Digital payments — not cash — is now king in Asia’s payment ecosystem

The Covid-19 pandemic has upended lives and livelihoods in 2020, but it is also accelerating Asia’s transition to digital financial services. Notwithstanding border restrictions, the region’s digital payments ecosystem is growing as countries collaborate to connect their domestic payment systems.

Singapore and Thailand have now launched the linkage of their respective national real-time retail payment systems — PayNow in Singapore and PromptPay in Thailand — the first of its kind globally, according to the Monetary Authority of Singapore (MAS). 

“The PayNow-PromptPay linkage is a pioneering effort. It shows that existing payments infrastructure and the banking system have the potential to provide seamless cross-border payment options to retail customers,” said Ravi Menon, MAS’ managing director. 

“The PayNow-PromptPay linkage is only the beginning. MAS’ shared objective with BOT is to work with our ASEAN counterparts to expand this bilateral linkage into a network of linked retail payment systems across ASEAN,” Menon added. “With the rise of the digital economy, we want to empower individuals and businesses in the region with simple, swift and secure cross-border payments through just a few clicks on their mobile phones.”

Unlike traditional remittance systems that require the recipient’s bank account details, customers of participating banks in Singapore and Thailand will now be able to transfer funds of up to S$1,000 or THB25,000 — or about US$750 to US$800 daily across the two countries, using just a mobile number. The experience will be similar to PayNow and PromptPay transfers today, where senders can use their mobile banking or payment apps to initiate fund transfers instantly at any time of the day.

PayNow or PromptPay users will be able to send money real-time directly from Singapore to Thailand, or vice versa, just by using their mobile phone numbers.

The experience will be similar to PayNow and PromptPay transfers today, where senders can use their mobile banking or payment apps to initiate fund transfers instantly at any time of the day. The transfers will be completed within a matter of minutes, a significant improvement over the average of one to two working days needed by most cross-border remittance systems.

“Today’s PayNow-PromptPay linkage represents another key milestone in our digital payments journey,” said Sethaput Suthiwartnarueput, governor of the Bank of Thailand, in a news release. “This service by the MAS and the BOT will effectively address customers’ long- standing pain points in the area of cross-border transfers and remittances including long transaction times and high costs.”

The PayNow-PromptPay linkage is a key collaboration under ASEAN Payment Connectivity that was initiated in 2019. The PayNow-PromptPay linkage is being introduced in phases, starting with a small group of banks from both countries and will subsequently scale to include more participants and extend the transfer limits to facilitate business transactions.

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Many foreign nationals and migrant workers live and work in Singapore. “If we can make cross-border remittances cheaper and faster, our migrant workers can provide better and more timely support for their families,” Menon said. 

Apart from affordable cross-border remittances between the two countries, the connectivity will offer a cashless e-payment alternative for tourists and businesses in the Singapore-Thailand trade corridor.

Southeast Asia’s digital payments landscape

Many in Southeast Asia are accustomed to shopping online and using e-wallets. Cash transactions by consumers declined to 37% from 48% pre-Covid-19 and the region’s digital payments industry is projected to grow to US$1.2 trillion by 2025, according to the “e-Conomy SEA 2020” report by Google, Temasek and Bain & Company. 

Remittance flows are also expected to rise to US$35 million in 2025 from US$15 billion in 2020. The report covered the six biggest economies in Southeast Asia — Indonesia, Thailand, Philippines, Singapore, Malaysia and Vietnam.

Southeast Asia is home to about 656 million people, 9% of the world’s population. But unlike the U.S. or eurozone, the region does not have a single currency and its countries have disparate financial market infrastructures. 

Southeast Asia’s payment landscape is fragmented due to numerous network payment service providers from traditional operators like SWIFT, Visa and MasterCard to new fintech entrants. The 10-member Association of Southeast Asian Nations (ASEAN) bloc has been working on strengthening the region’s macroeconomic stability through financial integration for cross-border trade, remittances, retail payment systems and capital markets.

Cross-border collaborations powered by domestic payment rails and scale

Many Asian countries have developed domestic real-time payments infrastructure. Contactless and digital payments have also gained traction, bolstered by governments’ Covid-19 stimulus fund transfers to citizens’ bank accounts, such as India’s Direct Benefit Transfer or Singapore’s Covid-19 relief measures.

Singapore’s PayNow service allows users to transfer funds through the banking system’s retail payments infrastructure, FAST (Fast And Secure Transfers), by using their mobile phone number or recipient’s national identification number, thus eliminating the need to know the recipient’s bank and account number.  More than 65% of Singaporeans are PayNow users. FAST transaction volumes average more than 12.5 million per month, and PayNow monthly transaction volumes account for almost half of all FAST transactions, according to the MAS. Transaction volumes are likely to increase from February when access to the FAST and PayNow e-payments infrastructure is opened to eligible non-bank financial institutions.

