Payments 2025 and beyond: Evolution to revolution

Supercharged by the pandemic-induced accelerated digital transformation, Southeast Asia (SEA) is well-primed to fuel the shift to cashless payments and even greater innovations in the digital services ecosystem. This is also on the back of a burgeoning consumer base of 623 million people by 2030, making SEA the fourth largest economy globally.

So, as more players enter the fray with new business models and the industry becomes increasingly fragmented, we see the fight to the top turning more intense. For digital payment services to make a bigger impact, a sharper focus on accessibility, simplicity and affordability is key, while overcoming the trust barrier. Moreover, industry players need to first understand the global megatrends re-shaping the future of payments, before beginning to future-proof their businesses.

Six macrotrends impacting the future of payments: SEA perspective

Inclusion and trust

Digital currencies

Digital wallets and
booming super-apps

Battle of the rails

Cross-border payments

Financial crime

Inclusion and trust: More accessible and convenient banking

The pandemic-led rapid digitalisation and widespread mobile ownership in the region are crucial enablers to making banking more accessible. For example, in 2020, the Philippines government distributed COVID-19 financial aid via digital platforms (e.g. PayMaya’s e-wallet) to its unbanked citizens. Thailand’s PromptPay, which enables users to process payments using bank accounts or digital wallets linked to national IDs, mobile numbers or email addresses, attracted 43 million subscribers out of its 69.5 million population in 2019. Singapore’s ‘Hawkers Go Digital’ programme, launched in 2020, engages ambassadors to encourage hawkers to adopt contactless QR code payment service and provides cash incentives to spur usage.

This enhanced availability and convenience of digital payments will see the bulk of the regional population leveraging mainstream digital financial products, such as e-wallets, further expediting the expansion of financial services. Fostering merchant inclusion by lowering the barriers to digitalisation is key to driving financial inclusion, particularly given the majority of SEA businesses are small and medium-sized enterprises (SMEs) lacking necessary understanding of digital and its benefits while also unable to afford related transformation costs.

Moving forward, Governments should roll out education and SME support programmes to advance digital adoption while embedding a greater sense of security in users. Key stakeholders can roll out initiatives and authorised frameworks to instill greater trust in the system, such as Malaysia’s National Digital Identity initiative, MyDIGITAL, or the use of distributed ledger technology (DLT) to anonymise transactions.

Digital currencies: Lower transaction fees, facilitating cross-border payments

In PwC’s Global Central Bank Digital Currency (CBDC) Index 2021, Cambodia leads the race with 83 central bank digital currency (CBDC) projects, while Thailand and Singapore are not far behind with 80 and 75 respectively. Cambodia’s launch of Bakong in 2020 is expected to increase financial inclusion in the country with individuals in rural areas now able to make transactions through digital wallets, displacing the need for proximity to traditional banks. With such expected benefits, CBDCs are intensifying the race to conduct robust use case testing and the development of necessary regulations.

Aside from financial inclusion, we see sentiments shifting towards digital currencies with many now expecting CBDC to lower transaction fees and facilitate cross-border payments. In SEA, we anticipate aggressive investments by central banks to develop proof of concept for CBDCs. Extensive research and projects are underway as these countries sprint to roll out CBDC for domestic and cross-border transactions. Moreover, emerging economies are leapfrogging to bridge their infrastructure gaps by integrating CBDCs into their payments ecosystem.

Besides central banks, the private sector can also play an active role in advancing CBDCs by integrating them into existing digital wallets and messaging platforms, or even developing apps to enhance the functionalities of CBDCs. Supporting the use of CBDCs in offline transactions and the ability to safely recover CBDCs are key attributes to consider during development. This will further contribute to CBDCs being a popular payment means in the future. However, countries should be cautious of rolling out CBDCs and should be careful in assessing the readiness of its digital infrastructure, the backbone of any digital currency. Once a sufficient number of countries with CBDCs enter into a multi-CBDC arrangement to enable cross-network interoperability, then the enablement and adoption of an integrated payment network in ASEAN will be within reach.

Digital wallets and booming super-apps: Increased customer convenience and choice

Given the convenience it provides, digital wallets have proven to be a natural breeding ground for super-apps in SEA, as seen in the cases of India’s Paytm and China’s AliPay. Both started off as a mobile payments platform. E-wallet payments in SEA were worth over USD22 billion in 2019 and are predicted to grow more than fivefold to exceed USD114 billion by 2025.

SEA has witnessed the mushrooming of digital wallets as a result of tap-and-go payments becoming the preferred choice of consumers. We expect the region to see a mega consolidation of digital wallet providers into few leading regional and local super-apps dominating the market. In the years to come, super-apps can tap on their vast databank to gain deeper insights on consumers’ payment needs and launch targeted payment services to reinforce their market position. However, data privacy will be top of mind for service providers to further boost the longevity of their offerings and the adoption of super-apps at scale. We anticipate an increase in the use of data security solutions by these players, such as multi-factor authentication and data encryption, to ensure the protection of users’ data.

