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Three Trends Reshaping Southeast Asia’s Payments Landscape

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10 May 2023

Endava recently released their Southeast Asia Spotlight Report on payment trends, discussing the challenges payment providers are facing amidst the fragmented payments space in the region and how they can make use of digital acceleration to stay ahead of the curve.

One of the world’s most vibrant regions, Southeast Asia is increasingly where all the action is. Its bustling economy and diverse payment landscape is the perfect backdrop for the rise of the digital economy.  The Endava Southeast Asia Spotlight Report reiterates this, where it   highlights three key payment trends reshaping the payments landscape in the region. Adrian Bugaian, Delivery Partner, Endava also addresses the payment trends and challenges payment providers are facing in the region.

Trend 1: The Rise of National and Cross-border Real-Time Payments  

Real-time payments are becoming increasingly popular in Southeast Asia, thanks to the development of mobile technology and the implementation of proxy payment methods. In Singapore, a clear sign that the era of real-time payments has well and truly arrived would be the sight of usually-reticent hawkers implementing QR code payments at their stalls, spurred mostly by the COVID-19 pandemic where cashless was preferred.

Why are real-time payments gaining popularity? These methods enable users to make payments without knowing the recipient’s bank account details, which helps to foster the adoption of real-time payments across the region. Other benefits of real-time payments also include a reduction in transaction time and lower costs for money transfers, which can help to boost economic growth by keeping money on the move and in use. 

The next growth phase for real-time payments is expected to be country interconnection, with real-time cross-border payments playing an important role in supporting tourism. The first of its kind was the link between Singapore’s PayNow and Thailand’s PromptPay in 2021, which allows real-time cross-border payments of up to 1,000 SGD. 

Other countries in the region, including Malaysia, the Philippines, and Indonesia, are expected to follow suit and link their real-time payment systems in bilateral agreements. All these will be augmented by the Memorandum of Understanding on Cooperation in Regional Payment Connectivity signed by the ASEAN-5 central banks in November 2022, which aims to better leverage the opportunities and synergies of real-time payments in the region.

Trend 2: BNPL Has a Future but Needs Regulation

The rise of Buy Now, Pay Later (BNPL) has had a significant impact on the payments industry, particularly in Southeast Asia. As its name suggests, BNPL is a payment solution that allows consumers to make purchases and pay for them at a future date, often interest-free, typically in installments. It provides easy access to credit for consumers who have no access to traditional forms of credit, and it can help retailers increase sales, reduce basket abandonment, and increase customer loyalty. As such, BNPL has become an important tool for promoting financial inclusion, improving market efficiency, and increasing the competitiveness of e-commerce companies. 

However, situations can quickly go out of hand when left unchecked. In view of its growing global popularity, there is a need to protect consumers, ensure the financial stability of BNPL providers, and prevent predatory lending practices. Clear guidelines and transparency can help prevent consumers from entering into agreements they do not understand and prevent excessive fees or charges. Regulation can also prevent BNPL providers from designing options that trap consumers in a cycle of debt.

BNPL is expected to play a significant role in the coming years by providing access to credit for those with financial constraints and supporting businesses. To successfully roll out BNPL, merchants must be onboarded and trust the benefits while being prepared from an infrastructure standpoint for digital transactions. With looming regulation , both service providers and users need to be ready for Know Your Customer (KYC) practices, ensuring that the provider has the necessary means to enforce BNPL services, and users do not misuse the service.

Trend 3: Growth of E-commerce and Mobile Payments  

The Endava report also highlighted the booming e-commerce market in Southeast Asia, which has grown to a market size of 120 billion USD, with mobile wallets accounting for 69% of e-commerce payments in 2022 and projected to grow to 72% by 2025. This growth is driven by several factors, including the rise of mobile internet, social media, the middle class, government support, and the impact of the Covid-19 pandemic. 

In addition, the rise of super-apps that offer a range of services including e-commerce and payment services is contributing to the growth of e-commerce. Merchants and their payment and technology partners need to be prepared for the increasing demand for e-commerce and embrace the digital space to gain a competitive advantage.

To wrap up, the future of payments lies in advanced digital channels that enable seamless transactions and provide new sources of credit. .. With investment in the sector increasing, payments technology is a crucial driver of digital transformation and operational efficiencies in different industries. Payments are becoming more important in connecting consumers and businesses, and this is a foundational capability that supports the future of enterprises.

Get more in-depth insights into each of the key trends at the Endava Southeast Asia Spotlight Report

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