Driven by a young and connected population, digital payments have exploded during the Covid-19 pandemic. According to the World Bank, cross-border payments made using QR codes will reach over $800 billion in the ASEAN region by 2022.
During the Thai New Year in April, Denis Ok, a French-Khmer businessman who has lived in Cambodia for five years, visited Thailand to experience cross-border payment services in Southeast Asia. Instead of exchanging cash for baht (Thailand’s local currency), Denis Ok makes most of his transactions from his mobile phone: Cafes, restaurants, gyms or shopping. All he has to do is scan the seller’s QR code to pay directly from his Cambodian bank account.
a of his. “It’s simple: No need to have a wallet full of foreign currency. And best of all, the exchange rate is better than at a distributor or a money changer,” explains Denis Ok.
Since the Covid-19 pandemic, the need to limit the circulation of paper money, which is considered a medium for transmitting the virus, has led to a boom in digital payments in Southeast Asia. According to the World Bank, the total value of trade in ASEAN countries will reach more than $800 billion in 2022, up 14% from 2021.
Instead of relying on bank cards like in Europe, many countries in the region have chosen QR codes as their preferred payment method. The method is very simple: From their banking app, customers scan the seller’s QR code to pay. The seller will receive the money immediately, and the buyer will not incur any fees.
While these instant payment systems were developed simultaneously in different countries in the region, they remain purely national, not allowing transactions between neighboring countries. But over the past 18 months, ASEAN countries have been expanding framework agreements to enable cross-border payments in local currencies.
Seven of the region’s 10 countries, including Cambodia, Laos, Thailand, Malaysia, Vietnam, Indonesia and Singapore, have linked their payment systems together through national central and private banks, ensuring the exchange of one currency for another. For example, a Thai tourist in Kuala Lumpur, Malaysia, can now pay from his bank account in baht to a merchant in Malaysia, who will receive the transaction in ringgit. All by simply scanning a QR code with his smartphone.
“This promotes faster, cheaper, more transparent and more inclusive payments as well as strengthening economic ties in the region,” explained Toan Long Quach, a finance expert at the ASEAN+3 Macroeconomic Research Office.
Currently, these payment methods are limited to the retail trade sector and are mainly aimed at intra-ASEAN tourists (who have accounted for nearly half of all tourists from member countries since the pandemic ended). But in reality, the volume of exchanges could be larger and integrate regional investments.
Fertile ground for digital commerce
The rapid digitization of these transactions is being driven by a region with a young population and 80% of ASEAN’s 663 million people having internet-connected phones. The growing banking penetration is also creating fertile ground for digital commerce as the development gap between countries narrows. According to the World Bank, 60% of Cambodians had a bank account or e-wallet in 2021, compared to just 3% 10 years earlier. In Singapore and Malaysia, more than 90% of the population has a bank account.
Behind the practicality lies the issue of monetary sovereignty for the economies in the region. “Recent agreements between central banks allow for instant cross-border exchanges between member countries’ currencies without having to directly use the US dollar,” explains Clément Berthou, a research fellow at the Pacte Institute (France) and the Institute for Contemporary Southeast Asian Studies (IRASEC). “In addition to ease of use, these solutions also promote trade between member countries, which allows ASEAN countries to restructure transaction costs and no longer rely on foreign private institutions such as MasterCard or Visa for intra-regional payments.”
Cross-border payments using QR codes are already showing initial results. In 2022, Indonesia exchanged the equivalent of $3.8 billion with its ASEAN partners through cross-border local currency payments, up 50% from 2021. Meanwhile, the economic potential of Southeast Asia is attracting the attention of its East Asian neighbors. Japan has begun discussions with the central banks of Cambodia and Indonesia to enable cross-border QR code payments by 2025.