THE results of a global survey published by PricewaterhouseCoopers (PwC) confirm that Asia remains the leading growth region for mobile payments. China continues to see the highest rate of penetration, with 86 per cent of the population making mobile payments through apps such as the ubiquitous Alipay and WeChat Pay. The survey also points to sizeable increases in user adoption in other Asian countries over the past year, with over 60 per cent of consumers in Vietnam and Thailand now using their smartphones to make payments.
Singapore saw more moderate growth in this area, with an uplift in mobile payment usage from 34 per cent of the population in 2018 to 46 per cent in 2019. In the Little Red Dot, PwC suggests, mobile payments growth may have been slowed by the "sophisticated and established nature of the traditional payments ecosystem" and the "abundant and potentially confusing number of choices in mobile payments", but it still remains significant.
The rise in mobile payments is part of a broader surge in payment services observed across the globe, and in Asia in particular. Consumers and businesses alike are benefiting from innovation in the payments sector, where firms are competing to provide the lowest-cost remittances, highest-speed transactions, and simplest user interfaces. So what is driving these advances?
The payments industry is being buoyed by a combination of factors, one of which is rapidly evolving technology.
Smartphone advances mean that payment services are available to anyone, at any time, at the swipe or tap of a screen. Conversely, the back-end systems which power these services (and which, to the user, remain largely obscured from view) are undergoing transformation. Application programming interfaces, known as APIs, are improving the sharing of information and interaction between different players in the payments ecosystem, leading to a more effective and seamless user experience. APIs are integral to the concept of open banking, the sharing of customer data between banks and other industry participants to provide customers with an enhanced service offering.
In Singapore, the launch of public platforms offering APIs to developers to facilitate open banking has been spearheaded by institutions such as DBS Bank, OCBC Bank, Citibank and Standard Chartered Bank. APIs are also facilitating collaboration between financial institutions and service providers in other sectors, as illustrated by Scoot's tie-up with United Overseas Bank to enable passengers to pay for flights via PayNow, a funds transfer system.
The quest for speed, transparency and reliability is also prompting experimentation with distributed ledger technology (DLT), a decentralised type of database best known for its role in powering bitcoin. This trend is evidenced by high-profile tie-ups between key incumbents in the payments arena and providers of DLT solutions, such as the recent ventures between SWIFT and R3, and between IBM and Stellar, respectively.
Ripple, which has positioned itself as one of SWIFT's key competitors, allows banks and payment service providers to effect international payments via a DLT-based network; and JPMorgan's recently introduced JPM Coin, a US dollar-backed digital token, allows institutional clients to settle payment transactions within a fraction of the time required for conventional wire transfers. In Asia, the Monetary Authority of Singapore (MAS) is overseeing Project Ubin, a series of trials conducted in collaboration with industry participants and other regulators to test DLT-based payments between banks. In the e-commerce space, South-east Asian online marketplace Qoo10 has launched Asia's first DLT-based marketplace, QuuBe, which allows buyers and sellers to transact via its own digital token, the US dollar-backed Q*coin.
While DLT remains at an early stage of implementation and the full extent of its viability for payment services remains to be assessed, these initial deployments are illustrative of the appetite for innovative solutions in the payments sector.
Alongside technology, consumer demand is a further factor in the payments boom. Ever more users require payment solutions that support a mobile and international lifestyle. The spread of technology is also making it easier for electronic services, such as peer-to-peer transfer or remittance services, to be accessed in remote or developing regions, bringing the promise of financial inclusion as well as new commercial opportunities for service providers (Go-Pay, for example, has brought payment services to users across rural Indonesia).
Long-established banking customers, however, also represent a key target group for disruptive payment service providers who promise a leaner and more user-friendly experience. Challenger banks, in particular, which typically operate without physical branches and focus on technology-based financial solutions, are looking to occupy this space. Examples include Livi VB, SC Digital Solutions and ZhongAn Virtual Finance who were recently granted virtual banking licences in Hong Kong, whereas challengers looking to make inroads into the Singapore market include players such as Revolut (already well established as a neo-bank in the UK) and BigPay (which presently operates in Malaysia and is a spin-off of Air Asia).
A further factor in assuring efficient payment services is a well-calibrated regulatory framework. Unlike other regions such as Europe, Asia does not benefit from a single market with harmonised rules to facilitate the provision of payment services across countries. Accordingly, service providers must, for now, contend with a patchwork of regulatory frameworks. For example, a payments firm licensed to provide services in Singapore cannot automatically provide its services to consumers in Malaysia, and may require additional regulatory approval to do so.
Among the Asian countries that have positioned themselves as key hubs for payment firms, Singapore is one that has committed significant resources to developing balanced regulation which encourages innovation in payment services while addressing their specific risks. Payment services are a key focus of the Smart Nation initiative launched by Prime Minister Lee Hsien Loong in 2014, and an integral element of the Industry Transformation Map outlined by the MAS in 2017.
Following extensive industry consultation, a new regulatory framework, the Payment Services Act (PSA), is due to take effect by early 2020. The PSA will streamline existing law by allowing firms to provide multiple payment services on the basis of a single licence, and will apply a balanced and proportionate approach in addressing key regulatory concerns such as anti-money laundering risks that may arise in connection with payment flows, technology risk, and user protection. Crucially, the PSA gives the MAS powers to require industry participants to make payment systems and wallets interoperable, should such intervention become necessary to merge digital islands in the payments landscape.
In addition to the PSA, the MAS will continue to apply other tools to foster growth in this sector. These include, for example, a proposed sandbox specifically for remittance services (a scheme allowing firms to trial their solutions in real-life conditions in a controlled environment, subject to limited regulation) and various frameworks that provide guidance on the use of new technologies more generally, such as the MAS principles on the use of artificial intelligence and data analytics in finance.
Due in part to this favourable regulatory backdrop, Singapore functions as a model of successful innovation, incubation and acceleration of payment services in Asia. Significant challenges remain, particularly given the continued fragmentation of payment systems and the lack of any harmonised rulebook across the continent. Nonetheless, the industry has ample incentive to surmount these obstacles, and the future for payment services in the region appears bright.
- The writer is Counsel at international law firm ReedSmith in alliance with Resource Law LLC