Southeast Asia’s Trailblazing Role in Real-Time Cross-Border Payments – Fintech Singapore

In a recent webinar hosted by the Fintech News Network, experts from the Bank for International Settlements (BIS), Wise, Airwallex, and LexisNexis Risk Solutions explored the latest trends and developments in cross-border payments, emphasizing the pioneering role of Southeast Asia in this rapidly evolving landscape.

While the region is leading advancements in instant payment systems, the panel highlighted emerging challenges, particularly the heightened risks of fraud, and emphasized the critical role of data analytics and artificial intelligence (AI) in mitigating these threats.

Southeast Asia emerging as a leader in cross-border payments with Project Nexus

Kah Kit Yip, Adviser at the BIS in Singapore, said that Southeast Asia has quickly become a hub for innovative payment solutions, particularly in the field of instant payments.

The region is leading the way with initiatives such as real-time cross-border payment linkages and the exploration of multi-central bank digital currency (CBDC) settlements.

“Southeast Asia is indeed the hot spot for the interlinking of fast payment systems,” Yip said. “You may have seen some of the bilateral linkages that have been implemented over the years.

The first was the PayNow-PromptPay linkage between Singapore and Thailand, and thereafter, there also have been a few linkages that facilitate QR payments, for instance between Malaysia and Thailand, Malaysia and Singapore, and so on and so forth.”

These linkages have the potential to extend the efficiency and user experience of domestic fast payment systems to the cross-border arena, he said, making international transactions as seamless and instantaneous as local ones.

A key focus of Yip’s presentation was Project Nexus, a flagship initiative led by the BIS. The project, which commenced in 2022, aims to revolutionize cross-border payments by interconnecting existing fast payment systems, focusing on reducing the time and complexity of linking such systems.

“We did a simulation where linking 20 fast-payment systems would require 190 links, each taking two to three years to finalize end-to-end. So [in this scenario,] the vision of global instant payments experience is not something that can be achieved within our lifetime,” Yip explained.

“That is the rationale that gave us the inspiration to come up with Project Nexus where we are developing a hub-and-spoke model that would allow the different fast payment systems to interlink with one another leveraging on a single connection. This would help to scale up the promise of a cross-border payment system to more countries and regions within a shorter space of time.”

Project Nexus has already made substantial progress, he said, with a successful proof-of-concept involving the Eurozone, Singapore, and Malaysia.

As of June 2024, five countries, namely Malaysia, Singapore, Thailand, the Philippines, and India, had committed to implementing Nexus in the real world.

The next steps now involve establishing the Nexus Scheme Organisation to manage and expand the Nexus Network to include more countries and regions, Yip said.

Customer expectations shape market evolution

Samarth Bansal, General Manager of Wise Platform at Wise’s Singapore office, discussed how customer expectations are driving changes in Southeast Asia’s cross-border payment landscape, noting that as more domestic payment systems become instant, customers are increasingly demanding similar speed and efficiency for cross-border transactions as well.

“[Cross-border payment] trends for us are very clearly defined by customer expectations,” Bansal said. “One of the things that we’ve noticed, and maybe more specifically in APAC, is just the number of domestic payment rails that are now instant.”

“This trend of domestic instant, low cost payments is now spilling over into cross-border and that’s what’s spurring a lot of the activity that you’re seeing take place in from the regulatory standpoint, from partnerships around the world but also large traditional players in this space waking up to it.”

Initiatives like Project Nexus are critical in helping meet these expectations, Bansal said, not only by reducing infrastructure costs but also by enhancing transparency and efficiency in cross-border payments.

These efforts align with global goals, such as those set by the United Nations, to make remittances more affordable and transparent, he said.

Cher Hao Low, Head of Small and Medium-Sized Enterprises and Growth at Airwallex in Singapore, shared several key trends driving the demand for flexible cross-border payments among businesses.

He highlighted macroeconomic shifts and fluctuating costs, which are pushing companies to seek more adaptable supply chains. He also noted the changing geopolitical landscape, which is prompting companies to future-proof their operations, and diversify their supplier relationships and capital-raising strategies to mitigate risks.

Lastly, Low said that globalization is encouraging businesses in Southeast Asia to think beyond their domestic markets. In this context, initiatives like Project Nexus are vital in supporting SMEs’ expansion efforts.

“For Project Nexus, the way we’re looking at it is that we see integration between Southeast Asian countries and even India as a very good thing,” Low said.

“We see it as expanding the market for Southeast Asian businesses … and eventually build that skill to be more successful globally. We’re very optimistic about these types of initiatives and how they can help businesses around Southeast Asia expand and grow.”

Addressing the risks of instant payments

While the benefits of instant cross-border payments are clear, they also bring new challenges, particularly in terms of security and fraud prevention.

Ed Metzger, Vice President of Market Planning for Payments Efficiency at LexisNexis Risk Solutions, discussed these risks, noting that faster and more interconnected payment systems are attractive targets for fraudsters, especially in regions with booming adoption of real-time payments like Latin America and Southeast Asia.

“As the ecosystem becomes faster, sleeker, and as there’s less barriers to customers transacting, what we have seen in these markets is an explosion in fraud,” Metzger said.

“As we move towards a world where instant payments are connected cross-border, as an industry, we have to be ready and assume that there’s going to be a very significant threat that we’ll have to handle.”

One of the main challenges here is to balance the need for security with the demand for a seamless, user-friendly payment process, Metzger said. In this context, he suggested that the use of advanced data and technology is key to making payments safer without disrupting customer journey.

“It’s about using all the sources of data available to you to understand the riskiness of a payment and then also using data on the spot while the payment is actually being created, for instance, to check is the payee that this person’s paying to the actual owner of the account,” Metzger said.

“As the industry develops, that will be the challenge, which is getting more data sources, more sources of validation verification and combining that as well into an API process flow so that the customer, be it a person or a corporate, has a seamless payment flow without significant interruptions.”

Yip from the BIS echoed these sentiments, emphasizing the need to maintain and enhance trust and confidence in cross-border payment systems as they become faster and more widely adopted.

“In the context of Project Nexus, … we have … set higher expectations in terms of the scheme obligations that our participants will need to adhere to in order to be qualified to process payment on the Nexus network,” Yip said. “In the scheme rule book, we do prescribe some mandatory fraud controls that the participating financial institutions have to adhere to and this is intended to address the weakest link risk.”

Additionally, the BIS Innovation Hub Centre in London is exploring innovative solutions through initiatives like Project Hertha, which aims to use network analytics, AI and machine learning to identify patterns of financial crime in payment systems.

“In the context of fast payment networks like Nexus, there is a lot of data generated through the transactions,” Yip said.

“The challenge that we try to address through [Project Hertha] is to see how we can facilitate the sharing of data in a privacy enhancing manner and then leverage AI tools and create a model that would then be used to provide fraud scoring to the participating financial institutions. This would become one of the tools that they can leverage to better identify and stop fraud before it transpires.”

Check out the full webinar here

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• Source: https://fintechnews.sg/100199/payments/southeast-asia-cross-border-payments/