Five of the largest economies in Southeast Asia are setting their sights on a common QR code payment area and further instant payments linkages, building on existing bilateral agreements.
The central banks of Indonesia, Malaysia, the Philippines, Singapore and Thailand have signed a new memorandum of understanding (MoU) on cooperation in regional payment connectivity (RPC).
The MoU was signed on Monday (November 14) in Bali, Indonesia, ahead of the G20 Leaders’ Summit, which was set to begin at the same venue one day later.
Through the MoU, the five signatories plan to enhance their cooperation on payment connectivity to deliver faster, cheaper and more transparent cross-border payments.
This will include not only strengthening and expanding existing bilateral payment linkages, but also working towards a common QR code area.
In a keynote address at the signing of the MoU, Indonesian President Joko Widodo said that payments connectivity is expected to be a significant contributor to economic growth in each of the five jurisdictions.
Cross-border payment connectivity will support and facilitate bilateral trade and investment, he said, and will also lead to improved remittance, tourism and financial service ties.
In particular, payments connectivity is expected to benefit micro, small and medium enterprises (MSMEs) by facilitating seamless, low-cost participation in international markets.
In a statement after signing the MoU, the five central banks said that, if successful, the payment connectivity initiative will be expanded to include other jurisdictions within ASEAN, and potentially other countries outside ASEAN in the future.
The MoU complements one of Indonesia's priority items as leader of the G20 in 2022, namely to strengthen the readiness of digital economies throughout the G20, including through payment system upgrades.
According to a report by Bain & Company, Google and Temasek, Southeast Asia’s economy is currently riding a wave of digital transformation following the COVID-19 pandemic.
Published last month, the report found that Southeast Asia’s digital economy is set to hit $200bn in gross merchandise value (GMV) in 2022 — a milestone that comes three years ahead of schedule due to changes brought by the pandemic.
FSB cross-border payment targets
As noted by President Widodo, Southeast Asia’s digital transformation also aligns with the long-term goals of the Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system.
In 2020, the FSB and the G20 nations agreed on a G20 Roadmap for Enhancing Cross-Border Payments.
In October last year, the FSB published its first progress report on the G20 roadmap, alongside targets expected to be hit by the end of 2027.
The targets cover four areas — cost, speed, access and transparency — and will be applied globally.
For cost, for example, the end goal is for the global average cost of a cross-border retail payment to be no more than 1 percent of the transaction value, with no corridors higher than 3 percent of the transaction value.
Similarly, the FSB aims for the cost of remittances globally to be no more than 3 percent of the transaction value, with no corridors over 5 percent.
In terms of speed, the FSB is aiming for 75 percent of all cross-border payments to be received within one hour, and for the remainder to be received within one business day. The same goal will be applied to remittances.
Next month, the FSB said it will publish an update on its planned framework for monitoring progress toward the G20 targets.
ASEAN a 'global hotspot' for cross-border payments
The governors of the five central banks are confident that the ASEAN region will become a “global hotspot” for cross-border payments linkages, and will ultimately serve as a model for other regions.
Perry Warjiyo, governor of Bank Indonesia, pointed to the ASEAN nations’ existing bilateral payment linkages, which he said will be further expanded under the MoU.
In August this year, Singapore and Indonesia had announced that they were working on a bilateral QR code payments linkage.
Set to launch in late 2023, the linkage will allow users to make instant retail payments when merchants display the Quick Response Code Indonesian Standard (QRIS) or the Network for Electronic Transfers (NETS) QR codes.
In August last year, VIXIO covered a similar QR code linkage announcement between Thailand and Indonesia, which built on Thailand’s existing QR code linkages with Japan, Laos, Cambodia, Vietnam and Malaysia.
Prior to this, in April 2021, Thailand and Singapore announced the world’s first linkage of two instant payments systems, bringing together PromptPay and PayNow respectively.
This linkage allows for the transfer of funds of up to S$1,000 or THB25,000 ($700) daily between the two countries using only a mobile phone number as an identifier.
In a speech on cross-border payments in Asia-Pacific last week, Bo Li, deputy managing director at the International Monetary Fund, singled out the Thailand-Singapore instant payments tie-up as an example to follow.
However, while noting that the instant payments linkage has resulted in faster and lower-cost transactions for users, he said the bilateral model will face difficulties when scaling up.
“Each connection between two countries must be tailor-made,” he said. “This takes time and significant efforts. As more countries want to participate, we can end up with a tangled ‘noodle bowl’ of bilateral connections.”
Li, therefore, endorsed the idea of a “common hub” for instant payments systems, as will be studied by the five ASEAN nations under the MoU.