Singapore And Indonesia Join Forces Towards Payments Harmonisation

January 26, 2022
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The two Asian countries are planning to strengthen their collaboration on projects related to payments innovation as interest grows towards harmonising their regulatory frameworks.

The two Asian countries are planning to strengthen their collaboration on projects related to payments innovation as interest grows towards harmonising their regulatory frameworks.

Last Friday (January 21), Bank Indonesia (BI) and the Monetary Authority of Singapore (MAS) signed a memorandum of understanding (MOU) with a view to strengthening bilateral cooperation and deepening ties.

The MOU, which replaces a previous version signed in 2010, is aimed at bolstering collaboration in payments innovation and formalising cooperation “across an expanded range of central bank and regulatory functions”.

These include monetary policy, macroprudential policy, financial stability, oversight of the payment and settlement systems, regulatory and supervisory frameworks, and anti-money laundering and counter-terrorism financing (AML/CTF).

“The MOU has given the opportunity to broaden and enhance collaboration between the two central banks and address growing complex challenges in central banking key areas including payment innovation and AML-CFT. The MOU demonstrates our collaborative efforts in advancing digital economy and finance, as well as combating money laundering and terrorism financing,” Perry Warjiyo, governor of Bank Indonesia, said.

“Bank Indonesia and the Monetary Authority of Singapore have a longstanding relationship and cooperate on numerous fronts. This MOU underscores our commitment to strengthen our partnership and enhance collaboration between the two central banks in areas of mutual interest, such as financial innovation and payment connectivity,” Ravi Menon, managing director of the MAS, added.

Intertwined markets

The financial markets of Singapore and Indonesia are deeply interconnected for several reasons.

“Singapore has long been known as a popular destination for wealthy Indonesians to stash their cash and both countries are keen to change this image,” Prasad Thandapani, a regulatory monitoring associate at VIXIO with expertise in Asian markets, said.

Speculation on how much rich Indonesians rely on the Singapore banking system was made public in 2016 when the Indonesian finance minister confirmed that around $250bn worth of assets were transferred to foreign accounts, of which 80 percent were sent to Singapore.

Although wealthy Indonesians tend to move their assets to Singapore, there is also another trend that sees money flowing in the opposite direction.

Indonesia and Singapore are also mutually important remittance markets, Thandapani explained. Singapore has a large Indonesian labour population, which transferred more than $380m to Indonesia in 2017.

Therefore, “a common approach to payments regulation, or a significant improvement in payments connectivity would not surprise me at all”, Thandapani added.

In recent years, Singapore has emerged as the fintech hub of Asia, after regulatory approaches in China and India changed unfavourably. Although it is considered small and costly, Singapore has become the most straightforward choice for fintechs to gain a foothold in the continent.

In addition, Singapore has played an active role in improving cross-border payments, in particular by linking its instant payment infrastructure to other modernised payment networks in the region.

Indonesia, on the other hand, so far has been lagging behind its large Asian peers in terms of payments digitalisation. The country launched its real-time payments infrastructure called BI-FAST only last month.

It is very likely that the new collaboration will lead to a payment linkage between Singapore and Indonesia, Thandapani pointed out.

Indonesia has already linked its payment system with Thailand, and “given the fact that their instant payment system has just been launched, a linkage with arguably one of their most important regional economic partners seems a natural progression”, he explained.

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