Connecting the Dots: Towards an ASEAN QR Code Payments Network

The commitment to set up a regional cross-border payment network through a Quick Response (QR) code mechanism was mooted at the ASEAN Leaders’ Summit in May 2023 with the adoption of the ASEAN Leaders Declaration on Advancing Regional Payment Connectivity and Promoting Local Currency Transaction. This development followed the signing of a Memorandum of Understanding (MOU) on Regional Payment Connectivity among Malaysia, Singapore, Thailand, and the Philippines in November 2022, with ambitions to include all ASEAN Member States (AMS) eventually. In August this year, two additional AMS – Vietnam and Brunei – expressed their intentions to officially join this initiative.

ASEAN Leading the Way

The establishment of a regional QR code payment system would bolster financial connectivity, potentially facilitating more trade and investment activities. Furthermore, it could enhance the use of domestic currencies in trade settlement, thereby deepening local currency markets and reducing reliance on the US dollar as an intermediary. This would provide greater certainty in trade settlement terms and fees, as opposed to US dollar-regional currency pairings which are subject to swings in value amid global liquidity tightening. Apart from this, there are intrinsic wins that can be derived for ASEAN as a bloc. The regional QR code payment network could solidify the ASEAN economic identity without the administrative complications underlying the use of a single currency and, if successful, the arrangement would be the first of its kind in the world. It has the potential to bring greater recognition to ASEAN and to further deepen its economic integration by proactively engaging regional counterparts to overcome challenges to financial stability.

Demand Potential Despite Low Take-Up Rates for QR

Like for most digital applications, the COVID-19 pandemic catalysed the adoption of digital payments. In Visa’s Consumer Payment Attitudes Study 2022, 93% of respondents in Southeast Asia used cashless payments in 2021, with Singapore (97%), Malaysia (96%), and Indonesia (95%) leading the region. Conversely, Cambodia significantly trailed at 68% in this sample. Moreover, 77% of respondents said that they would be using cashless payment means more often, with Thailand being the most positive in this regard at 89%, followed by Vietnam at 83%. Interestingly, these two markets had the highest positive responses with regards to cashless payments, with respondents considering it the ‘safer way to pay’, reinforcing the notion that trust and security play a significant role in driving the shift to cashless payment usage.

Among contactless payment systems, however, the rate of QR code payments usage is considerably lower across the board. In the same Visa survey, just 38% of respondents around the region utilised QR payments in 2021, only slightly higher from 34% in the previous year, led by Thailand (52% of respondents) and Indonesia (50% of respondents). The most popular cashless means are online card payments at 57% and mobile wallets at 52%. Interestingly, Malaysia and Vietnam saw the usage of QR code payments fall within the same period, notably quite drastically for the former, from 50% usage to 25% in 2021. This may indicate that QR code payment as a cashless payment choice is still relatively less popular than other payment options in certain markets. This could be attributed to security concerns, more attractive rewards systems offered by other applications, as well as the lack of QR code payment availability, especially in a cross-border landscape where not all vendors and banks are signed up to the established bilateral schemes, such as in the case of the Singapore-Malaysia linkage.  

QR Code Benefits

Despite the slower take-up rate of QR code payments, there are various benefits to this form of technology. One of these is the vast amount of information that a QR code can hold within a compact space, much more than a barcode. Moreover, as their name suggests, data can be efficiently captured in one swift focus of a mobile phone or QR code scanner and transmitted within seconds. With the programming of QR codes to contain unique sets of encrypted information, accuracy and safety in transactions can be ensured. From a merchant-patron perspective, the convenience of using a mobile phone and the cost effectiveness of generating a QR code for payments without the need for a separate point-of-sale (POS) terminal and the accompanying transaction fees by the vendor make it a win-win deal for both sides. For cross-border QR payment initiatives launched in the region thus far (such as the Singapore-Malaysia and Indonesia-Thailand linkages, amongst others), travellers can bypass the need to convert physical cash at money changers whilst obtaining competitive currency conversion rates which are transparent at the point of sale.

Making the ASEAN QR Payment System Work

Different countries in ASEAN are at varying stages of adoption and regulation of the digital payment space. Although Brunei has recently thrown its support behind the establishment of the regional QR code payment network, it is still in the process of setting up a regulatory framework for domestic payment systems. Though QR code payments hold huge potential, the main drawback may be cybersecurity and criminal risks from users potentially being duped by malicious QR codes created by scammers. This is one of the main issues that governments must urgently address to prevent and manage the occurrence of such incidents in a cross-border environment. It would be integral for countries to have the relevant institutions and regulations in place as a prerequisite for the introduction of a region-wide initiative.

The agreement on a national QR code standard for each country would be the next fundamental building block. Cambodia (KHQR), Indonesia (QRIS), Lao PDR (Lao QR), Malaysia (DuitNow), the Philippines (QR Ph), Singapore (PayNow), Thailand (PromptPay), and Vietnam (VietQR) have established national standards for QR codes. That said, the landscape has not always been so uniform, with the Philippines most recently (in July 2023) transitioning to a common QR code standard from a previously fragmented landscape. The agreed standard will facilitate interoperability of the QR code payment system within a country and across borders, with the choice of the national standard ideally meeting international best practices (such as ISO 20022 for financial messaging standards and QR codes being compliant with EMVCo standards of interoperability) to more easily facilitate regional integration. Currently, there have been several bilateral cross-border QR code payment exchanges but the leap to a multilateral system is still a work in progress.

Consolidating Bilateral Systems into an Integrated Multilateral Framework

Project Nexus, initiated by the Bank for International Settlements (BIS), may be the first step in making the ASEAN-wide QR vision a reality. The multilateral model tested under this project would eliminate the potentially inefficient intertwining of various regional bilateral mechanisms into a more ideal interoperable hub-and-spoke framework, featuring a central processing platform to manage cross-border payments and fund transfers within ASEAN. After the successful completion of its ‘proof-of-concept’ phase in 2022, the new ‘Nexus Solution’ will endeavour to be live in five ASEAN countries (Malaysia, Indonesia, Philippines, Singapore, and Thailand) by 2025.

With more countries showing interest in the ASEAN QR initiative, it will be important for participating countries to coordinate more closely on the key “dots” or factors such as optimal governance and supervisory oversight structure of the regional QR payment network, the required safeguards needed to ensure secure transactions, as well as crucial response mechanisms in the event of security breaches within the ecosystem. As the dots in this network continue to connect and the ties between them strengthen, the ASEAN QR initiative is shaping up to be an exciting prospect for the region – a novel innovation, proudly ‘Made in ASEAN’.

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Editor’s Note:
This article is part of the ASEANFocus Issue 2/2023 and will be available on the ISEAS – Yusof Ishak Institute website and the ASEAN Studies Centre webpage on 22 September 2023.