Payment transformed

Payment transformed

Digital payment a new engine of growth for Southeast Asia and a key to successful digital transformation.

The protracted Covid-19 pandemic has wrought havoc across many business sectors worldwide, and Southeast Asia has been no exception. But that is not the case for the digital payment industry. It has been thriving even during lockdowns, as more people make daily transitions on online marketplaces, food delivery and entertainment platforms.

With most people opting to stay home as long as the pandemic persists, the adoption of digital payment among consumers and merchants is skyrocketing. The trend, according to experts, will likely remain in the post-Covid world and become a new engine of growth for the region.

Financial technology companies are on the front lines of this growth, among them Payments Network Malaysia Sdn Bhd, or PayNet Group, the national payment network and central infrastructure for financial markets in Malaysia.

The company's FPX service, an online payment system that facilitates e-commerce purchases, grew more than 100% in 2020, said Khairuan Abdul Rahman, director of the retail payments division of PayNet. Transactions expanded a further 50% in the first quarter of this year.

He recalled that in 2018, when the real-time retail payment platform was first launched in Malaysia, there were only 22 participants in QR code payment services. The first service launched on the platform was DuitNow, which provides instant credit transfers linked to mobile numbers and national identity numbers.

Now banks and non-banks alike are on board with more than 700,000 business touchpoints. The platform processed more than 570 million payments last year.

"The digital economy has understandably accelerated as the Covid-19 pandemic gave birth to new digital businesses and forced traditional brick-and-mortar enterprises to operate online," Mr Rahman said during a recent webinar titled "Digitising for Growth in Asean", sponsored by Standard Chartered Bank.

"The digital economy has understandably accelerated as the pandemic gave birth to new digital businesses and forced traditional brick-and-mortar enterprises to operate online" Khairuan Abdul Rahman Director of retail payments with PayNet SUPPLIED

"The need to pursue a digital transformation agenda is more acute than ever. While organisations will undoubtedly face significant issues during the digital transformation process, slow progress is not an option."

Southeast Asia, home to about 670 million people, is moving online fast. According to the e-Conomy SEA 2020 report -- produced by Google, Temasek, and Bain & Company -- 40 million people came online for the first time last year, bringing to 70% the share of the region's population on the internet.

Gross transaction value of digital payments in Asean is projected to almost double to US$1.2 trillion in 2025, from $620 billion in 2020.

Citing research by Kantar, the report highlights the rising frequency of e-wallet transactions, from an average of 18% of all transactions pre-Covid to 25% post-Covid, while consumers' cash transactions declined from 48% to 37%.

That growth is expected to carry over into other digital financial services such as remittances, lending, insurance and investments.

ROOM FOR GROWTH

Digital transformation in finance was well under way in Southeast Asia even before the pandemic, which happened to accelerate the adoption of and demand for digital payments from both consumers and businesses.

Fuelled by the rise of the platform economy, the region is home to more than 10 unicorns -- companies valued at $1 billion or more -- that drive digital payments across a variety of business activities, including gaming, online entertainment, digital financial services and e-commerce platforms.

In Indonesia, the super-app Gojek is one of the key players contributing to e-money transactions, which skyrocketed by 173% in January 2020, compared to a year earlier.

Indonesia alone saw $10 billion in e-money payments in 2019, making it the largest fintech payments market in the region, according to estimates by S&P Global Market Intelligence.

Along with Indonesia and Singapore, Vietnam is attractive to the digital payment industry because of its large population and room for growth.

A study on cash digitisation in Southeast Asia conducted by Standard Chartered indicates that, in 2017, around 90% of Vietnamese consumers preferred cash on delivery for their online purchases.

But the Vietnamese digital payment landscape has changed rapidly since then. Consumers in the country of 97 million quickly adopted contactless payment during the pandemic, according to the recent Consumer Payment Attitudes Study by Visa. Contactless payment penetration increased by 230% in the first quarter of 2021 compared to the year before.

The Vietnamese government has largely driven the rise of digital payments in the country. As of April, the State Bank of Vietnam had issued 43 licences for non-bank intermediary payment services companies, a promising outlook for the country's fintech startups.

The healthy ecosystem for fintech ventures has helped VNPay, a company providing e-payment services, become the country's second unicorn. Its platform has over 15 million monthly users who manage money transfers, pay bills and purchase goods and services online.

Substantial growth in digital payment volumes is also being observed in Thailand, Malaysia and the Philippines.

Sean S Hesh, group CEO of Malaysia-based GHL Systems Berhad, a leading payment service provider, believes that capturing cash-based transactions and turning them into digital is critical for his company's success and the region's future digitisation.

