Southeast Asia has been making great strides in terms of innovation in real-time payments as countries work to ensure the strength and competitiveness of their financial systems.
The opportunity for growth is clear: the value of the region's internet economy has been projected to triple in size between 2018 and 2025 to US$300 billion, making it one of the fastest growing digital economies globally.
Despite the lack of uniform regulations and disparate economic priorities across the region, a dramatic shift is already under way as Asian economies move to digital payments. The needs of businesses and consumers alike are propelling Southeast Asia toward the realisation of 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 Covid-19 pandemic has put the opportunity into even sharper focus. The prolonged outbreak has completely changed "business as usual" for countless individuals and companies across the world and Asia is no exception.
As the region adapts to a "new normal", contactless real-time payment is a trend that will only be amplified in light of social distancing, remote working and other changes in the ways people interact.
"The volume of e-payment transactions, especially on the corporate side, has accelerated as we have adjusted to the new normal as a result of Covid-19 impact," notes Ankur Kanwar, cash product head for Singapore and Asean of the UK-based financial group Standard Chartered Bank.
While many countries were under full or partial lockdowns, business continuity relied heavily on remote working arrangements. As a result, said Mr Kanwar, the usage of electronic fund transfers accelerated while physical cheque and cash transactions slowed.
"For the retail side, consumers are now choosing to pay with a tap, a wave and a scan, the click of a mouse or tap of a finger. This is the result of increasing adoption of contactless-card technology, particularly in Asia, and an increasing usage of mobile devices," he told Asia Focus.
ACI Worldwide Inc, a payment systems company headquartered in Florida, notes that the pandemic is changing the way businesses operate, and how individuals work and play. "This has affected how we think about the payments and financial services we use every day, as we gravitate toward digital channels, products and services," said Leslie Choo, ACI's managing director for Asia and Japan/Korea.
"We are seeing a surge in digital payments and a decline in cash usage to reduce and avoid close contact with shared devices," he told Asia Focus. A recent report from Bain & Company showed that 47% of Southeast Asian consumers had reduced offline purchases while 30% increased online spending in response to the prolonged coronavirus outbreak.
The report also noted that contactless payment platforms have seen high growth rates in terms of users and transaction volumes, even within Southeast Asia's cash-dominant markets.
"With more countries actively encouraging mobile and digital payment for the completion of day-to-day transactions, we are likely to see this preference for contactless and digital payments continue even after the crisis subsides," Mr Choo added.
"The volume of e-payment transactions has accelerated as we have adjusted to the new normal as a result of Covid-19," says Ankur Kanwar, cash product head for Singapore and Asean with Standard Chartered Bank SUPPLIED
OPTIONS INCREASING
While physical card- and cheque-based payments are still popular methods in the United States, Asia seems to have leapfrogged to newer modes such as instant payments and e-wallet payments. For example, in China 65% of all online transactions are made using Alipay and WeChat e-wallets, so if companies do not accept this payment option, they could be losing significant revenue opportunities.
Consumer behaviour has been changing considerably in recent years, with growing demand for a simple and seamless digital experienced, said Standard Chartered's Mr Kanwar. At the same time, governments across Asia Pacific are pushing cashless methods and regulators are upgrading e-payment infrastructure.
"From purchase to payment, there has been no shortage of innovations that are making online retail consumers' lives that much easier," he said, adding that similar expectations are now expanding to cover business-to-business (B2B) use cases, with digital solutions redefining supply chain ecosystems.
Many financial institutions and financial technology startups have made headlines with innovative digital replacements for cash. Contactless technologies such as QR codes, in particular, are being used by real-time central infrastructure.
"Banks are leading the charge in their drive to provide more innovative services," said Mr Kanwar. "Research shows that 64% of financial institutions in Asean plan to increase their investments to develop and modernise their payment infrastructures over the next two years. For instance, banks in the Philippines will boost their investments by 40% over the next two years."
Regulators, meanwhile, are reducing or waiving transaction fees for online/digital transactions and discouraging cash and cheque payments. In Singapore, regulators have set a target to make the city-state cheque-free by 2025, he added.
Many regulators are also launching tools including instant payment, QR codes and real-time direct-debit networks to push digital and online adoption. PayNet, owned by Bank Negara Malaysia, has also revamped its direct-debit infrastructure to include business-friendly features to promote usage. Fintech firms and other businesses are also exploring the viability of business e-wallets for payments within their value chains. Some larger corporations are now studying the feasibility of setting up proprietary e-wallets for this purpose.
"While this may require a one-time overall revamp of traditional supply chain processes, this is leading to more innovative expectations from corporates looking to enhance their supply chain strategies," said Mr Kanwar.
Citing the WorldPay payments report, he said that alternative payment methods such as e-wallets now account for more than half (53%) of all online sales in Asia. This includes e-wallets such as Apple Pay or Samsung Pay, which may be linked to an underlying credit card.
Business-to-consumer (B2C) e-commerce sales were estimated to be worth $3.5 trillion globally as of 2019, including both domestic and cross-border transactions, according to Statista, with Asia Pacific accounting for a 47% share. The driving factors behind growth include a significant rise in mobile phone penetration which is now at almost 70% in Asia, far more than "bank account" penetration.
Giant e-commerce platforms like Alibaba and Amazon, meanwhile, are constantly stepping up innovations that have completely transformed the consumer purchase experience.
On the other hand, B2B e-commerce was valued at $12.2 trillion in 2019 according to Statista, with Asia Pacific the largest contributor at 80%, driven mainly by the increasing adoption of self-service.