See related article: Cross-border transactions key to connecting a fragmented region | Opinion

The Bank of Thailand’s data shows a similar trend of increasing volume and value of its PromptPay real-time funds transfer transactions. Around 52% of the Thai population had registered as PromptPay users as of October 2020. 

With a robust domestic domestic payments infrastructure and scale in terms of adoption, connecting national faster payment rails for cross-border usage becomes a natural next step. 

“Once you have that infrastructure, turning on the tap of the international payments is not very difficult,” said Dilip Asbe, managing director and chief executive officer at the National Payments Corporation of India (NPIC) during a panel discussion on “Solving Cross-Border: The Roadmap to Connecting Faster Payment Systems” at the Singapore FinTech Festival 2020.

Government-to-government collaboration has been instrumental in driving cross-border real-time payment connectivity in the region and beyond. Following its partnership with the Bank of Thailand (BOT), MAS is looking to partner other central banks in the region to expand the linkage, so that more people across Southeast Asia can benefit. 

Thailand has separately also launched QR payment linkages with Cambodia, Japan, Laos and Vietnam.

“With the success of PromptPay, our domestic payment system, we have sought to enhance cross-border linkages with ASEAN and other countries and have launched our QR cross-border payment connectivity with Japan, Lao PDR, Cambodia and Vietnam,” said the Bank of Thailand’s Suthiwartnarueput. “Looking forward, the BOT will continue to promote innovation in cross-border payments and infrastructure to strengthen financial integration for the sustained well-being of the country and the ASEAN region.”

Hong Kong, as the financial hub of Asia, is also working hard on developing CBDC and cross-border payment approaches. Since 2016, Hong Kong Monetary Authority (HKMA)  has been researching distributed ledger technology (DLT) and discussing potential applications in financial services based on the technology.

In May 2019, HKMA and Bank of Thailand (BOT) launched a joint CBDC Project Inthanon-LionRock for cross-border payments using distributed ledger technology. Eddi Yue, the chief executive of HKMA  announced the research project entered its second stage in December last year, with the project exploring specific business applications as well as the operability and scalability of the platform to allow the participation of three or more CBDCs.

Besides cooperating with Thailand, as a major player of Hong Kong-Macau-Guangdong Greater Bay Area, or GBA, and the biggest renminbi liquidity pool outside of mainland China, Hong Kong is expected to be the sandbox of cross-border payments for China’s Digital Currency, Electronic Payment (DCEP) digital yuan project. Yue said that the HKMA is in discussion with the Digital Currency Institute on the technical pilot testing of using the DCEP digital yuan — which has since been renamed e-CNY — for making cross-border payments and making the corresponding technical preparations. He noted that e-CNY will make it more convenient for future Hong Kong and mainland tourists. 

In recent testing of e-CNY in mainland China, netizens noticed that the e-CNY wallet opened by the Bank of China has a transfer function whereby they are able to transfer e-CNY to other users by searching their phone number. There is an option to choose Hong Kong and Singapore phone numbers. Some DCEP-watchers believe it is a potential practice that PBOC is trying to figure out the cross-border payment function with Hong Kong and Singapore.   

Challenges to cross-border payments connectivity

According to Asbe, MAS and India’s Reserve Bank of India together with the NPIC have been working together to structure a “real-time remittance back to India.” 

“We are hoping that we will finalize the scope and will try to go live by [2021], but it is very important for the two regulators to come together because a lot of checks and compliance have been deployed by the respective regulators for their countries,” Asbe said.

Global standards will also facilitate the building of cross-border payments connectivity and interoperability. “I’m sure bodies like the Bank for International Settlements (BIS) and World Bank will play a very big role to define the standards; some minimum requirements to carry out these activities so it becomes like a norm,” Asbe said. “Today in the payment systems, we have a lot of cross-border payments. There is Visa, Mastercard, UnionPay, Amex, Rupay, JCB, along with Discover and Diners. We require some global setting standards organization to come in and create global standards.”

Security of the connectivity between nodes in the network is also critical. Regulation can help provide clarity and enable compliance. For example, Singapore’s Securities and Futures Act and Payment Services Act contain regulations to address the risks arising from virtual assets, due to the anonymity, speed and cross-border nature of digital transactions.

Anti-money laundering and counter-financing of terrorism (AML/CFT) measures will have to be consistent with global standards. Siritida Panomwon Na Ayudhya, assistant governor at the Bank of Thailand’s payment systems policy and financial technology group, said during the same panel discussion, that there was a need to ensure that the network’s security was compliant with global standards to ensure “resiliency and availability of the linkage.”

“I see a network of payment and remittance linkage forming, which will be a game changer driving cross- border transactions that will support the growth of international trade, e-commerce, the flow of tourism and the livelihoods of migrant workers,” she said.