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Payment interoperability: The next step towards a digital Asean

Apr 23. 2018
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GETTING PAYMENT platforms to “understand” each other, or to be “interoperable,” presents a huge opportunity to enhance intra-regional trade and business activity across Southeast Asia, and Thailand in particular.

It is vital to a digital economy and Asean’s ‘Smart Cities’ aspiration which is essentially using technology and innovation to make cities more economically competitive and liveable. 

It also goes hand in hand with the Asean’s relentless shift towards an internet economy. Southeast Asia is the world’s fastest growing Internet region. 

Nearly four million new users will come online every month for the next five years. While Asean consumers currently spend US$30 billion online, this is expected to rise $200 billion by 2025.

The benefits of interoperability are manifold. Interoperability enables individuals, corporates and institutions to make payments to anyone else in a convenient, affordable, fast, seamless and secure way via a single transaction account. 

It cuts costs, saves time and presents a huge opportunity for enhanced intra-regional trade and business activity. 

Against this backdrop, it is no wonder that payments interoperability is one of key focuses for Asean this year. 

Common standards between countries will be the great enabler of this but achieving interoperability is no easy task. 

Collaboration the Key

Interoperability is difficult to accomplish within a single country, let alone across a region like Asean. 

And while central banks are a key driving force in any payment system reform, they cannot - and should not - act alone. 

What’s required is coordination among multiple stakeholders, a conducive legal and regulatory framework, the support of policy-makers and overseers, commercially viable business models and technological solutions, ideally based on international standards.

Steps being made

The Monetary Authority of Singapore’s (MAS) Project Ubin is an industry initiative that explores the use of distributed ledger technology for the clearing and settlement of payments and securities. This could potentially become the common standard for a regional interoperable payments system. 

The Bank of Thailand has launched its Wholesale Central Bank Digital Currency initiative known as the Project Inthanon. HSBC looks to actively participate in these to support significant industry developments.

Individual countries are also bilaterally linking up payment systems. Singapore and Thailand are in discussions to connect their national digital payment systems PayNow and PromptPay. If this succeeds, it will forge an unprecedented bilateral alliance.

It’s also a huge step in the direction of Asean’s Smart Cities Network initiative, which is a move to ride the digital wave and step up engagements across the region and beyond. 

Integrated system

It’s also the next logical step in the digitization of Asean’s economy. Cross-border payments with immediate settlement are huge opportunities for businesses and consumers. 

Activity is certainly abuzz at the regional level. The central banks of Indonesia, Malaysia and Thailand launched a framework last December aimed at increasing direct settlement of trade transactions in their local currencies through designated banks. Direct settlement would mean banks in the three countries could complete transactions in local currencies, improving their operational efficiency. MAS and the World Bank’s IFC have signed a memorandum of cooperation to establish the Asean Financial Innovation Network (AFIN) in May 2017. AFIN will facilitate broader adoption of fintech innovation and development and enhance economic integration within the region.

MAS is also proposing (its consultation paper on the Payment Service Bill) that it be given the mandate to empower large banks in Singapore to open up their payment rails to competitors and third-party players to ensure interoperability of large payment systems.

Asean is firing on all cylinders in its effort to integrate payments systems across the region. Because the bottom line is this: interoperability will significantly change fixed costs, reliability and access. It accelerates the flow of people and trade, taking society and economy to much greater heights. 

Contributed by AI CHEN LIM, Head of Global Liquidity and Cash Management, HSBC Thailand


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