"Based on a Gartner study, customers only reach out to the salesperson after the buying decision is almost made," said Mr Kanwar. "This gives e-commerce a distinct advantage by making the right information available to the customers. Customers can even potentially buy without physical interactions with a salesperson.
"To summarise, e-commerce in Asia will continue to grow exponentially and is now starting to even impact traditional industries, fuelled by a fast-changing consumer mindset, regulatory initiatives and innovative ideas coming from fintech companies."
FRAUD PREVENTION
Research from ACI Worldwide showed that overall e-commerce sales in Asia Pacific rose by 43% in July of this year, compared to the same period last year, reflecting the huge impact the pandemic was having on buying habits.
"With millions of consumers around the globe staying home, online shopping for products, services and entertainment has become the new normal for many," said Mr Choo.
At the same time, the increase in online transactions has presented new opportunities for fraudsters who seek to exploit the weakest links, whether it be in the underlying technologies or among humans, he pointed out.
"New fraud tactics and patterns are constantly evolving and emerging, and the onus is on businesses and financial institutions to ensure that they have taken all appropriate measures to prevent fraud, rather than relying only on legal systems," he said.
Certain fraud-prevention initiatives, such as the use of machine learning-based defences and intelligence sharing, have proved to be successful in keeping financial institutions one step ahead of fraudsters. Consumers, meanwhile, need to remain vigilant, check their accounts often, and ensure that they raise inquiries with their banks on any suspicious transactions.
"Real-time payments are becoming increasingly popular among consumers for transactions and banks are looking to make access secure and frictionless. To do so while preventing fraud, legitimate customers, accounts and transactions need to be identified in real time through relevant technologies," said Mr Choo.
Mr Kanwar, however, affirmed that e-payments are in fact far more secure than traditional cash or cheque payments. "All e-payment transactions have records and can be traceable; identifying the originator and beneficiary is straightforward," he noted. "Legal systems in Asean are strong enough to deal with any fraud issues with e-payment as this concept is not new and e-payment has been around in Asean for a long time."
However, he pointed out that the mindset shift required to move from traditional methods to e-payment is one of the key concerns that comes up. "Explaining to consumers the tremendous benefits of e-payments and the simplicity of using them can go a long way in alleviating these concerns," he said.
Some merchants offer consumers incentives to shift to e-payment by passing on rebates, which helps adoption, according to Mr Kanwar. Nevertheless, some examples of old-fashioned thinking persist.
"Some markets still allow physical receipts against cheques or cash only, which poses a concern about moving toward e-payments. This is fast changing with new solutions being launched to digitise receipts."
Leslie Choo, managing director for Asia & Japan/Korea, ACI Worldwide Inc SUPPLIED
CROSS-BORDER PAYMENT
Over the past decade, individual economies across Asia and the Pacific have been on a path of payment modernisation, notes a joint paper by ACI Worldwide and the market research and the consulting firm Kapronasia. "From Australia to Japan, countries have been replacing domestic payment infrastructure to make payments cheaper, faster and better," said the report that was released in June.
The foundations for an effective cross-border, real-time payment network have already been laid through individual countries' pursuit of payment modernisation and robust domestic real-time networks. Examples include PayNow in Singapore, PromptPay in Thailand and DuitNow in Malaysia.
In Southeast Asia, seven major metropolitan areas -- Greater Bangkok, Kuala Lumpur-Klang Valley, Hanoi, Ho Chi Minh City, Singapore and Greater Jakarta -- account for 52% of the internet economy despite having just 15% of the total population, according to the Southeast Asia e-Conomy 2019 report by Google and Temasek.
However, diversity in terms of cultures, languages, governments and economies has made it challenging for the fast-growing region to develop a standard and cohesive cross-border payment network for the region, the ACI report added.
Following in the footsteps of the European Union, the Asian Payment Network was created in 2006 to function like the Single European Payments Area (Sepa). The planners envisioned a network that would facilitate and streamline cross-border payments starting in Asean and eventually growing to include many other nations across Asia Pacific.
However, the lack of uniform regulations within Asean and the different economic priorities of member states have impeded the development of a region-wide agreement on cross-border payments.
"As most of the Southeast Asian countries have either already, or will very soon be moving to real-time payments, there is a unique opportunity to create bilateral agreements between individual countries that will eventually facilitate a payments network across the Southeast Asian region and potentially beyond," the report suggested.
The discussion of a cross-border, real-time payments system in Southeast Asia comes at a time when nearly every major country in the region has a domestic real-time payment infrastructure in place.
For example, Singapore's FAST was launched in 2014 as a real-time electronic fund transfer service that allows individuals and entities alike to conduct transfers in real time.
Malaysia launched the Real-time Retail Payment Platform (RPP) in early 2019 after a multi-year effort to modernise its infrastructure by bringing together payment players, financial institutions, retailers, billers, telecom firms and government agencies using a standard connector on a new platform.
Connecting the domestic real-time payment infrastructure in one Southeast Asian country to a similar platform in another country could mark the beginning of work to create a real-time regional payment network.
"Southeast Asian countries are in an ideal position to leverage their robust domestic central payment infrastructures as a basis for cross-border linkages driven by existing market forces," said Mr Choo.
Real-time payments will play a unique role as the region returns to a new normal. The simplicity and accessibility of QR code payments is critical for individuals and small and medium enterprises (SMEs) across Southeast Asia to be able to continue sustaining themselves economically.
A payment platform based on interoperability between countries could provide tremendous value when applied in a regional context, especially considering the importance of intra-regional economic activity.
The establishment of the Sepa in Europe has helped to create more than $23.8 billion in value through both increased economic activity and cost savings. "With a growing economic footprint, Asean would likely have a similar opportunity," the ACI report said.