As Asia’s digital economies accelerate and e-commerce becomes an integral part of our daily lives, consumers and businesses have become much more particular about how they pay and get paid. This has accelerated the real-time payments’ adoption in the region, where fund transfers between bank accounts or individuals are almost instantaneous compared with the traditional one to three business days.
A payment revolution is underway. We now live in an instantaneous, always on society where digital consumers and businesses fully understand their options and influence. They have real-time demands and expectations and will readily voice their dissatisfaction through their wallet (digital, of course).
Asia’s booming digital economy
A 2021 study from ACI Worldwide and YouGov revealed that real-time payments are now as popular as cash with consumers in Southeast Asia. In Indonesia, Malaysia, Thailand, and Singapore 61% of consumers prefer real-time payments, on par with cash (61%), and higher than other payment methods such as digital wallets and credit cards. In fact, according to the e-Conomy SEA 2021 report, Asia’s digital economy is projected to reach an all-time high of $1 trillion by 2030, driven by the rapid rise of fintech, the attractiveness and demand for digital payments, and multiple government efforts to shift to a digital economy.
Wise discusses the future of payments in Southeast Asia
The pandemic also played a significant role in accelerating this shift to real-time payments. To minimise physical contact, and help reduce the spread of COVID-19, many businesses adopted contactless payment systems. This introduced a whole new wave of customers who had never used digital payments or internet e-commerce before, as well as expanding the appetite of customers with an existing online presence. The e-Conomy SEA 2021 report also noted an increase of 60 million new internet users since the start of the pandemic in Southeast Asia, bringing the total number of internet users in the region to a staggering 440 million.
Payments industry capitalising on digital boom
This shift to digital payments has meant that merchants, banks, and governments are accelerating their drive to provide real time payment services to meet current and future payment demands. The payments industry is constantly looking for ways to streamline retail payments, reduce costs, increase security, and improve the customer experience by providing value-added services. As customers desire the best, simplest, and fastest technologies, financial institutions require a digital real-time platform to support the growing online demand.
But these efforts inevitably introduce more players and complexity into the ecosystem or lower cost and risk on one side (i.e., the merchant) while increasing cost and risk on the other (i.e., the bank). Some banks are also struggling with legacy infrastructure or limited resources and are unable to match the digital demands of their customers as they strive to modernize their payments systems.
As the payments sector evolves, banks and financial institutions will be required to constantly keep up with their competitors and upgrade their outdated systems to stay relevant. However, without mass adoption, the requirements outlined above will not be successfully met. ACI Worldwide believes that real-time payments are ideally suited to enable digital channels.
MDT Innovations Sdn Bhd has recently strengthened its payments capabilities, offering customers new ways to leverage eWallet payments via real-time payment rails. Fave, Southeast Asia’s smart payments app, is the first customer to go live with the new solution, rolling out FavePay DuitNow QR at 20,000 restaurants and retailers throughout Malaysia. Fave has enabled six million customers to save more than S$545 million through 40,000 merchants across Malaysia, Singapore, and Indonesia. With the launch of FavePay Later, which offers interest-free flexible payments on the Fave app, Fave is redefining how the new generation of consumers get and use credit.
Fave is an example of how globally, the industry is acutely aware of the sustained high growth of real-time payments. To illustrate this, here are some ways that real-time payments are playing out in Southeast Asia and the potential for evolution going forward.
Singapore – early and enthusiastic adopters
ACI’s 2021 Prime Time for Real-Time report highlighted that Singapore had more than 138 million real-time payments transactions in 2020, a 48% increase from 2019. This is predicted to grow to around 395 million by 2025. Fast and Secure Transfers (FAST), the country’s first real-time payment scheme and launched back in 2014, enables retail and corporate customers of participating banks to transfer funds 24/7/365.
Singapore’s second scheme, PayNow, launched in 2017. It is a P2P instant fund transfer service built on top of the FAST infrastructure and allows users to transfer funds from one bank account to another using a mobile number or national ID card number.
With two established real-time payment schemes in place, a wide range of form factors (phones, QR codes etc) and 48% year-over-year growth, Singapore is well on its way to becoming an established real-time payments market.
As part of the country’s ongoing payments evolution, it is likely that business use cases will propel the next wave of explosive real-time growth, and corporates of all sizes are expected to benefit. This is because all corporate payments will soon be required to align with the ISO 20022 standardised messaging format.
