22 March 2018

Why Asean should push for seamless payment across borders

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By Rohit Joshi

Head of Global Liquidity and Cash Management, HSBC Singapore. S.E.A.

First published in The Straits Times, 16 March, 2018

A Chinese businessman arrives in Singapore to attend a conference. At the airport, he hops into a taxi to get to his hotel. And he pays for the fare using Alipay, the world’s largest mobile payment platform with over half a billion users, most of whom are Chinese nationals.

An instantaneous cashless transfer from his bank in China to the vendor, CityCab, in Singapore. No fuss, no sweat. Welcome to the world of e-payment interoperability.

Payments interoperability is one of Singapore’s key focuses as the Asean chair this year. The big picture points to a “single digital market across Asean” as an instance of regional integration, said Foreign Minister Vivian Balakrishnan.

Getting payment platforms to “understand” each other, or to be “interoperable”, is vital to a digital economy and Asean’s Smart Cities aspiration. Common standards are the great enabler of digitisation.
But achieving interoperability is no easy task.

Interoperability is difficult to accomplish within a single country, let alone across a region like Asean. And while central banks are a key driving force in any payment system reform, they cannot and should not act alone.

What’s required is coordination among multiple stakeholders, a conducive legal and regulatory framework, the support of policymakers and overseers, commercially viable business models and technological solutions, ideally based on international standards.

And that’s where Singapore comes in. As a trusted broker and first mover, Singapore can help establish shared common standards across Asean, be it in digital payments or cross-jurisdiction data protection.
Singapore – ranked #1 in the 2017 Global Smart City Performance Index – has the infrastructure and framework in place to facilitate instant payment transfers. And this was enhanced by the set-up of the Payments Council last August which bridges payment service providers and users for better
coordination and planning within the ecosystem.

In fact, Singapore is already ahead of the game. The Monetary Authority of Singapore’s (MAS) Project Ubin is an industry initiative that explores the use of distributed ledger technology for the clearing and settlement of payments and securities. This could potentially become the common standard for a regional interoperable payments system.

Meanwhile, individual countries are bilaterally linking up payment systems. Singapore and Thailand are in discussions to connect their national digital payment systems PayNow and PromptPay. If this succeeds, it will forge an unprecedented bilateral alliance.

It’s also a huge step in the direction of Asean’s Smart Cities Network initiative, which is a move to ride the digital wave and step up engagements across the region and beyond.

The benefits of interoperability are manifold. Interoperability enables individuals, corporates and institutions to make payments to anyone else in a convenient, affordable, fast, seamless and secure way via a single transaction account. It cuts costs, saves time and presents a huge opportunity for enhanced intra-regional trade and business activity.

It’s also the next logical step in the digitisation of Asean’s economy. Cross-border payments with immediate settlement are huge opportunities for businesses and consumers. Imagine a time when a Singapore company is able to pay its Indonesian supplier in rupiah by making a cross-border payment instantly.

Or a scenario where a Singaporean tourist in Phuket is able to pay for all his overseas expenses – from the airport taxi to a can of coke from a street vendor – using his own Singapore  dollar-denominated bank account, on his smartphone in real time.

Activity is certainly abuzz at the regional level. The central banks of Indonesia, Malaysia and Thailand launched a framework last December aimed at increasing direct settlement of trade .transactions in their local currencies through designated banks. Direct settlement would mean banks in the three countries could complete transactions in local currencies, improving their operational efficiency.

MAS and the World Bank’s International Finance Corporation signed a memorandum of cooperation last year to establish the Asean Financial Innovation Network. The move is expected to spur broader adoption of fintech innovation and development and enhance economic integration within the region.

MAS is also proposing that it be given the mandate to empower large banks in Singapore to open up their payment rails to competitors and third-party players to ensure interoperability of large payment systems.

Singapore is firing on all cylinders in its effort to integrate payments systems for the nation and the Asean region. With its vantage point as Asean chair this year, we can look forward to an acceleration of this vision.

Because the bottom line is this: interoperability will significantly change fixed costs, reliability and access. It  accelerates the flow of people and trade, taking society and economy to much greater heights.

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This article is issued by The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch (“HSBC” or “we”) and published in The Straits Times, 16 March, 2018.

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