ACI Blog

The Two Sides of Payments Modernization in Asia: Real-Time and Financial Inclusion

One of the common drivers behind payments modernization initiatives is the need to address customers’ changing expectations and behaviors, as they grow increasingly accustomed to nearly every aspect of their daily lives being navigated with a few simple taps and swipes. Patience for delays, inefficiencies and clunky payment experiences is dwindling, which applies to corporate or business banking (SME) customers as well as consumers.

Another shared goal is greater financial inclusion. In other words, reaching out to both the “underbanked” (lacking access to credit cards or long-term savings products) and “unbanked” (lacking access to basic bank accounts), empowering them with improved access to economic opportunities through provision of financial services such as business loans.

Real-time payments accelerate

Immediacy is now the norm in the payments world – and this includes the customer-facing part of the payments value chain: authentication, authorization, clearing, posting, confirming and providing balance updates to customers.

Banks that are currently behind the curve on real-time payments often attempt to address their part of the value chain (including credit checks, sanctions and AML requirements, settlement, liquidity management and risk management) before the customer-facing portion, which leads to an inferior customer experience.

An example of this is how some banks do not always show updated balances after an instant payment transaction is conducted. Payments modernization initiatives – whether led by regulatory bodies or by the financial institutions themselves – have gone a long way towards addressing these needs and expectations. These include DuitNow in Malaysia, PromptPay in Thailand and PayNow in Singapore, all of which have led to changes in the way consumers, SMEs and corporates make payments.

At a regional level, one anticipated outcome is the development of a pan-regional payments system that would empower real-time and cost-efficient cross-border payments for B2C and B2B low- and high-value real-time payments. This could bring about significant economic results – the establishment of the Single Euro Payment Area in Europe, for example, helped create more than USD $23.8 billion in value through a mix of cost savings as well as enhanced economic activity.

One area of payments modernization to watch is the adoption of the ISO 20022 messaging standard; adoption is uneven across the APAC region, with only some countries, such as Singapore, having transitioned thus far.

As the data-rich messaging standard for the next generation of payment schemes, ISO 20022 also empowers real-time payments and open banking initiatives through open APIs. This is helping to improve payments efficiency as well as creating a common platform for cross-border interoperability – something that will be of great benefit for SME banking and high-value payments, as well as retail.

The data that ISO 20022 makes available is particularly suitable for data-intensive machine learning (ML) and artificial intelligence (AI) solutions. For example, in fraud detection and prevention, machine learning algorithms help to swiftly identify legitimate transactions. As part of a multi-layered approach to fraud detection, this ensures that checks do not impede the shopping journey of real customers, resulting in a significantly better customer experience and fostering greater customer loyalty.

Improved financial inclusion

In the e-Conomy SEA 2019 report released by Google, Temasek and Bain & Company, it was noted that over 70 percent of adults in Southeast Asia are either underbanked or unbanked. One key aspect of addressing this is through mobile channels; the World Bank has reported that 1.1 billion people globally – equating to about two-thirds of the total unbanked adults – own a mobile phone. While traditional banking requires users to physically enter a branch, mobile banking helps put financial access in people’s hands.

In fact, in a study released by Adjust and App Annie, it was found that Asia-Pacific is leading the world in the usage of finance apps, with growth in downloads seeing extremely strong momentum. The report also noted that one of the key drivers of this growth has been the success of mobile money and other finance apps that have managed to reach out to the unbanked. According to another report by GSMA, 143 million mobile money accounts were opened in 2018, with the majority coming from Southeast Asia and Africa.

In other words, payments modernization initiatives are looking to be major gamechangers for underbanked and unbanked demographics. Here, we can take reference from Kenya, with the introduction of the M-Pesa mobile payment system. M-Pesa is a mobile transfer application provided by Safaricom Network Company. The network allows users to send money, pay bills and make withdrawals from M-Pesa’s agents who facilitate the operations. This system currently has 25.57 million users in Kenya.

Bringing our focus back to Asia, one of the main drivers of payments modernization in India has been to demonetize, with the government aiming to promote digital payments and empower the unbanked in rural parts of the country. The country’s journey began in 2009 with the implementation of the Aadhaar card – the largest biometric ID system in the world – targeted at delivering financial subsidies, benefits and services to all Indian people. For example, digital services have made it significantly cheaper and more convenient for people to transfer money.

Finding a payments balance

While real-time payments and financial inclusion are primary drivers of payments modernization initiatives in APAC, they must be balanced against other needs. For example, Indonesia is planning for the development of a real-time payments system, which is part of its Payment System 2025 Vision. The Indonesian government has expressed the need to maintain the balance between innovation, consumer protection, and stability and the need to protect national interests as cross-border trade continues to grow.

Many of these initiatives also serve a wide range of purposes. One instance is the DuitNow service in Malaysia, which is helping to promote financial inclusion through its real-time payments platform. With banks such as  for people to use the service (it’s operated through the use of mobile phone numbers or identification card numbers), the unbanked are able to send and receive transfers of up to RM 5,000 for free. It is heartening to see that government bodies are leading the way in payments modernization that benefits wide swathes of the population, and also that financial institutions and payment players are moving the payments ecosystem forward in an inclusive manner.

Ultimately, the benefits of payments modernization go far beyond financial inclusion; SME banking and B2B payments stand to gain enormously, with real-time payments offering greater efficiencies, liquidity and transparency. When businesses benefit, the wider economy also benefits, which plays an important role in financial inclusion.

The varied approaches that governments across Asia-Pacific are taking in terms of payments modernization are what makes the region so exciting. There will be plenty of opportunities for payments players, financial institutions and merchants to differentiate themselves, while maintaining the region’s continued leadership in payments innovation.

Download the white paper “Envisioning a pan-regional, real-time payments ecosystem in Southeast Asia,” from Kapronasia and ACI Worldwide

Senior Vice President, Managing Director - Asia Pacific

Leslie Choo is Senior Vice President, Managing Director - Asia Pacific for ACI Worldwide . Based in Singapore, Leslie is responsible for ACI’s Asia Pacific (APAC) strategy, go to market execution, and core and new business opportunities. A long-term industry veteran, he has over 25 years’ experience in financial services, having led several transformation projects in the multi-channel and payments space across APAC including real-time payment and card modernization, national central infrastructure implementation, enterprise technology, corporate cash management, trade finance, retail and digital banking, and e-Commerce. Prior to ACI, Leslie held several senior roles with industry software leaders and has extensive experience in the financial software industry and banking transformation.