Future of Payments: Mapping a digital path in Asia
Keeping up with the pace of change in Asia’s payments landscape is proving more difficult than many companies would have believed before Covid-19.
The acceleration in digital engagement and adoption during the pandemic has been particularly striking in this region. Compared with 12 months ago, the proliferation of new options now includes QR codes, digital or mobile wallets, instalment plans, cryptocurrencies and biometrics.
In parallel, there is a growing desire among customers – and, increasingly, suppliers – for easier, quicker and more efficient ways to pay.
Yet the cost and risk management remain key concerns for companies when considering digital adoption. A Bank of America survey in Asia Pacific in mid-2020 showed the extent to which the pandemic exposed the vulnerabilities of manual and paper-based processes in treasuries. While it was clear from the findings that digitalisation is no longer a 'good to have' but instead essential for business continuity, 66% of respondents said their top priority is to improve the quality and frequency on cash flow forecast.
“Companies in all sectors are grappling with what this means for treasuries, how they adapt and develop relevant infrastructures going forward, especially where cross-border transactions are required,” said Venkat ES, head of treasury product for Bank of America's Global Transaction Services business in Asia Pacific.
In short, corporates face the far-reaching, three-fold challenge of how to be more transparent, enhance visibility and manage costs – at exactly the same time as payment networks get faster, larger and more open.
Five drivers of Asia’s burgeoning payments landscape
As corporate treasurers embark on a steep learning curve, they realise that living up to new client and customer expectations poses challenges.
Yet by identifying and aligning their strategies with five key trends shaping the region’s payments future, it becomes more viable to create a roadmap to help stay the course and thrive.
1. Instant payments becoming the norm
Following the successful execution of domestic real-time payments in various countries across Asia over the past 12 to 24 months, instant cross-border funds transfers are next.
Indeed, research released in early 2021 by ACI Worldwide and GlobalData showed over 70 billion real-time payments transactions processed globally in 2020, up 41% from 2019. The real-time share of global electronic transactions during the period was 9.8%, up from 7.6% in 2019 – and is predicted to be 17.4% by 2025.
Highlighting Asia’s role in this, India, China, South Korea and Thailand ranked among the top five countries generating more real-time transactions.
2. Governments and regulators driving digital payments
To plug leakages in cross-border payments and enhance efficiency, regulators and government authorities are taking an increasingly active role in this space.
For example, in an initiative spearheaded by the Monetary Authority of Singapore and the Bank of Thailand, Singapore's PayNow and Thailand's PromptPay launched a first-of-its-kind cross-border payment system in April 2021. This aims to allow rapid international fund transfers between the two countries with greater transparency and at lower cost.
This collaboration has the potential to pave the way for a cross-border payments network with other countries in the region. In preparation, corporate treasurers cannot ignore their own infrastructure to identify ways to enhance them where needed to meet the needs of digitalisation.
More broadly, to facilitate these steps, there is increasingly open dialogue between regulators and market participants. “This collaborative approach in setting policies allows participants to deliver new cross border payment capabilities with greater speed. Thus, enabling end customers to derive benefits”, said Chandana Thanthrige, head of financial institution product for Bank of America's Global Transaction Services business in Asia Pacific.
3. A proliferation of digital wallets
With a population of close to 4 billion people and rapid growth in internet and mobile penetration, a flurry of digital wallet operators are being lured to Asia.
The opportunity in the region is vast. A recent study from Juniper Research, for instance, found that the number of unique digital wallet users will exceed 4.4 billion globally in 2025, rising from 2.6 billion in 2020. With mobile wallets leading this 70% growth, due to mobile payments rapidly scaling across geographical and vertical markets, merchants must respond quickly.
This new research also showed that markets such as the UK and US are lagging behind parts of Asia in terms of digital wallet adoption – with China and India, for example, predicted to account for 69% of digital wallet transactions in 2025.
As a glimpse into what a digital future could look like, Bank of America research entitled 'Transforming World, the 2020s' predicted that by 2025, individuals could be interacting with a connected device 4,800 times a day, up from 221 times in 2020. Further, the research suggested that within the next five years, 80% of internet connections would be via mobile devices.
With the cash economy becoming increasingly digitised along all parts of the value and supply chains, the pressure is more acute than ever on the need for capable mobile apps that offer a seamless checkout process, the correct mobile wallet integrations and high levels of security.
4. A fast-evolving and disintermediated ecosystem
Despite the flurry of fintechs and other platforms influencing how customers and suppliers execute payments, banks continue to play a central role in the payment chain.
Yet banking infrastructure is, generally, struggling to differing degrees across various countries and types of institution.
As a result, banks have begun to focus on further enhancing customer relationships. “They want to create a more simplified, intuitive experience to either retain existing customers who might previously have been more loyal or, in some cases, win them back,” explained Venkat.
5. Digital currencies emerging as more mainstream
Whether issued by central banks or via crypto offerings, the hype and competition around digital currencies continues to gain momentum – even amid confusion over the practical application of options such as bitcoin within corporate treasuries.
Whether or not treasuries will move in this direction, the trend is already putting growing pressure on them to respond to the demand for innovations in relation to the use of digital currencies – including real-time payments, settlement and blockchain.
The objectives of speed, flexibility and cost reduction, however, are not easy to achieve. Large companies, in particular, face a significant pain point in terms of integrating the new technologies with existing legacy solutions in back-end platforms.
”Because of this, ensuring security in the design of payments solutions needs to be top-of-mind for treasuries,” added Chandana.
Building a resilience response
With Covid-19 as the catalyst, a decade of anticipated innovation in digitalisation of payment processes and infrastructure has been condensed into the past 12 months.
While the use of payment technologies trends upwards, more traditional options are decreasing. And given this shift is now irreversible, companies across Asia must respond quickly in developing more sophisticated ways to increase the ease, speed and cost-effectiveness of making payments.
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For more information, please visit Bank of America Global Transaction Services