PayNow-PromptPay link-up paves way for regional payment network
This could set the foundation for a regional network as cross-border digital payments are seen as a critical component in boosting trade and commerce, allowing individuals and companies to buy and sell more easily.
The world's first real-time payment system between Singapore and Thailand is a key milestone in the journey towards a fully paperless and cashless economy, which will lower the time and cost of everything from making online purchases to growing businesses.
The linkage between the national payment systems of the two nations with PayNow-PromptPay is off to a cautious start, with the funds a person can transfer capped at just $1,000 per day.
The idea is to gain evidence of a cross-border digital payment service that is instantaneous, cheap, transparent, secure and easily manageable for both the users and the operators.
The Monetary Authority of Singapore (MAS) and the Bank of Thailand (BOT), which have successfully run their own domestic e-payment networks for years now, plan to scale PayNow-PromptPay up at a later stage to include larger business transactions.
Cross-border digital payments are seen as a critical component in boosting trade and commerce, allowing individuals to conveniently make purchases for goods and services from merchants globally, and companies - especially the smaller ones - to sell around the world far more easily and cheaply.
And despite the preponderance of online payment products offered by commercial banks and, more recently, by e-commerce players, overseas transactions remain slow, costly, opaque and difficult to manage.
Even with new innovations within the e-payment space like e-wallets and blockchain tokens, one of the biggest challenges in fostering international trade and commerce is the lack of interoperability of regulations, standards, cost structures and security and technology architectures.
These were the hurdles that took MAS and BOT about four long years to overcome.
Now, if they can demonstrate that their interoperability works, without technical glitches or regulatory conflicts, other Asean nations could join in to form a regional payment network that they are already committed to under the Master Plan on Asean Connectivity adopted by the 10-nation group in 2010.
South-east Asia's digital payment industry was estimated at US$620 billion (S$828 billion) in a report last year by Bain & Co, Temasek, and Google, which projects that the industry will nearly double to US$1.2 trillion by 2025. Its estimates were revised upwards in the light of how Covid-19 has accelerated growth for digital payments.
Depending on the speed at which a regional network for cross-border payment emerges, the potential for the industry could be much higher than that estimate.
Further ahead, a much bigger transformation is brewing as central banks in Singapore and elsewhere tap the potential of blockchain technology to speed up trade transactions and foreign exchange settlements, or even launch sovereign digital currencies.
International Monetary Fund managing director Kristalina Georgieva, speaking at an event in Washington last month, said that developments in the field of digital money has brought the world on the cusp of major changes that have the potential to reshape cross-border payments and remittances. "We are witnessing a revolution in digital money that could make remittances easier, faster, and cheaper," she said.
To illustrate the journey of digital payments, she quoted eminent German economist Rudi Dornbusch, who famously said: "In economics things take longer to happen than you think they will, and then they happen faster than you thought they could."
The benefits of cashless and contactless payments were well known decades ago when banks started to issue debit and credit cards that are now the primary mode of payment for most online purchases worldwide.
Singapore's domestic e-payment infrastructure started to take shape in 1996 when the Nets CashCard was launched. The ez-link card was launched in 2002. Contactless interfaces for these cards were introduced in 2006.
The pace of adoption of digital money, however, remained slow over the next decade or so.
In 2017, Prime Minister Lee Hsien Loong in his National Day Rally speech noted Singaporeans' unwillingness to go digital when it came to payments, as six out of 10 consumer transactions in Singapore were made in cash.
That equation has now flipped.
An HSBC study estimates that cash payments last year accounted for just 37 per cent of transactions in Singapore.
That placed Singapore at the top in the Asean region where the share of transactions involving cash still stands at around 65 per cent.
While most Singaporeans have gone cashless, the nation still lags behind some of the more advanced economies like the United States, where only 15 per cent of retail payments were made in cash, or Sweden, where cash transactions have dropped to less than 6 per cent.
HSBC believes things are changing even faster than before and the share of transactions involving cash in Asean will fall from 65 per cent to 34 per cent over the next decade while digital payments in the region will triple to US$1.5 trillion by 2030.
Financial experts noted that the option to use the same channels for cross-border payments could add to the boom.
KPMG believes PayNow-PromptPay will succeed in setting the foundation for a regional network, given the high Internet and mobile penetration and demand from a relatively larger underbanked population in the Asean region.
Mr Allwyn Barreto, financial services advisory partner at KPMG in Singapore, told The Straits Times that there is always a period of price and cost discovery for all new financial products.
Customer experience will decide the speed of adoption, just as it did for national payment networks where customers eventually came to appreciate their speed and cost effectiveness, he said. "All Asian countries are committed to real-time instant payments and then reaching interoperability across the region," he said.
The global average cost of remitting US$200 was 6.51 per cent of that amount in the fourth quarter of last year, according to the World Bank's Remittance Prices Worldwide report, which tracks the cost of sending remittances and includes both the service fees and foreign exchange charges.
Bankers here estimate funds transfers for PayNow-PromptPay will cost between 3 per cent and 5 per cent.
Mr Barreto said the confluence of similar initiatives across the world, including the progress on digital currencies and blockchain systems, will result in interoperable regional payment hubs in the not-too-distant future in Asia, Europe and North America.
Those hubs can then be connected and layered up with trade transactions and foreign exchange settlements. And Singapore's role in that development will remain central.
"Singapore is at the centre of this innovation in global payments. It has basically created that foundational basis for such global interoperability," Mr Barreto said.
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