Across South and Southeast Asia, in keeping with other regions of the world, cash has traditionally been a key method for payments among corporates and consumers alike. This year, however, electronic payments received a push in multiple markets from a perhaps-surprising source – governments. Along with initiatives driven by central banks in India, Malaysia and Thailand, plans are underway in other countries to drive payments electronic. While the initial focus has been more towards consumers using cards or mobile phones for electronic payments, the impact on small- to medium entreprises (SMEs) and larger corporates is likely to be even greater as the shift towards e-payments progresses.
Bank Negara Malaysia (BNM) was one of the region’s first to start the ball rolling, having announced its payment card reform framework back in December 2014; two months after it released a concept paper on the proposed framework as a standard under Malaysia’s Financial Services Act 2013 and the Islamic Financial Services Act 2013. Noting that Malaysia “remains a relatively high user of cash with currency-in-circulation over gross domestic product (GDP) of 6% in 2012 compared to 2% to 4% in advanced countries,” BNM reduced interchange rates significantly in order to decrease what it called distortions in the payments market and it required merchant acquiring banks to install approximately 500,000 more point-of-sale (POS) terminals by 2020.
The goal, BNM said, was to increase the number of e-payment transactions per capita from 44 transactions in 2010 to 200 transactions by the end of 2020 by displacing cheques with credit transfer services and cash with debit cards or mobile money.
Thailand took a similar step in late 2015 when it announced a five-point e-payment master plan, which it approved and began implementing earlier this year. The plan called for increasing the number of POS terminals across the country from approximately 300,000 to two million, the use of “AnyID” for payments, linking e-payments and the Revenue Department’s taxation system, subsidising low-income earners directly using only their ID cards, and offering incentives for e-payments.
The Thai Bankers’ Association has estimated that e-payments will save the country 100bn baht (US$2.8bn) a year or almost 1% of GDP. While some parts of the plan have been delayed, it is rolling out more rapidly than many might have expected.
India’s cashless ambition
The biggest leap came last month, when the Indian government demonetised the 500 rupee (INR) and INR1,000 (approx US$15) notes that account for more than 80% of cash in circulation in order to reduce corruption and so-called “black money”. While many media stories focused on the ensuing disruptions to individuals and small businesses and the ingenious ways that individuals are finding to avoid the ban, another major story is the jump in electronic transactions.
As an example, mobile or card payments by some providers initially registered triple-digit gains, and mobile wallet provider Paytm alone told CNN that it has increased its customer base by 7% to 160m in less than a month. The Indian government also asked banks to install one million more POS terminals by the end of March 2017 and set a cap on terminal rental fees. “Once we embark on our journey to create a ‘less-cash society’, the goal of a ‘cashless society’ will not remain very far,” forecast prime minister Modi earlier this month.
While other markets have announced specific changes that are somewhat less dramatic, the Philippines central bank’s national retail payments framework (NRPS) targets digitising 20% of retail transactions by 2020, the Ministry of State-Owned Enterprises in Indonesia is supporting the building of a new national payments switch, the payment switch in Vietnam is rolling out new programmes and other countries have initiatives underway as well.
The net result has been a growing surge in e-payments across the region, with more to come as plans come closer to fruition. Less visible – so far – has been the impact on companies, which is likely to see them secure greater efficiency as they transition to electronic payments and improved transparency to government agencies such as departments of revenue as visibility of payments increases. While there have admittedly been delays during the year and serious impacts on consumers and corporates as well as banks in India and other markets, the progression towards e-payments is progressing far faster than many might have expected at the start of the year and the impact on large corporates as well as SMEs is tremendous.
Despite their importance to the world economy, SMEs often face problems accessing credit when and where they need it. Their banking needs are often more complex than the usual retail banking customer and they don’t offer banks the revenue potential of larger corporations.
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