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The ASEAN Cross-Border Payment System: Deepening Financial Integration in Southeast Asia
A New Program for Seamless Cross-Border Payments
Southeast Asian nations have recently implemented a regional cross-border payment system that has the potential to deepen financial integration among participants and bring the ASEAN bloc closer to its goal of economic cohesion. The program, which enables residents to make payments in local currencies using a QR code, is now active in Indonesia, Malaysia, Thailand, and Singapore, with the Philippines expected to join soon. This development follows the signing of an official agreement by the five Southeast Asian countries last year, and their commitment to expanding regional payment links to all ten ASEAN members.
Benefits for Retail Industries and Regional Connectivity
The QR code payment system is expected to have significant benefits for retail industries, particularly as consumer spending is projected to rise, potentially strengthening tourism. It also aims to reduce the region's reliance on external currencies, such as the U.S. dollar, for cross-border transactions. By eliminating the need for intermediary currencies like the U.S. dollar or the Chinese renminbi, the system will foster a sense of regionalism and ASEAN-centrality in managing international affairs.
How Does It Work?
The ASEAN cross-border payment system operates by connecting QR code payment systems, allowing for the seamless transfer of funds from one digital wallet to another. These digital wallets serve as bank accounts and can be linked to formal financial institutions. For example, Malaysian tourists in Singapore can use their Malaysian digital wallets with Malaysian ringgit funds to make a payment. Likewise, a Malaysian worker in Singapore can send Singapore dollar funds from a Singaporean digital wallet to a recipient's wallet in Malaysia. The fees and exchange rates will be determined through mutual agreement between the central banks.
Economic Benefits and Financial Inclusion
QR payments offer various advantages, including no fees for cardholders and merchants, and better conversion rates compared to private payment processors like Visa or American Express. The system is anticipated to benefit micro-enterprises and small- to medium-sized businesses (SMBs), which account for over 90% of businesses in Southeast Asia. SMBs can avoid expenses associated with maintaining physical point-of-sale systems or paying interchange fees to card companies. Additionally, the system can be used by marginalized individuals from low-income backgrounds, as it does not require a traditional bank account, thus promoting financial inclusion.
Building a Robust Payment History and Strengthening Economic Forecasting
The ASEAN cross-border payment system will enable merchants and consumers to build a robust payment history, providing valuable data for credit scoring. This data will benefit unbanked and underbanked segments of the population, who traditionally lack access to such credit assessment data. Moreover, increased non-cash transactions will allow policymakers to capture transaction data and trade flow more effectively, leading to better economic forecasting and policymaking.
Challenges and Potential Currency Pressure
While strengthening payment connectivity within the region has the potential to reduce payment friction and accelerate digital transition, it could put pressure on certain currencies, particularly the Singapore dollar. The scenario of the Singapore dollar emerging as a de facto reserve currency within the region poses a challenge that ASEAN states will need to confront. This could lead to a higher reliance on the Singapore dollar, weakening the purchasing power of other currencies in the region and potentially resulting in higher imported inflation if central banks don't intervene.
Regulatory Concerns and Coordinated Action
Regulations will need to be addressed, including security and fraud issues, along with educating the public to embrace the new payment system. Coordinated action among ASEAN members will require strong political will and a commitment from regional leaders. Implementing this ambitious venture successfully will be a time-consuming process that needs careful consideration and collaboration.
Conclusion: The ASEAN Cross-Border Payment System and Opportunities for New Businesses
The implementation of the ASEAN cross-border payment system in Southeast Asia opens up promising opportunities for new businesses in the region. The program's focus on seamless cross-border payments using QR codes and local currencies brings numerous benefits for both retail industries and regional connectivity.
For new businesses in the retail sector, the QR code payment system holds great potential. With consumer spending projected to rise and tourism expected to strengthen, the system can facilitate easier and more convenient payments for customers, promoting sales growth. Additionally, the elimination of fees for cardholders and merchants, along with better conversion rates, offers cost savings for small- to medium-sized businesses (SMBs) and micro-enterprises, enabling them to allocate resources more efficiently and compete on a level playing field.
Furthermore, the system promotes financial inclusion by allowing marginalized individuals from low-income backgrounds to participate in the digital economy without the need for traditional bank accounts. This opens up opportunities for new businesses targeting underserved markets and demographics.
The ASEAN cross-border payment system also has the potential to generate valuable data for credit scoring, benefiting unbanked and underbanked segments of the population. This can lead to improved financial access and better economic forecasting, offering new businesses the insights they need to make informed decisions.
However, new businesses must also consider the challenges that may arise from this system. The potential pressure on certain currencies, particularly the Singapore dollar, may have implications for pricing and inflation. This requires businesses to closely monitor currency fluctuations and adjust their strategies accordingly. Additionally, regulatory concerns surrounding security and fraud need to be addressed to ensure trust and confidence in the new payment system.
Overall, the ASEAN cross-border payment system presents an exciting opportunity for new businesses to thrive in a region that is striving for economic cohesion and deeper financial integration. By embracing this system, businesses can tap into a growing market, benefit from cost savings, and contribute to the economic growth and development of Southeast Asia.
Article First Published at: https://www.cnbc.com/2023/07/30/asean-moves-closer-to-economic-unity-with-new-regional-payments-system.html.svg)
