By Leslie Choo, Managing Director – Asia & Japan/Korea, ACI Worldwide,
Southeast Asia (SEA) is a key region for banking and financial services innovation. Being the fastest growing digital economies globally, SEA’s internet economy is projected to triple in size by 2025 and reach US$300 billion. As a single entity, it also represents one of the world’s five largest economies, but doesn’t have the deep integration within the bloc that benefits larger economies, such as India or China. Neither does it benefit from a single currency, like the Eurozone.
A deeper financial services integration is an important catalyst for growth and trade within the region. A whitepaper from ACI Worldwide and market research firm Kapronasia shows that the foundations for an effective cross-border payments network have already been laid through individual countries’ pursuit of payments modernization. As SEA looks to bounce back from the COVID-19 aftershocks, real-time payments have been identified as a key enabler, with ISO 20022 and QR codes as critical components.
The Post-Covid Payment Landscape
Despite the lack of uniform regulations and disparate economic priorities, it’s clear that the needs of businesses and consumers are propelling SEA towards realising a multi-country, real-time network. Standardised, instant and seamless payments will help enable intra-regional economic activity at a lower cost and encourage future growth. The pandemic puts this into even sharper focus through the dramatic shift in attitudes towards digital payments, especially with the growing enthusiasm for “touchless” payments that support social distancing measures.
Real-time payments play an integral part within this digital finance ecosystem, especially as contactless technologies like QR codes are being leveraged by real-time central infrastructures. The simplicity and accessibility of QR-code payments will be critical for individuals and SMEs across SEA seeking economic viability, while providing an essential “on ramp” to drive usage and participation in real-time.
There is also learning from China, as its re-opening was heavily reliant on many digital finance products and services that can be “layered” over real-time payments rails, such as credit scoring, lending and wealth management.
Payment players are increasingly focused on ancillary overlay services, which are added to mobile apps, web portals, social media and other channels to cater to customer demands and their evolving needs. The new services enable banks, intermediaries, and merchants to add a range of functionalities to support a high-volume, data-rich digital payments ecosystem.
A multitude of use cases can be addressed through the digital overlay services, including the delivery of a seamless end-to-end solution for contactless and secure payments, extending to merchant-initiated payments using dynamic QR codes. Flexible person-to-person payment services are also enabled, based on proxy/alias (i.e., phone number or email) for added security. One of the fastest-growing real-time digital overlay services globally is the Request to Pay function.
Taking Stock of Key Country Developments
A few countries start to emerge as “frontrunners” in the use of digital overlay services. PayNow in Singapore, PromptPay in Thailand, and DuitNow in Malaysia are all making significant strides in payment modernization within their respective countries. The increased adoption of the ISO 20022 standard across SEA will help enable communication between these domestic networks, so this is going to be a key piece of the puzzle.
Malaysia’s Real-time Retail Payment Platform (RPP) is a multi-year effort to modernise the country’s payments infrastructure, creating an integrated ecosystem to drive digital adoption. DuitNow, which allows users to transfer funds instantly with mobile number or national ID, was the first RPP services launched on the platform in early 2019.
Adoption of ISO 20022 from the outset has been instrumental in driving innovation and transaction volumes on RPP, including Credit Transfer, DuitNow’s QR-code payments and a range of digital overlay services. Operated by PayNet, RPP also benefits from standard connectivity between participants and the central hub, aiding seamless integration, onboarding and compliance.
According to another report from ACI Worldwide, Malaysia is expected to see phenomenal growth in real-time payment transaction volumes, estimated to increase from 7.1 million in 2019 to 1.2 billion in 2024. This has been heavily driven by the accelerated adoption and diversity of digital payment methods and providers. Within the same space, the country’s e-wallet segment continues to evolve with potential integration of various immediate payment capabilities.
A number of bilateral memorandums have been signed between domestic central infrastructures in SEA to push for greater collaboration. Concrete steps towards interoperability are underway. Malaysia’s PayNet and Singapore’s NETS officially launched real-time, cross-border debit card payments in late 2019. Now, they are building on this with cross-border instant credit transfers and QR-code payments.
The Development of a Pan-Regional Payments Network
By transforming legacy systems to enable greater innovation, SEA countries can leverage their robust domestic central payment infrastructures as a basis for cross-border linkages driven by existing market forces. Ongoing payments system modernization, including adoption of ISO 20022, will lead to further bilateral cross-border linkages – and eventually, this will coalesce into a larger payments network.
Malaysia’s PayNet is well situated to play a key role in the development of the regional network. If it were to build on its existing interoperability with Singapore and include Thailand to create a tripartite real-time network, this would quickly become the model for others in the region to follow, including SEA’s largest economy, Indonesia. This will create an ecosystem that sets the region ahead of future payment trends, ensuring no one is left behind from the advantages it brings i.e. driving more transactions, creating a more highly banked society, and delivering better services for corporates and consumers.