The future of digital payments

Choices to consider for a new ecosystem

Customers are used to seamless payments for most daily transactions – with ever-increasing expectations for integrated and secure ways to pay for any product or service. For players in the digital payments ecosystem across Southeast Asia, that means a set of real choices to consider.

Leading retailers and technology companies have set a high bar for the financial services industry to create better experiences and simple, seamless integrations that can make traditional banking, digital payments, and other related activities easier to accomplish.

This represents a marked shift from the previous model, in which payments were offered only by banks. Indeed, digital payments are increasingly offered by non-bank, technology companies, which have found Southeast Asia’s unique combination of high mobile penetration rates and significant unbanked or underbanked populations conducive for customer acquisition.

These players typically offer a variety of differentiated services backed by technological innovation, such as food delivery or ride-hailing, in an ecosystem designed to function with their proprietary e-wallets or other digital payment methods. But while their ability to provide superior customer experiences is undeniable, the ecosystems that many of the players have built with their collaboration partners have resulted in fragmentation across the payments landscape in Southeast Asia, and interoperability between the different payment systems is quickly becoming an issue that needs to be addressed.

At the same time, the increasing volume of digital payments done outside the formal banking system may not be subjected to the same level of regulatory oversight as banks under the current structure. Consequently, authorities face challenges in mitigating the increased risks, such as money laundering and financing of terrorism (ML/FT), cyber attacks, and personal data breaches, that such activities could pose to the overall financial system.

In this report, we examine several hygiene factors that regulators and industry players should collaborate to put in place to encourage the development of the digital payments industry in Southeast Asia. As authorities across Southeast Asia examine a variety of different options to introduce the necessary safeguards while promoting the growth of the digital payments industry, we also take a look at Singapore’s Payment Services Act, which aims to strike a balance between these competing priorities.

Later, we explore four possible scenarios for the future digital payments industry – spoilt for choice; price war; loss leadership, and winner takes all – designed to help industry players envision their future roles in the payments value chain. Throughout our analysis, we take into account the opinions expressed by executives who have provided their inputs to better understand the opportunities and critical success factors for players to be successful in this rapidly changing ecosystem.

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