Notable proxy addressing real-time payment systems in the region include Singapore’s PayNow, Thailand’s PromptPay and Malaysia’s DuitNow. Indonesia plans to launch a national system of its own later this year.
In general, proxies simplify the payments process as customers do not have to enter potentially complicated payment details, reducing the risk of error. With a proxy, it becomes possible to pay anyone one’s bank account or digital wallet with a recipient identifier such as a mobile phone number, citizen ID or QR code. Proxies improve the customer experience significantly, making the payment process as easy as sending a text message.
User adoption of these proxy-enabled RTP systems in Southeast Asia has been brisk, especially since the outbreak of the coronavirus pandemic in early 2020. The Straits Times notes that Singapore’s PayNow, for instance, saw transactions double in both volume and monetary value from 2019 to 2020. Further, transactions in the first half of 2021 reached S$20 billion, nearly as much as the S$22 billion for the whole of 2020. In Thailand’s case, PromptPay transactions reached more than 10 billion in 2021, nearly double 2020’s 5.3 billion, according to Statista. Finally, DuitNow processed more than 2 billion transactions from 2019-2021, a growth rate of 888%, according to the Finexus Group.
A collaborative effort
Many digital payment solutions provided by startups arrive on the market branded as “disruptive” because they are in theory intended to shake up the market and challenge incumbents. However, the proxy-powered payment systems being developed in Asia Pacific are different. They represent a concerted effort by regulators, incumbent financial institutions and fintechs to create new national real-time payment channels.
For instance, Vocalink, a Mastercard-owned payment systems company based in the UK, worked with Thai banks and the Thai government to build PromptPay. PromptPay includes an RTP infrastructure and proxy look-up service, which works by securely storing and mapping a person or business’s alternative unique identifier(s) to their bank account details. When a sender addresses a payment using a recipient’s alternative identifier, the service provides the financial institution with the recipient’s bank account details to complete the payment transaction.
The Thai government has ensured that PromptPay will be widely adopted by mandating its implementation by all financial institutions, strongly backing the system to ensure user trust and using it as a key channel for instant benefit disbursements and tax rebates.
In Singapore, the government has taken a slightly different approach, initially working with nine banks and four non-banking financial institutions (NBFIs) on PayNow: Bank of China, Citibank Singapore Limited, DBS Bank, HSBC, Industrial and Commercial Bank of China, Maybank, OCBC Bank, Standard Chartered Bank, and United Overseas Bank; as well as GrabPay, LiquidPay, Singtel Dash and Xfers.
However, gradually more fintechs are becoming involved with PayNow. In April, Stripe announced that Singapore-based businesses could begin accepting PayNow across its suite of solutions if they created a Stripe account.
Further, Singapore has expanded PayNow’s services beyond the retail segment, making them accessible to corporate customers, government agencies, associations, and societies.
In Malaysia, DuitNow is working with most of the major banks active in the country – such as Maybank, CIMB, HSBC and Standard Chartered – as well certain fintechs. For instance, Capital A’s fintech arm BigPay entered the DuitNow ecosystem in early 2021 and began accepting DuitNow QR code payments in April.
Burgeoning cross-border applications
Given their respective success domestically, Asia Pacific’s proxy-powered real-time payment systems are increasingly expanding into the cross-border space, creating new opportunities for banks and fintechs. In 2021 PayNow linked with PromptPay and PromptPay with DuitNow. PayNow and DuitNow will be linked in phases from the fourth quarter of 2022. Additionally, Singapore plans to link PayNow to Indonesia’s forthcoming QR code-based real-time payments system.
While this greater regional interconnectivity will be a welcome development, ASEAN countries will need to align their respective regulations on RTP payment systems in order to build interconnectedness. While there are some common QR-code standards, there is no pan-Asia standard.
Further, the bilateral agreements will likely only cover the biggest payment corridors in Southeast Asia. That means significant opportunities for banks and fintechs to reduce financial exclusion in those markets, but not necessarily in others, such as Cambodia, Laos and Myanmar.
Looking ahead, Southeast Asia’s central bankers have even more ambitious plans. Not only do they plan to develop comprehensive regional linkages of these proxy-enabled RTP systems, but they also want to build connectivity with other regional clusters around the world, and eventually apply the same structure to real-time bank transfers and central bank digital currencies.
“This can be a deeply impactful move that we can build to the rest of the world,” Monetary Authority of Singapore Managing Director Ravi Menon said at a panel held in Bali, Indonesia in July.
This commentary was written in collaboration with Banking Circle and originally appeared on Banking Circle.