Significant shifts in the payments landscape across Asia Pacific would mean ecosystems need to adapt and innovate to meet the demands of the digital economy.
The COVID-19 pandemic is resulting in millions of consumers worldwide increasingly shopping for goods, services and entertainment online, due to quarantine or stay-home advisories.
More than half a trillion real-time payments transactions will be processed over the next five years, according to a new global report from banking and payment solutions company ACI Worldwide conducted by Global Data. The ASEAN region is expected to see a CAGR of 39% in real-time payments, with Malaysia likely to witness the highest CAGR of 176.5%.
DigiconAsia sought out Leslie Choo, Managing Director – Asia, ACI Worldwide, for his insights into developments – current and future – in the regional payment landscape.
What are some of the most significant changes and trends in the payment landscape in APAC and ASEAN?
Choo: The payments landscape across the Asia Pacific region has seen rapid, sweeping changes in just the last few years, with governments across the region rolling out significant payments modernization initiatives in their respective countries. One critical point to note is that there is now a domestic real-time payments infrastructure in place for almost every country in the region – the major challenge ahead is to facilitate faster and more efficient cross-border payments.
In the ASEAN region, we’ve seen increasing adoption of the data-rich ISO 20022 messaging standard for payments, which is streamlined communication between payment systems and additional overlay services – key initiatives include DuitNow in Malaysia, PromptPay in Thailand and PayNow in Singapore, all of which have had sweeping changes on the way consumers and businesses alike make payments.
Another significant shift in the payments landscape will be the accelerating growth of real-time and new digital payments services in the region, with COVID-19 pandemic – and its health and economic impacts – as a catalyst. Right now, we see the use of cash and checks declining, with the WHO warning that exchange of cash should be minimized to reduce any risks in spreading the virus. Smaller merchants that previously preferred cash are now preferring cards, and many consumers are increasingly shopping online for daily necessities and services. For businesses and consumers, electronic payments and digital payment services have become a crucial part of navigating the crisis.
Once the peak of the crisis has passed, many merchants are likely to continue to prefer electronic payments, and real-time payments (for example via mobile devices) could offer a cheaper, faster way to pay than cards with interchange fees and slower settlement to the merchant. Consumers are adjusting their behavior now, but this may well lead to a long-term behavioral shift in how many of us are conducting our financial affairs. Once the initial crisis is over, we could see more innovation and the launch of new and innovative payment services into the market that facilitate the shift away from cash and check.
With more than half a trillion real-time payments transactions expected to be processed globally in the next five years, are infrastructures and payment platforms in Asia future-ready enough?
Choo: There is certainly potential for innovation and growth in the real-time payments space in Asia, with significant diversity across different markets in the region. We are at an early stage in some markets, which allows them to learn from the more mature markets and grow their infrastructure in a logical, step-wise manner.
While initially some banks in some countries implemented short-term solutions to gain access to real-time payment rails, we are now seeing more financial institutions now take a longer view; they are planning and innovating services based on the real-time payment rails for high and low value payments.
To achieve their long-term goals, a more agile approach will also be key to the success of banks, central infrastructures and payment platforms. It will help extend real-time payments and related overlay services, for example into the SME/merchant space.
Given the enormity of the real-time payments opportunity, it is essential that financial institutions, fintech, and payments players are all aware of each country’s nuances to ensure that they can remain a part of their market’s real-time payments journey.
With that market diversity and nuance in mind, what do you see as the key markets, and what do they need to do to unleash the potential of immediate payments?
Choo: The payments landscape in Asia has seen rapid changes over the last few years, and it is critical that business leaders understand how various modernization initiatives and regulatory shifts have worked together to create significant sea shifts. Here are some key highlights related to immediate payments from Asia markets:
- China: It would come as no surprise to industry players that the Chinese immediate payments (IP) market is currently very strong, with more than 16 billion real-time payments transactions made in 2019. It has also defied some historic trends in doing so: for example, its extremely high reliance on payments cards, which in other markets would have predicted a slower real-time payments adoption curve, has not seemed to slow down China’s surging real-time payments adoption.
One key factor to this has been the population’s openness to payments innovation; indicative of this is the fact that the country is a global leader when it comes to mobile wallet adoption rates, with 87 percent of adults in the country having used one in the past year. Consumers and businesses in the market are highly willing to embrace technology, especially if it enhances convenience and the use experience. All in all, the market has shown that real-time payments services have already been highly successful market, but also that there is still appetite for more. We can expect to see China continuing to be a global leader when it comes to payments innovations, with the market having proved that there are significant business and strategic opportunities for real-time payments solutions.