The Asean region, along with the rest of the world, has experienced a significant acceleration in the importance of digital technology due to the widespread impact of the Covid-19 pandemic. According to the e-Conomy SEA report by Google, Temasek and Bain & Company, Southeast Asia's digital economy surpassed $200 billion in gross merchandise value in 2022, with digital adoption continuing to rise as a result of post-pandemic acceleration. Among the key sectors driving the growth of the digital economy in the region are e-commerce, transportation and food, online travel, online media and financial services. In this op-ed, we will focus specifically on the digitalization of financial services, as embracing digital payments holds the key to unlocking Asean's digital economy by increasing efficiency, productivity, reducing costs and fostering regional economic integration.
One notable area of digital transformation within the financial services sector in Asean is the rise and revolution of digital payments. The surge in online transactions in e-commerce, coupled with limited physical interactions during the Covid-19 pandemic, has led to an increased adoption of digital payments, with the gross transactions value exceeding $800 billion in 2022. This shift from offline to online consumer behavior has prompted fintech (financial technology) players and platforms, including digital banks (digibanks), traditional banks and insurance companies, to extensively digitize their services in order to keep pace with evolving trends.
Asean is witnessing a significant surge in the adoption of digital payments, such as mobile wallets, virtual credit cards and wire transfers. According to Bloomberg's 2021 report, Asean holds the fastest-growing mobile wallet market globally. The growth of cross-border trade in the past decade has also fueled the adoption of digital payments. Traditionally, cross-border transactions have been associated with high costs and lengthy processing times. However, digital payments have emerged as a convenient and efficient solution to overcome these obstacles.
The rise of digital payments brings attention to the importance of robust digital infrastructure. Modern networks, hardware, software, data centers and broadband connectivity are essential for seamless digital service delivery and the growth of digital payments in Asean. Improving digital infrastructure is a crucial factor in advancing Asean's digital economy. Therefore, it is imperative for Asean to prioritize and increase efforts to improve accessibility and affordability of data connections and devices across the region.
Asean is also demonstrating its commitment to establishing effective data governance practices in the region. Frameworks such as the Bandar Seri Begawan Roadmap, the Asean Digital Master Plan 2025, the Asean Framework on Digital Data Governance and the Asean Digital Integration Framework highlight the region's focus on the digital economy. However, discrepancies in data governance frameworks among Asean member states (AMS) still exist. A coherent and standardized data governance framework applicable to all AMS would facilitate smooth and secure data flow across national borders, reducing these discrepancies.
The growth of digital payments in Asean has brought to light several digital challenges both within and between countries. Digital development disparities among and within AMS, as well as concerns about privacy and cybersecurity, are the primary obstacles for digital transformation in the Asean region. The success of digital banking and digital payments also depends on addressing the issue of unbanked populations. The share of the unbanked population varies greatly among the six Asean countries, with Singapore having the lowest (12 percent) and Indonesia the highest (81 percent) unbanked population. This highlights the significant digital divide in the Asean region.
The increasing prominence of digital payment systems raises questions about their compatibility across the Asean region. An inclusive and region-wide digital payment system would facilitate financial transactions and deepen regional integration in the financial sector. Currently, five Asean central banks — Bank Indonesia, Bank Negara Malaysia, Bangko Sentral ng Pilipinas, Monetary Authority of Singapore and Bank of Thailand — have signed an agreement on cross-border payment systems to promote connectivity and interoperability among countries. Moreover, several central banks in Asean have launched bilateral QR code-based cross-border payment systems, such as those between Indonesia and Thailand.
To thrive in the digital payments landscape, Asean member states need to consider several criteria. First, while recognizing the importance of digital payments in supporting seamless cross-border digital trade, Asean should continue to address digital divide challenges, including disparities in digital development capabilities among countries and the gap in internet quality and usage. Second, countries should enhance digital knowledge and skills among their people through collaborations between governments, private sectors and educational institutions. Promoting a culture of inclusiveness, innovation and adaptability in embracing digital technologies and transformation is crucial. Digital literacy and skill development, particularly in rural or remote areas, will contribute to creating a better and more inclusive digital landscape in Asean. Finally, to ensure secure and free data flow within the region, Asean must build regional digital trust and ensure the implementation of high-security digital payment systems to prevent cybersecurity risks and data breaches.
Source: The Manila Times
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<p>Time: 2024 By: Ministry of Industry and Trade</p>