As part of the super-app strategy, there will be a rise in partnerships between super-apps and service providers of different industries. In Thailand, LINE, a traditional messaging app, collaborated with local payment service, Rabbit, to allow consumers to pay for BTS skytrain fares. Financial service providers can leverage super-apps as new distribution channels, while super-apps can learn from the best practices of financial entities in security and consumer protection.Similarly, super-apps are well-positioned to enter partnerships with retailers to enable better payment experiences. In 2020, Singapore’s Cheers convenience store launched its first artificial-intelligence (AI) powered, unmanned and cashless store with automatic checkout for users with the Cheers SG app. In the future, the use of super-apps to enable similar frictionless experiences in stores will drive app stickiness.

The next step will extend beyond consumers as super-apps within SEA expand their future offerings to allow merchants on their platform make business-to-business (B2B) payments and more, for instance in meeting their supply chain needs. This will allow merchants to achieve end-to-end digitalisation with inbound and outbound digital payments.

Battle of the rails: Digitalisation-led interoperability and enhanced functionalities

Unified QR codes and the adoption of application programming interface (API) will be the priority of payment rails in the region as they seek to promote interoperability and enhance functionalities. Of the 10 countries in SEA, seven have implemented national QR code standards. The next step is to transition from static to dynamic QR codes to harness valuable consumer data. This allows merchants and payment providers to deep dive into upcoming trends and the payment behaviours of consumers, and in response, devise innovative payment solutions. On the commercial side, open banking APIs will bolster B2B payments in the region, disrupt traditional bank payment rails, and transform the way B2B payments are made today by allowing real time processing and exchange of rich messaging.

Traditional rails are being disrupted by Buy Now, Pay Later (BNPL) solutions, a new age payment deferral and financing method that is expected to become the norm as providers land on a scalable and sustainable business model. Already in Singapore, 38% of the population use the service for everyday items (i.e. average ticket size $200-$300) and we foresee accelerated adoption of this trend amongst Millennials and Gen-Z consumers. The ability to easily set up a BNPL account and enjoy interest-free installments, unlike the case of traditional cards, suggests the anticipated shift from card usage to BNPL schemes. Leading retailers and e-commerce platforms in the region will adopt a white label BNPL solution, further contributing to an era of BNPL ubiquity. As BNPL gains dominance, their product offerings can extend beyond just retail to post-payment financing for SMEs, with the potential to disrupt SME finance, further promoting economic growth and inclusion.

Next generation domestic and regional rails will be a key challenger to traditional global payment rails in SEA as new providers with innovative solutions flood the region. Traditional rails will be forced to innovate and provide similar experiences at a competitive price point or risk being eliminated.

Cross-border payments: Real-time retail and commercial transactions

The rise in cross-border transactions and changing consumer behaviours towards e-payment and e-commerce have driven the expansion of the payments industry to offer convenience, ubiquity and safety to drive sustainable growth.

The broad brushstrokes of a real-time cross-border network in SEA are forming as public initiatives progress. Domestic real-time payment infrastructures are establishing cross-border linkages, creating a network of payment rails increasingly used for both retail and commercial cross-border payments. For instance, the Paynow-PromptPay linkage between Singapore and Thailand, and DuitNow-PromptPay linkage between Malaysia and Thailand where cross-border QR payment linkage enables consumers and merchants in these countries to make and receive real-time payments. The establishment of a common payment platform can provide tremendous value when applied in a regional context as the digital payments industry in SEA is expected to research an astonishing USD1.5 trillion by 2030.

We expect the Governments across SEA will engage in more frequent dialogues to define coherent policies and regulations related to cross-border payments as the region strives for greater progress in economic integration. For instance, the emergence of Digital Economy Agreements (DEA). These will help achieve greater cross-border payments through digital connectivity by aligning digital rules, standards and data exchange, all of which are essential for smart regulations, leading to risk-based regulations. We can potentially see the launch of passporting rights for financial institutions, fintechs and payment providers, based in one country, providing payment services to the rest of SEA. In the years to come, there will be a reduction in the need for duplicative actions, such as Know Your Customer (KYC) checks, allowing these players to focus on experimenting with new ways to support the volume of cross-border transactions. With the appropriate safeguards and risk management frameworks in place, cross-border payments will truly become interoperable.

Financial crime: Stronger defences in cyberspace

With a booming digital economy set to surpass USD300 billion gross merchandise volume (GMV) by 2025, countries in SEA face salient threats from the non-bank financial service entrants who are new to the system and need to quickly comply with stringent regulations. They may not be equipped with appropriate infrastructure to deal with cyber risks and growing customer expectation of faster payments with less checks. Even the regional players equipped with detective measures (e.g. risk scoring, lockout mechanisms) need to adopt preventive technologies (e.g. biometrics, in-session analytical solutions) for comprehensive protection. A PwC survey shows only 21% of Singaporean companies have real-time detection and generally medium to adequate alert generation, indicating a clear white space in the market for solutions in the coming years.

