Southeast Asia’s thriving digital economy is priming for huge innovation in the payment services ecosystem. Across the region, everything from payment apps to wallets and even digitised national currencies are at play.

However, SEA’s payments ecosystem remains hampered by a chronic lack of interoperability between different platforms. Because how can you use one payment method when it remains completely cut off from any other?

The absence of interoperability has created a huge missed opportunity for the financial technology (fintech) industry. SEA’s burgeoning consumer base is expected to reach 623 million people by 2030. The region’s digital economy reached a US$200 billion gross merchandise value in 2022.

In addition, digital finance is the top investment sector in SEA, and the segment is projected to reach US$226.60 billion this year. These are big numbers indeed: but they could be so much more.

Unfortunately, SEA’s size and diversity mean there is a complete lack of uniform regulations. There is neither a common currency nor a consistent economic agenda within SEA, which makes it difficult to integrate payments across the region.

Similar to other large regional markets like Latin America, the banking and financial infrastructure in many SEA countries is outdated and fragmented, and the legislative framework does not support most cross-border and e-commerce business models.

Although the answer could be to simply launch local subsidiaries in new growth markets, this can be cost-effective and risky for payment firms.

Differing habits, but the same goals

At the moment, e-commerce is one of the biggest driving forces behind SEA’s digital economy, with its growth rate of 22 per cent spurring the region towards US$230 billion in GMV by 2026. Cash wallets and super apps are predicted to grow more than fivefold to exceed US$114 billion by 2025. Retailers, such as Singapore’s Cheers, are even developing their own apps to link customers’ shopping carts to their wallets. 

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However, creating a seamless and efficient ecosystem across SEA is challenging. First, payment habits differ dramatically from country to country. While the European Union (EU) has successfully built a single economic market, the correlating Association of Southeast Asian Nations (ASEAN) has a highly fragmented payments landscape. 

In Indonesia, e-wallets are booming, with transaction values rising by over 200 per cent in 2019. Malaysians tend to prefer payments made through bank transfer apps, as well as e-wallets. Cash remains king for Filipinos, even in online transactions. Vietnam, lastly, shows a tendency towards credit cards, as well as playing home to dozens of licensed non-bank payment service providers.

Nevertheless, there are clear moves towards improving interoperability. As recently as March 2023, Singapore and Malaysia announced the launch of a new QR code payment code link for Nets and DuitNow users, which will enable cross-border payments across the Causeway. Singapore and India have also linked their digital payments systems, UPI and PayNow, in an effort to increase instant and low-cost fund transfers between the two nations.

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India has also made enormous waves with UPI, a real-time online payment system that allows instant funds transfer between accounts. This is a benchmark payment method in the largest market in Asia – an example for others to emulate. As of now, 382 local banks are integrated with UPI, and more than 100 million users use it monthly. This is the kind of interoperability banks and fintech players in SEA should be seeking.

There is potential for greater payment interoperability through Central Bank Digital Currency (CBDC). This is a digital version of a country’s legal tender backed and issued by its central bank. Although no Asian nation has officially launched a CBDC yet, 35 countries are either in research, development or pilot exploration. CBDC projects can drive further financial inclusion across markets, especially as these enable users in rural areas to transact digitally. However, time will tell whether these pilot projects will turn into tangible products.

SEA has a bright future for developing a world-class digital payments ecosystem. Indeed, based on the success of UPI and the promise of CBDC, there is huge potential for SEA to gain an inclusive and user-friendly payment system. 

Within the six nations of ASEAN alone, there are 60 million people, of whom are some of the world’s most digitally engaged e-commerce consumers. Today there is significant demand for a region-wide digital system that will enable efficient and transparent payments across platforms and borders. 

While the problem is not easily solved, it is navigable with the right approaches. Based on our experience in Latin America, a similar market in terms of nuance and complexity, success is achieved from a combination of local expertise, especially regarding the legal and regulatory frameworks.

Operations in a new territory can evolve quickly, but if you are prepared and, importantly, compliant, you can benefit and positively impact payments and business ecosystems. The dots are already there in SEA: all that’s left to do is connect them. 

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