An innisfree and GrabPay collaborative event held on September 2019 in Singapore. Southeast Asians with access to the Internet and mobile phones are embracing electronic payments more to facilitate their daily transactions. (Photo: Grab, Facebook)

Digital Payments Can Accelerate Master Plan for ASEAN Connectivity

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Digital payment systems have proliferated across Southeast Asia, thanks to various platforms provided by banks, ride-hailing apps and fintech firms. For such payments to truly take off, the region needs to work on facilitating cross-border transactions.

The coronavirus pandemic has wrecked important sectors in Southeast Asia such as tourism, retail and transportation, but this has not been the case for the digital payments industry. Thanks to the acceleration of the digital marketplace, gaming, video streaming and food delivery sectors during the lockdown, Southeast Asians with access to the Internet and mobile phones are embracing electronic payments more to facilitate their daily transactions. 

According to a report by Bain & Co, Temasek, and Google titled e-Conomy SEA 2019, Southeast Asia’s digital payment industry will grow to US$1 trillion by 2025, almost double from US$600 billion in 2019. This digital payment network facilitates cashless transactions that include cards, account-to-account transfers and e-wallets. According to the report, six of Southeast Asia’s biggest economies – Indonesia, Malaysia, Singapore, the Philippines, Thailand and Vietnam – will become the most lucrative markets for digital payments due to rapid internet and mobile phone penetration, and the rise of the middle classes. The adoption of digital payments is predicted to increase consumption in other financial services such as digital remittances, lending, investment, and insurance – which have not made extensive inroads into the region.

Currently, digital payment services are facilitated by various industries. Ride-hailing platforms are the most prominent players. Two of the region’s largest ride-hailing giants, Gojek and Grab, offer digital payments for services such as transportation, food delivery and logistics in their so-called “super apps”. During the pandemic, they have successfully added more merchants, especially small and medium enterprises (SMEs) in the food and beverage sector, in the drive to go digital. With a great variety of merchants, consistent promotions and bonuses, their digital wallets have become more attractive to consumers. 

Conventional banks also provide digital payment services, many banks across Southeast Asia have introduced digital payment platforms, such as PayLah by Singapore’s DBS Bank, Sakuku by Indonesia’s Bank Central Asia and CIMB Pay by Malaysia’s CIMB. The platforms complement their customers’ banking experiences and offer seamless transactions, thus making digital and in-store purchasing activities integrated. These platforms also seek to strengthen customers’ loyalty by displaying offers by merchants and promotional programmes. 

Another type of digital payments is supported by technology and financial technology (fintech) companies. Android Pay, Apple Pay and TransferWise are examples of global technology and fintech providers which have a presence in Southeast Asia. Smaller and local players such as PayMaya (Philippines) and MomoPay (Vietnam) have also become increasingly popular. 

… the variability of providers could disintegrate payment systems, which in turn compounds the problem of interoperability across the region.

While digital payments have made inroads into Southeast Asia, there is still some way to go in terms of regional integration and cross-border transactions. The Master Plan for ASEAN Connectivity envisions financial integration where member states adopt seamless cross-border transactions. But there are obstacles to be overcome if this vision is to be realised.

Granted, a wide range of providers in digital payments unarguably helps the region to embrace the digital economy. Most importantly, it adds financial service options for the unbanked population. However, the variability of providers could disintegrate payment systems, which in turn compounds the problem of interoperability across the region. Despite their bigger footprints and high penetration rates in Southeast Asia, the ride-hailing giants’ electronic payments network has yet to facilitate cross-border transactions. As an illustration, a Gojek user in Indonesia is still unable to use her electronic wallet to hail a ride in Singapore or to send money to a Gojek user in Thailand.

Currently, the only digital payment systems that have a plan to facilitate a cross-border transaction are Singapore’s PayNow and Thailand’s PromptPay. These peer-to-peer fund transfer networks assist real-time transactions by using identification or mobile phone numbers instead of bank account numbers. Soon, people in Singapore and Thailand will be able to send money to each other using mobile phone numbers or make a purchase through the use of QR codes. The platform is currently on trial and is scheduled to be launched later this year. 

Digital payments will only proliferate in the future as a result of the expanding digital economy. To fully leverage this opportunity to realise the Masterplan for ASEAN Connectivity, ASEAN member states and business communities must go the extra mile to consolidate the much-fragmented digital payment systems today.

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