Amid raging cyber threats/fraud, the interplay of appetites for e-payment interoperability, sustainability and better risk management point toward declining cash use.
Just as the COVID-19 pandemic has driven consumers and businesses towards e-commerce and digital payments globally, the scenario in Asia is that of accelerated digitalization and factors such as cutting-edge cross-border Central Bank Digital Currency (CBDC) experiments and accelerated ISO 20022 adoption.
In response, businesses have had to keep pace with this growth trend in general and meet changing consumer preferences and expectations towards digital commerce.
Even when the most significant impacts of the pandemic subside, new digital habits will likely stick around, meaning we can expect to see Asian consumers’ already-strong digital lifestyles be powered by innovative payment experiences.
All parties have a huge impetus and appetite for more integrated real-time payment services: consumers demand accessibility, immediacy, and simplicity; financial institutions and merchants eye the market and value-added services opportunities; and the regulators see real-time payments as the ideal mechanism to help drive their digital economy ambitions.
Three payment strategies converge
Despite or as a result of the above factors, three trends are moderating the change: ISO 20022 standards, the exploration of CBDCs, and rising levels of financial crime.
- ISO 20022: As a global standard for high-value payments when it comes to cross-border payments, ISO 20022 can provide improved business information and payment flows through a universal language for financial messages.
The shift to ISO 20022 is accelerating across the region, bringing a drive towards interoperability that will eventually—and finally—break down the walls between cards and real-time payment ecosystems.
This will also pave the way for next-generation payment systems. These systems will also hasten the convergence of high- and low-value payments onto a single payments framework (or payments hub) by running on the latest microservices-based architectures.
While every country in the region is at a different stage of adoption, in the worst-case scenario, financial institutions that are not ready to migrate to ISO 20022 may find themselves excluded from payments networks.
- CBDCs: Another trend affecting payment strategies involves CBDC. Many financial institutions have identified cross-border payments as the next frontier for driving significant real-time payment volumes. As a result, interest is high in regional payment scheme integrations. Central banks in South-east Asia continue to explore multilateral interoperability between their domestic schemes, keeping with regional efforts to establish further linkages within ASEAN and with countries outside the region.
CBDCs are also a feature of proposed cross-border payment transformations, with Project Dunbar testing CBDC-based payments between Malaysia, Singapore, Australia and South Africa as a leading example.
In addition, Malaysia and Singapore are also participating in Project Nexus’ experiments around real-time cross-border between those markets and the euro area. In Malaysia’s case, this complements the country’s existing efforts around linking RPP/DuitNow with other real-time payment systems in the ASEAN region.
- Financial crime / fraud
Finally, the third trend affecting the growth of digital payments in Asia are recurring financial crime and fraud.
With the growth of real-time payments, the spotlight is on enhancing real-time fraud screening and mitigation policies, processes, and capabilities.
In this context forward-thinking organizations are exploring machine learning and predictive analytics applications. Many are convinced that only exponential increases in the adoption of these technologies can ensure that payments remain safe and hassle-free for consumers.
However, with so many aligned stakeholders, the future of Asia’s commerce and consumerism, is now clearly heading toward digital and real-time payments.