Payments organisations can avoid the legacy of financial institutions by creating a unified operating model and adopting integrated prevention and detection technologies to holistically handle financial crime. Moreover, with the increasing sophistication of financial crime, SEA will see increased dependence of local and regional stakeholders in combating these threats. Consumers and organisations are likely to favour jurisdictions making great advances in cybersecurity, both in terms of prevention and future recourse.

While Singapore and Malaysia are ranked high on a global level for cybersecurity based on the Global Cybersecurity Index (GCI) 2020, Myanmar, Laos and Cambodia are ranked 99, 131 and 132 of the 182 countries assessed, suggesting that much more can be done to enhance cybersecurity in SEA. With digital ID, related authentication mechanisms, and criminal activity coalescing to counteract one another, a unified approach against financial crime is crucial. The reliance on cross-border digital IDs may hold the key to eradicating synthetic ID fraud. With increased sharing of tactical information through intergovernmental or public-private partnerships to enable greater financial transparency, stronger defences against financial crime can be built.

Preparing for tomorrow: PwC’s 4Rs framework

The way forward for key payment players:

Payments industry players	Repair	Rethink	Reconfigure	Report
Traditional banks	Leverage process utilities to process non- differentiated services like ATM offering	Reimagine physical cards issuance Ensure digital first approach in business models Diversify into value-added services, like data protection services Leverage cloud technology to store data while ensuring cloud security to deal with potential risks (i.e. protection for data encryption, server, application and database)	Invest, acquire and deploy real time and rich payments - sunset legacy rails Use super-apps as new distribution and customer acquisition channels Develop APIs to bring innovation in the commercial payment space Enhance security and verification for all users within and outside the organisation (e.g. introduce zero trust framework)	Share information on consortium basis the incidents of fraud and anti-money laundering (AML) data analytics, to combat financial crime Share latest technological advances in detecting and preventing financial crime Report rapid outcomes of investigations of suspicious activities (e.g. real time transaction reporting)
Digital banks	Not applicable	Reimagine customer payment experience. Create seamless omni-channel and opti-channel experience Re-evaluate effort required to bring benefits of decentralised finance to masses	Leverage technology and experience to drive customer primacy - increase mindshare Set systems for efficiency and interoperability with other payment services in the market Leverage open banking to enhance value-creating services and products	Share insights gathered from consumer data on unmet needs and consumer trends Share measures to ensure data privacy and security (e.g. stronger governance framework for use of data) Report on sustainable practices
Alternative payment methods (including digital wallets and super-apps)	Enhance security features in mobile phones to prevent fraud, data theft/leaks, malware (e.g. use multi-factor authentication or biometric technology to authenticate payments) Periodically audit the credit risk profiles of customers who engage in financing services	Assess potential of accepting and exchanging CBDCs to drive adoption Study upcoming payment trends and competitors closely to regularly upgrade payment offerings Reimagine the compromise between customer convenience and exposure to cyber-criminals	Unification of payment infrastructure to enable cross-border, cross-currency transactions and acceptance Strengthen payment offerings for commercial clients, like extending BNPL services to SMEs for supply chain financing Build AML transaction monitoring capabilities to examine multiple scenarios with changing instrument rails available over payments	Share efforts to protect consumer and merchant data Maintain update on regulatory evolution and agile ways to respond
Telecoms and retailers	Enable foreign payment methods that overseas customers prefer in store (e.g. enable AliPay and WeChat Pay) Adopt new age financing methods (i.e. BNPL) for consumers Pivot from using static QR codes to dynamic QR codes to enhance the payment experience and security	Reimagine ways to manage costs of cross-border payments at each step of payment value chain Identify up-and -coming payment trends overseas and consider adopting it to the local context	Introduce new technologies in stores to enable frictionless and invisible payments (e.g. cashierless store technology, biometric payments) Invest in data protection services to handle consumers’ information responsibly Digitise B2B payments to speed up commercial transactions along the supply chain and eliminate manual processes	Roll out educational campaigns to lower the barriers for consumers to adopt new payment methods
Other players (e.g. merchant service providers, third-party processors and terminals)	Adjust fees charged on each transaction to make it more affordable for SMEs Provide omni-channel integrated payment services for B2C and B2B transactions Shore up cybersecurity defences as payments organisations are targets with rich data	Assess developments in the industry, consumers’ payment behaviours and gaps in current processing tools to innovate new payment tools to enable more frictionless experiences (e.g. biometric technology) Reimagine cybercrime as a combination of cybersecurity and fraud	Upgrade systems to allow for alternative authentication methods and the generation of dynamic QR codes Develop technology to support emerging CBDC opportunities Develop an inclusive operating model with built-in threat intelligence to support a more efficient and less intrusive fraud / cyber / AML checks	Report on efforts to ensure data security (i.e. how data is stored, processed and transmitted) Report on measures and progress to support greater merchant inclusion