"Seventy percent of the transactions in this region are still being done by cash," he pointed out during the Standard Chartered webinar.

The other must-win battle for his company is to be an omnichannel provider to stay competitive in the market while capitalising on the convergence between payments and consumer finance.

About 70% of the transactions in Southeast Asia are still being made in cash, says Sean S Hesh, Group CEO of GHL Systems Berhad. SUPPLIED

ROLES REINVENTED

"The [digitisation] transformation that has taken place in a very short period of time equals what probably could have happened in a five- to 10-year period in the 'old normal', as we would refer to it," said Mr Hesh, referring to the rapid digital adoption during the Covid pandemic.

"I think the next three to five years are probably going to build upon and accelerate on the foundations and rule sets that were laid down in the last 18 months. There's definitely a shift toward digital payments and e-commerce."

This shift is not only creating opportunities for companies and merchants. It is also posing challenges to conventional players such as banks, as well as regulators and governments.

Yong Sheng Le, deputy director of the Monetary Authority of Singapore (MAS), said during the webinar that embedded and decentralised finance would be the two main aspects of future financial services in Southeast Asia. These require all players to adapt as quickly as possible.

Embedded finance describes banking-like services offered on non-bank platforms. Decentralised finance involves blockchain solutions and smart contracts, allowing consumers to send digital assets, which is forcing traditional financial intermediaries to reinvent their role if they want to survive.

These aspects of financial services rely on sophisticated technology and data analysis, but they will also break the value chain into different modules, said Mr Yong. Banks will no longer own the whole value chain and instead will focus on the areas where they have core competencies.

"As a regulator, we are always thinking of the issues that will come with these changes -- stuff like data protection, data privacy, reviewing the 'anti-tieing' rule, so that the bank can engage in more activities that are not financial-related," he added.

Singapore is at the forefront of digital financial services. In December, the MAS awarded four digital banking licences to the technology giant SEA Limited (the parent of Shopee among others), the Grab-Singtel consortium, China's Ant Group, and a consortium comprising Greenland Financial Holdings, Linklogis Hong Kong and Beijing Co-operative Equity Investment Fund Management.

Scheduled to start businesses in 2022, these groups will offer many of the same services as traditional banks, but without a physical setup. Their arrival is expected to help underserved customer segments, especially small and medium enterprises, gain faster and easier access to credit.

The move will not just accelerate the companies' growth in digital financial services. It will also position Singapore's financial sector to seize even more opportunities from future digital transformation.

"Embedded and decentralised finance will be the two main aspects of future banking services in Southeast Asia" Yong Sheng Le Deputy director, Monetary Authority of Singapore SUPPLIED

CROSS-BORDER PAYMENTS

In recent years, many traditional banks in Southeast Asia have adapted by introducing digital payment platforms and products.

Kasikornbank in Thailand, for example, offers the K-plus Wallet to capture the rising demand for online interbank transactions and online purchasing.

Malayan Banking Bhd in Malaysia, BDO Unibank in the Philippines and Bank Central Asia in Indonesia also operate digital payment platforms built on the real-time payment system.

Some governments have leaped in to accelerate the adoption of digital payment within their territories and across borders.

Amid the pandemic, the Thai government introduced the Pao Tang mobile app as an e-wallet that people can use to pay bills and receive government subsidies under Covid stimulus packages.

Some cross-border collaborations also took off during the pandemic.

In April, the Bank of Thailand and the Monetary Authority of Singapore launched the world's first cross-border link of real-time payment systems. Users of the countries' two national payment systems -- Thailand's PromptPay and Singapore's PayNow -- can transfer money across borders faster and cheaper, just by using their mobile phone numbers.

The central banks of Malaysia and Thailand also pioneered cross-border QR code payments in June for businesses and consumers from both countries.

Cross-border payment is seen as one of the "pain points" that need to be resolved to ensure successful digital transformation in Southeast Asia.

The issue is addressed in the blueprint of the Asean Economic Community (AEC) -- an economic union comprising the region's 10 member states -- emphasising the necessity to integrate cross-border payment infrastructure to enable local businesses to expand within the region, and attract international companies into the region's fast-growing and dynamic markets.

Transborder e-payment links will also spur e-commerce and expose local companies to larger value chains that provide business opportunities to companies of all sizes.

"In facing this digital economy transformation, it is imperative for us to work together -- banks and non-banks together with regulators -- and take the necessary steps to adapt and collaborate for the next normal by leveraging real-time payment platforms," said Mr Rahman of PayNet.

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