Removing barriers to cross-border payments could be the key to unlocking Southeast Asia's economic potential

There is plenty of weight behind the ASEAN Federation of Accountants' statement that SMEs form the backbone of Southeast Asia's (SEA) economy - and will play a central role in driving its projected five percent annual growth on the way to becoming the fourth largest economy in the world by 2030.

For this vision to be achieved, however, a level playing field needs to be established for all businesses in the region - regardless of size - that governs their ability to buy and sell internationally as simply as possible. This is generally not the case in the region today though, due to barriers that make cross-border digital business difficult to realise.

The recent Regional Comprehensive Economic Partnership Agreement (RCEP) is a very encouraging step that encourages greater cross-border trade and puts Southeast Asia at the centre of a regional free trade zone in Asia Pacific. It includes stipulations across areas such as telecommunications, financial services, eCommerce, professional services and intellectual property.

However, there needs to be a continued - and indeed stronger - focus on facilitating cross-border digital payments to ensure that SMEs will be able to access business opportunities, as well as participate in a much larger pool of buyers and sellers compared to their domestic markets.

This is why the recent announcement of the linkage between the real-time payment systems of Singapore and Thailand - PayNow and PromptPay, respectively - is an incredibly significant step. By allowing instantaneous money transfers with mobile phone numbers at competitive rates, which is the first of its kind in the world, cross-border remittances will be significantly simpler for businesses across the two countries.

This is reflective of a broader regional movement towards an effective cross-border, real-time payments network, which will be critical for SEA to achieve its projected economic growth.

The Digital Payments Drive

The events of 2020 have further accelerated consumers' uptake of digital payments in Southeast Asia. This has put greater emphasis on increasing speed and reducing friction in all digital payments but has really put real-time payments into the spotlight; the success of which is dependent upon modernising national and regional payment infrastructures.

While some mature markets are finding it difficult to innovate quickly due to the presence of legacy payment systems, SEA countries without this impediment are well-positioned to leverage their robust domestic central payment infrastructures as a basis for cross-border linkages, driven by existing market forces.

Ongoing payments system modernisation, including adoption of the ISO 20022 messaging standard, will lead to further bilateral cross-border linkages. Eventually, this will coalesce into a larger pan-regional payments network, which acts as a foundation for strengthening the payment "corridors" between SEA and its critical trading partners in the broader region, such as Japan and China.

Increased flows of business and payments with these key RCEP partners will be facilitated through such payment corridors, which today are still in the early stages of development.

Complications Need to be Overcome

However, the shift to digital and the opportunity to sell across the region means that payments processing has become exponentially more complicated. This is where financial institutions and technology providers need to step in to provide SMEs with the guidance and solutions they need to fully take advantage of these opportunities.

SMEs need to connect to multiple acquiring banks and be able to process multiple payment methods from multiple countries with multiple currencies. Solutions also need to run 24/7, while being reliable, responsive and secure.

This is further complicated by SMEs' offline and online presence. Brick-and-mortar stores will need to ensure back-end connectivity to a variety of payment acquirers and methods, as well as increasing payment options for customers (especially with many customers now preferring contactless payments).

There is also a growing need to support point-to-point encryption to ensure uncompromised card data.

For eCommerce transactions, SMEs need to be able to process payments in a slick and intuitive manner, while also determining when and how to apply strong customer authentication, whether to attempt the transaction again if the payment is declined and how best to screen for fraud without losing genuine customers.

The region has a massive opportunity for growth over the coming years with SMEs at the centre of this opportunity. For this to be realised, governing institutions, banks, financial institutions and technology providers need to work in tandem to create an enabling environment that supports cross-border digital trade.

Once this infrastructure is in place, the sky is the limit for the region's digital economy.

The writer is Senior Vice President & Managing Director - Asia, ACI Worldwide