A South-Southeast Asia payments network is worth the trouble
Governments have been forging bilateral cross-border links but should aim higher
Manoj Dugar is Asia-Pacific co-head of global payments solutions for HSBC.
Faster and more efficient payments allow businesses to cut costs and make it possible for consumers to shop with convenience and confidence.
At the country level, the data tells us that real-time payments can deliver a boost to overall economic activity. A web of real-time payment networks linking all the major economies of South and Southeast Asia together could amplify this boost across the whole area.
This would bring many advantages, but we should acknowledge that it will not be easy.
Connecting one nation's real-time payments network with that of another is not as simple as installing some software and pushing a button. In a region with a mosaic of different capital controls and foreign exchange regulations, the painstaking work of building interconnections will require diplomacy as much as technology.
But the potential benefits to businesses and consumers mean that the emergence of this network is not just possible, it ultimately must be inevitable. Indeed, I expect the real-time payments networks of India and at least five Southeast Asian countries to be linked together within five years.
The technology and the momentum are already in place.
South and Southeast Asia have drawn recognition for building some of the world's best real-time payments systems. Because they are simple, secure and seamless to use with local banks and merchants, platforms such as Thailand's PromptPay, Malaysia's DuitNow, Indonesia's BI-Fast, Singapore's PayNow and India's Unified Payments Interface (UPI) have quickly gained traction with businesses and consumers.
These networks have now started to interconnect. In June, Malaysia and Indonesiamade it possible for those traveling between the two countries to make payments in the other's local currency using a QR code. Last month, a Bank Indonesia official said that travelers between Indonesia and Singapore would be able to do the same by the end of the year
In February, the Monetary Authority of Singapore and the Reserve Bank of India set up a groundbreaking link between PayNow and UPI. As more of these connections come online, a pan-regional network is beginning to take shape.
Real-time payment volumes are already surging in Asia. Government initiatives to reduce cash usage and digitize payments during the pandemic were a key catalyst. Digital wallets, which bring easy access to financial services to previously underserved populations, have pushed along the shift too.
The UPI has been wildly successful: nearly 300 million people and 50 million merchants in India are said to now use the platform. In June, payment volumes reached the equivalent of $180 billion, up 45% year-on-year and more than tenfold the amount processed in June 2019.
PayNow has achieved similar growth in Singapore's more developed economy. Payments through the Fast and Secure Transactions infrastructure the system uses reached the equivalent of $287 billion in 2022, up 28% year-on-year and more than double the 2019 level.
This rapid adoption speaks to the benefits to both businesses and consumers. Lower fees, reduced settlement times and improved risk management promote innovation and financial inclusion, boosting economic productivity.
According to a study by the Centre of Economics and Business Research, an economic analysis consultancy based in London, the UPI unlocked more than half a percentage point of total economic output for India in 2021.
It is reasonable to expect that the ability to use similar technology for cross-border payments would also boost consumption and commerce across the wider region. But this will require increased ambition in the scope of connections between real-time payment networks.
At present, these are largely intended to make payments easier for travelers. Building a more digital, more connected network across South and Southeast Asia would require these links to be used for cross-border payments to merchants in other countries, too.
This kind of integration would create a wealth of opportunities for businesses to expand internationally and provide new choice for consumers.
E-commerce already accounts for a fifth of retail sales in Southeast Asia, according to McKinsey & Co. A cross-border payments network would allow companies to reach millions of new consumers without the need for credit cards or time-consuming remittances.
Faster cross-border payments will support the continued expansion of commerce along South and Southeast Asian economic corridors. With high smartphone penetration, a growing middle class and total trade volumes in Southeast Asia rising an impressive 15% in 2022, the commercial opportunities from deeper digital connections are compelling.
But the reality of connecting different countries' payment rails is highly complex.
Policymakers need to consider capital controls and foreign exchange requirements. The financial institutions involved need to address different data formats and legacy technology systems. And both must find ways to manage a range of regulatory approaches to data privacy and know-your-customer checks.
These layers of complexity show why integrating any two payment systems is a significant achievement, and why India and Singapore rolled out the PayNow-UPI connection in a carefully-phased manner.
Governments naturally must ensure that integrating their payment systems with other countries will not have unintended, negative impacts. But while policy has to lead any linkage of sovereign infrastructure, banks also have an important role to play in this process.
The experience and capabilities of international banks in cross-border payments mean we can support government bodies in different markets as they test and expand the network of connected payment systems. HSBC, for example, processes 142 corporate payments per second.
These capabilities can make a valuable contribution to the region's economic development and there is every incentive for banks to help given the expected boost to the cross-border flows that we already intermediate for all the economies involved.
New tools will help. This year's launch by the Society for Worldwide Interbank Financial Telecommunications of its Cross-border Payments and Reporting Plus migration program should help resolve the fragmentation of messaging formats that banks use today, for example.
Ultimately, though, building a network of connected real-time payment networks will require the kind of pioneering, government-level effort that has forged the bilateral links that have been falling into place. There is a sound economic rationale for policymakers to make this effort and for banks to support it.