AS Asean seeks to establish Southeast Asia as a regional trade bloc, connectivity and seamless movement of trade are requisites. Enabling infrastructure such as Internet connectivity and interoperable electronic payment (e-payment) platforms will open up a plethora of services to the banked and unbanked population, enhance consumer experiences and quality of lives, and accelerate the abilities of businesses to scale and grow.
Broadly, e-payment refers to any form of payment that doesn't involve the physical exchange of money, including the use of credit, debit or prepaid cards, online transfer, or the use of mobile wallets.
E-payment has tremendous potential to meet the payment needs of consumers and businesses in Southeast Asia. However, this fast-growing region comprises markets on various points of the technology curve in e-payments.
On one end, Singapore has pioneered its nationwide e-payment services, Network for Electronic Transfer Singapore (NETS), some 30 years ago. On the other, the region is also home to millions in the rural areas who are denied access to the simplest means of financial services. This disparity is evident not just across the region, but also within country markets.
Where traditional financial players are constrained, the rise of financial technology (fintech) players have helped to plug the gaps, with innovative technology delivered via mobile and agent networks. Southeast Asia is already a magnet for fintech and payments companies. Digitally sophisticated market entrants continue to roll out disruptive, value-adding payment systems, and regulators are working to foster innovation and promote global standards in some jurisdictions.
Many are increasingly in partnership with smartphone applications (apps) to facilitate mobile payments, where digital wallets allow e-commerce retailers and payment services to securely store credit card or bank information on mobile devices.
Challenges in interoperability, adoption and security
While smartphone penetration in Southeast Asia has grown quickly, the region's e-payments ecosystem faces a host of challenges. For one, achieving interoperability, which is critical for e-payment players to gain region-wide traction, is far from reality.
Unlike in China, fragmentation and multiple platforms in Southeast Asia - further complicated by differences in culture, language and regulation - have made it difficult for providers in the region to create value-adding services that can be accessed across multiple geographies.
International payments also lack speed, efficiency and transparency, with high costs to bear. While the ISO 20022 global standard for real-time payments messaging has gradually gained acceptance worldwide, Singapore is the only country in Southeast Asia so far to have this capability.
Adoption also remains a challenge. Across Southeast Asia, cash remains easy to use, inexpensive and widespread. Hard currency paid on delivery accounted for 44 per cent of e-commerce transactions in 2017 and could remain the preferred payment option through at least 2021. Consumers who are confused about the many e-payment platforms or do not appreciate the functionality of digital wallets find themselves reverting to paper currency readily.
As well, for small merchants, it may not be attractive for them to offer e-payments to customers if the cost of the transaction fee levied by the e-payment system providers such as banks or telecommunications companies is seen as unattractive or eating into their profitability.
Lastly, the security of e-payment platforms remains a concern, as the encryption and digital identity verification methods that are employed by different apps can vary greatly.
Agile and responsive regulations needed
The ongoing disruption taking place in the e-payments space is making it difficult for regulators to catch up, especially with blockchain and cryptocurrency-based wallets emerging fast on the back of bank-backed digital wallets.
Diverse, country-specific regulations governing fintech and payment service providers across the region are also inclined to give local entities an edge over foreign players.
Commitment from governments to drive regional interoperability is crucial to accelerating the adoption of e-payments in the region. As an example, Singapore and Thailand have embarked on connecting PayNow and PromptPay, the two respective national digital payment systems. With that, residents and businesses in both countries will only need to use their mobile numbers to transfer money instantly and securely, boosting efficiency and minimising the cost of cross-border payments.
Also, the public and private sectors need to take a more unified approach towards evolving regulations that help protect consumers, build better governance frameworks around e-payment solutions and encourage usage. One way would be for companies to collaborate with governments to educate consumers and businesses on the advantages (and risks) of e-payments while also offering incentives and discounts to boost adoption.
With regulatory challenges often viewed as the greatest barrier to adoption, governments across the region need to collaborate more closely to accelerate the journey by prioritising and promoting the simplification and interoperability of platforms and solutions; adopting international payments standards; facilitating coordination among multiple stakeholders; and driving strategies to promote adoption.
Success in doing so will deliver an important strategic economic edge to this thriving region that continues to capture the attention of both intra-regional and international investors with its large consumer base market.
- Liew Nam Soon is EY Asean Markets Leader and Varun Mittal, EY Asean FinTech Lead.
This article reflects the views of only the writers and not necessarily that of the global EY organisation or its member firms.