Australia
China
India
Indonesia
Japan
Malaysia
Philippines
Singapore
South Korea
Taiwan
Thailand
Vietnam
Germany
Hong Kong
USA
Switzerland
Singapore
United Kingdom
As Southeast Asian nations strive for deeper financial integration and enhanced regional economic ties, the Association of Southeast Asian Nations (ASEAN) is making significant progress in revolutionising the cross-border payment system in the region.
The new cross-border payment system has already been successfully implemented in Indonesia, Malaysia, Thailand, and Singapore, enabling residents to conduct transactions for goods and services in their local currencies through QR codes. Bank Indonesia recently unveiled a mechanism called QRIS – Quick Response Code Indonesia Standard, while Singapore and Malaysia rolled out a cross-border QR payment system called NETS-DuitNow QR. These are a part of the new cross-border payment system but have limited features at the moment. Plans are in place to expand this initiative to include the Philippines in the near future. The central banks are likely to decide the fees and exchange rates for the payment through mutual agreement.
Previously, these five Southeast Asian countries had signed an official agreement late last year. And at the ASEAN summit in May 2023, leaders also reiterated their commitment to the project, pledging to work on a comprehensive plan of action to expand regional payment links to all ten ASEAN members.
All in all, the project supports cross-border trade, investment, and remittance, fostering an inclusive financial ecosystem in Southeast Asia. Furthermore, experts believe that enhancing regional connectivity in this manner will reduce the reliance on external currencies, like the U.S. dollar, and will provide a boost to small- and medium-sized businesses in the region. They account for around 90% of businesses in Southeast Asia, as per Asian Development Bank.
“In the hyper-dynamic Asian financial services market, cross-border payments offer a compelling revenue opportunity, driven by shifting trade flows, expanding e-commerce, and a constructive global regulatory agenda. These are fertile conditions for new entrants, which have built market share by offering highly functional and cost-efficient services,” said McKinsey and Company.
“Still, with many technology companies battered by equity market sell-offs, banks now have a chance to leverage their core strengths and changing investor expectations to return to winning ways,” the management consulting firm added.
Currency pressures, regulation hurdles ahead for cross-border payment system
The advancement of cross-border payment connectivity in Southeast Asia may inadvertently exert pressure on specific currencies, notably the Singapore dollar, as per experts.
Given the strength and stability of the Singapore dollar, businesses could choose to increase their holdings of Singapore dollars as part of their working capital. This can potentially affect the purchasing power of other regional currencies and lead to higher imported inflation without central bank intervention.
ASEAN countries have agreed to form a task group on local currency transactions to discuss preparations for a blocwide transaction framework. However, the body’s leadership has yet to be determined, and additional negotiations are likely during the August conference of ASEAN finance ministers and central bank governors.
Another important hurdle for the central banks in Southeast Asia would be to formulate regulations in order to tackle security, fraud concerns and promote public awareness of the new payment system. To achieve this, collaboration and political will among central banks and finance leaders are crucial.
“…each connection between two countries must be tailor-made. This takes time and significant efforts. As more countries want to participate, we can end up with a tangled “noodle bowl” of bilateral connections,” said IMF.
“New innovations continue to improve cross-border payment processes—creating more visibility, transparency and efficiency. Financial institutions should prioritise purposeful innovation by adopting the right technology and establishing the right partnerships to meet customers’ expectations,” said JP Morgan.
ASEAN’s cross-border payment system is promising but the complete implementation may take some time. It will also be interesting to watch if it successfully removes the region’s dependence on the US Dollar. Alicia Garcia Herrero, Chief Economist for Asia-Pacific with Natixis reflects, “Most people may still prefer to transact using the US dollar. To develop a regional currency like the euro, that currency has to be convertible.”
