The global payments landscape is transforming, driven by demands for greater efficiency, speed, and transparency in cross-border transactions.

To shed light on these exciting developments, The Digital Monetary Institute recently launched the Future of Payments report, highlighting innovative approaches and persistent challenges in reshaping global payment systems.

Based on a survey of central banks across different markets, the report revealed that high transaction costs and inefficiencies have long plagued cross-border payments, with 68 per cent of central banks surveyed identifying these as significant concerns.

Traditional correspondent banking systems often struggle with high fees, slow transaction times, and limited transparency, hindering global commerce and financial inclusion. Central banks worldwide are exploring various solutions to modernise these systems, including tokenisation, multi-currency central bank digital currency (CBDC) platforms, and interlinked instant payment systems (IPS).

Among these, IPS interlinking stands out as the most promising avenue, with 47 per cent of central banks supporting it as a viable solution. Projects like Nexus, spearheaded by the Bank for International Settlements (BIS), aim to create a globally interoperable IPS network using a hub-and-spoke model.

Meanwhile, multi-currency CBDC platforms, such as Project mBridge, offer alternatives to traditional banking systems but face challenges related to liquidity and governance.

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Notably, Southeast Asia (SEA) emerges as a leader in addressing these challenges through its progressive adoption of digital payment solutions and cross-border payment initiatives. The region’s proactive efforts in these areas highlight its critical role in advancing global payment systems, serving as both a testing ground and a model for innovation.

Pioneering payment innovations in SEA

SEA has demonstrated remarkable leadership in modernising payment systems, particularly through IPS interlinking. The region achieved a significant milestone in 2021 with the successful linkage of Singapore’s PayNow and Thailand’s PromptPay.

This initiative paved the way for Project Nexus, which seeks to connect IPS globally. The BIS has since collaborated with five SEA countries—Indonesia, Malaysia, the Philippines, Singapore, and Thailand—to implement the Nexus model, underscoring the region’s commitment to advancing cross-border payments.

Thailand’s PromptPay and India’s Unified Payments Interface (UPI) illustrate the transformative potential of IPS. PromptPay, launched in 2016, has driven financial inclusion and reduced transaction costs in Thailand, while UPI now facilitates over 75 per cent of digital payments in India.

These successes highlight how efficient IPS implementations can reduce reliance on cash and enhance financial access, creating a more inclusive financial ecosystem.

While SEA has made significant strides, several challenges remain in modernising cross-border payments. Governance frameworks must be robust and equitable, ensuring all participants, regardless of economic size, have an equal voice. Regulatory inconsistencies across jurisdictions further complicate seamless cross-border transactions, requiring harmonised approaches to oversight.

Interoperability also remains a critical issue. Ensuring that new payment technologies integrate with existing systems is essential to creating a cohesive global payment infrastructure.

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SEA’s role in shaping the future

As previously mentioned, one of SEA’s key strengths is its regional cooperation in payment system innovation. Central banks and system operators in the region have collaborated extensively to implement IPS linkages and explore new technologies like CBDCs.

The region’s emphasis on addressing user needs and practical challenges has been critical. For example, linking PromptPay with PayNow addressed specific pain points such as high costs and lack of transparency, bringing informal payment channels into the formal financial system.

The insights from the Future of Payments report suggest that SEA is well-positioned to shape the future of global payments. Its early adoption of IPS interlinking and commitment to collaborative innovation provide valuable lessons for other regions. By addressing governance, interoperability, and liquidity challenges, SEA can further solidify its role as a global leader in payment modernisation.

Furthermore, the region’s success with IPS demonstrates the transformative impact of digital payments on financial inclusion.

SEA’s experience offers several lessons for countries seeking to modernise their payment infrastructure. First, regional cooperation is crucial. By working together, SEA countries have achieved significant progress in interlinking IPS and exploring new technologies.

Second, addressing practical challenges should be a priority. SEA’s focus on reducing costs and improving transparency has been instrumental in its success, ensuring that payment innovations meet users’ needs.

Finally, robust governance frameworks and scalable solutions are essential. SEA’s support for the Nexus hub-and-spoke model reflects its understanding of the need for equitable and sustainable governance in cross-border payment systems.

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