Why ASEAN Needs a Region-Wide Digital Payment System

Southeast Asia is undergoing a financial transformation driven by the rise of digital payments, a trend that has been accelerated by the COVID-19 pandemic. As the impacts of this transformation continue, the region must look to take full advantage of the forms of digital payment now offered.

But the Association of Southeast Asian Nations (ASEAN) should also go a step further. The group should seriously consider creating a powerful ASEAN-wide digital payment system, a move that has the potential to bring huge benefits to the region and its 10 member states.

The upcoming ASEAN Summit in Phnom Penh should be used as an opportunity for member states to raise the debate on the development of a regional digital payment system.

Last month, Google, Temasek and Bain & Company released the seventh edition of their SEA e-Conomy Reportwhich showed that more than 60 million people in six Southeast Asian countries (Singapore, Thailand, Indonesia, the Philippines, Vietnam and Malaysia) used the digital service for the first time between 2020 and 2022. The report also found that more than 75 percent of the population of these six Southeast Asian countries have access to the Internet and most of them have shopped online at least once.

The report forecasts that e-commerce in this region will only increase. Online spending will increase by 162 percent by 2025 to reach $179.8 billion, it projects, with digital payments accounting for 91 percent of transactions. These figures show that the region has great potential when it comes to digital payments and e-commerce.

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Across the region, there have already been extensive discussions about the use of blockchain technology in financial instruments, such as Central Bank Digital Currencies (CBDCs) and cryptocurrencies. Some member states of ASEAN (Indonesia, Malaysia, the Philippines, Singapore and Thailand) have already prepared to sign a general agreement develop an interoperable cross-border payment system. This system would allow residents of each country to use their mobile banking app to make real-time instant payments based on QR codes for goods and services in any of these countries.

Meanwhile, other countries like Cambodia and Malaysia have worked together to launch a mobile cross-border remittance service through Bakong, which is a Cambodia-based payment system that uses blockchain technology. In May, the Indonesian central bank also announced its plan to launch a central bank digital currency due to the increase in online banking activity.

Also, in other parts of Asia, common digital currency systems are already being launched. Japan’s Kobe University, for example, has proposed for East Asia to create a common digital currency, based on blockchain and issued by individual central banks, which could serve to promote integration and deepen cooperation within multilateral frameworks, as well as protect the rights of small and medium-sized economies. Recently, Thailand, China, Hong Kong, and the United Arab Emirates announced the completion of a cross-border digital currency trial coordinated by the Bank for International Settlements.

A common purpose of all these payment systems and digital currencies is to reduce costs and boost both cross-border economic activity and the flow of money, whether nationally or regionally. Therefore, it is extremely timely for ASEAN to discuss a common digital payment system, based on blockchain technology.

How would a digital payment system so common to Southeast Asia benefit? One clear benefit is that it would allow people to use their mobile banking apps to make QR code-based payments for goods and services in the 10 ASEAN countries. It would create an interoperable cross-border payment system in which the buyer’s local currency would be instantly converted into the recipients’ local currency without having to exchange it through an intermediary currency, such as the US dollar or the Chinese renminbi. This would allow the region to become much less dependent on these intermediary currencies.

In addition to increasing efficiency, adopting a digital payment system would also strengthen relations between countries in the region. ASEAN members would have the potential to develop closer ties through cooperation between their central banks. This type of innovation has the potential to strengthen transparency and security by improving financial traceability and accountability, which could reduce cross-border fraud and corruption.

Under this common system, each member state would achieve greater benefits in terms of trade and tourism, as people in the region would be able to exchange goods and services across borders more conveniently, quickly and cheaply. It would also eliminate the need to exchange currencies during travel within the region. Greater access to efficient, accessible and secure payment systems would also likely improve financial inclusion in places where this is low. A common regional payment system would be particularly beneficial for migrant workers to transfer money to their families in real time and without transaction costs.

Greater regional access to digital payment systems would also contribute directly to poverty reduction efforts A 2016 study provides evidence that widespread use of mobile money services in Kenya, for example, helped lift 194,000 households, or 2 percent of Kenyan households, out of poverty between 2008 and 2014. The impact was driven by changes in financial behavior, in particular the increased levels of financial resilience and savings of mobile users.

The growing e-commerce sector and a rapidly evolving digital payments ecosystem could also help the economy of this region. SMEs open new markets, especially if they enhance your digital presence. It could improve cash flow and drive growth through the relationship between companies. And digital payment also helps reduce operational costs that used to take place in physical ways.

Developing a payment system is important, but having a payment system that is transparent and secure is essential. Therefore, there are some criteria that ASEAN countries should consider in order to successfully adopt a digital payment system that is reliable for residents of the region.

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First, ASEAN must create a body to take charge of the payment system, a kind of central bank of ASEAN, to manage and provide guidelines on the payment system. This body must be independent and reliable with a backup system available. It must be a transparent body that can provide a timely service to make the system more efficient.

Second, a digital payment system must be designed with a high level of security. There are many technologies that ASEAN could adopt to design a digital payment system, and it must choose one that meets user demands and is secure enough to prevent data breaches. In this area, ASEAN could learn from other countries that have already adopted this type of technology.

Third, the payment system must be designed to serve all levels of people, which means that it must be friendly and inclusive, easy to use and flexible, so that all residents of each country can quickly adapt to the system. This would encourage more users to enter the system and ensure that the region reaps the maximum benefits in terms of financial inclusion and economic connection with the region.

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