Once complete, banks will eventually leverage the standardisation that ISO 20022 provides for all their payment requirements to lower costs and drive innovation for local and cross-border payments. Hence, banks are likely to prioritize sourcing solutions from trusted partners that can help them create a single payments hub onto which they can migrate most of, if not all, their payments traffic.
Malaysia – hyper growth and a desire to lead
According to the same report, more than 68 million real-time payments transactions were processed in Malaysia in 2020, a staggering 864% rise compared with the previous year. In fact, digital payments growth in the Malaysia market is projected to continue exponentially for at least the next half-decade and possibly beyond—with real-time’s share of the electronic payments forecast to accelerate from 1.9% in 2020 to 16.5% by 2025.
Malaysia has also introduced a new secure messaging service, Request to Pay to provide control, flexibility, and transparency of bill payments. The country is also adding a consent management platform for debits, credit transfer capabilities, real-time debit capabilities, and cross-border payment with ASEAN real-time payment schemes such as PromptPay and NETS.
These developments show that real-time payments provide a platform for continuous innovation and value added services, and that participants in these ecosystems will be required to continuously evolve and adapt to compete. The pace of real-time payment adoption in the Malaysia market has surprised even the optimists, and it’s clear that real-time payments acceptance will become table stakes within the next few years, in line with consumer expectations.
Thailand –explosive growth and an appetite to match
The Prime Time for Real-Time report found that more than 5.24 billion real-time payments transactions were processed in Thailand in 2020, a surge of 104% compared to the previous year (2.57 bn), as the COVID-19 pandemic dramatically accelerated the move away from cash towards greater reliance on real-time and digital payments.
At the same time, 2020 saw mobile wallet adoption rise to an historic high of 83.9%, up from 72.6% in the previous year. Real-time payments in Thailand have experienced phenomenal year-over-year growth, primarily driven by the Bank of Thailand’s efforts to promote financial inclusion by using real-time payments to deliver a wide range of financial benefits and services to the nation’s unbanked. Thailand’s real-time payments system, PromptPay, was launched in 2016 by the central bank as part of its National e-Payment initiative. First designed to deliver government welfare disbursements, it has expanded rapidly to include consumers and businesses.
Some banks have started exploring ISO 20022 infrastructure, but others are still lagging behind with their system or solution readiness. Financial institutions must be ready early to turn these new standards into benefits for customers, such as regulatory transparency, data integrity, and improved cross-border settlement efficiency. Given the constant pace of innovation, it will be difficult for stragglers to close the gap on rivals that begin to offer differentiated services.
Indonesia – high growth and high potential
Indonesia is in the development stage of launching a real-time payments system and has all the hallmarks of a country that could see huge adoption of real-time payments. Bank Indonesia (BI) is planning to roll out an IP system known as BI-FAST, as part of Indonesia’s 2025 Payment System Vision. BI-FAST will act as the primary infrastructure for faster interbank transfers as well as card-based payments.
Indonesia’s financial institutions are already advancing their own payments modernization journeys to be ready for the inevitable shift to real-time payments. Banks, processors, acquirers, and fintechs will all require a host of modern solutions to manage digital payment types and their ancillary services, such as fraud monitoring, digital identity management, and billing and liquidity management.
The journey to a full digital economy
Asia it seems, is rapidly advancing and improving its digital economies – and real time payments look set to be a central pillar in that journey.
Across the region, the industry is transforming to meet the demands of a modern society that expects inclusion, immediate response and customer service, and an always on, simple experience. Inevitably, this shift towards a real-time, digital experience means mature markets may drift away from traditional payment methods, while emerging markets leap frog those form factors completely.
The future of payments, it seems, looks set to be driven by technologies and innovation based on real time experiences and frictionless commerce – which can only help drive the region’s future growth and prosperity.
This article is contributed by Leslie Choo, Managing Director, Asia, ACI Worldwide
About the author
Based in Singapore, Leslie is responsible for the management and direction of all aspects of the sales and services business across Asia. He has over 20 years’ experience in financial services having led many transformation projects in multi-channel and payments. He brings a diverse and extensive experience from the financial software industry and banking transformation space, including in corporate cash management, trade finance, retail banking and payments.