Kicked in on 1 January this year for 10 countries in the Asia Pacific, it was initiated in 2012 by the Association of Southeast Asian Nations (ASEAN) in order to strengthen ties with China and other APAC nations.

Asia and cross-border trade

The Asia Pacific, especially ASEAN, has long had a history of close and successful cross-border trading, primarily due to proximity and similarity of cultures, which facilitates logistics and market demand for goods. 

However, unlike the European Union (EU), the APAC region had been a little on the slower side to rectify existing bottlenecks in processes, laws, regulations, tariffs, and access to financing, especially in relation to global value chains. 

Furthermore, most trade agreements tend to be within these countries’ sub-regional parameters, i.e. Greater Asia, or Southeast Asia. 

Leading tech nations in Greater Asia — namely, Japan, South Korea, and China — have been embroiled in political tensions for decades, slowing inter-regional trade there.

This RCEP, interestingly, will mark the first time that China, Japan, and South Korea would be in a free trade agreement — certainly a movement that has gotten the world on the edges of their seats to see how it plays out.

Who are in the RCEP?

Ushered in four days ago, the RCEP agreement kicked into action for Brunei Darussalam, Cambodia, Laos, Singapore, Thailand, Vietnam, China, Japan, Australia, and New Zealand.

South Korea would join the bloc on 1 February 2022, 60 days after its ratification. Other signatory nations including Malaysia, Indonesia, Myanmar, and the Philippines are expected to ratify it soon. 

Their agreements will enter into force 60 days post ratification instrument deposit, acceptance, or approval to the Secretary-General of ASEAN. 

What will the RCEP bring for signatories?

The RCEP comprises a mix of low, medium, and high-income countries. Its key selling point is the elimination of tariffs for cross-border trade in goods. 

It is a big deal, as inter-Asia trade already is bigger than trade between Asia, North America and Europe put together. 

Once the RCEP came into effect, 65% of tariffs have gone down to zero — and this number is expected to rise to as much as 90% within 20 years. 

For RCEP exporters to enjoy these tariffs, they would need to abide by its common “rules of origin” framework, shared Ajay Sharma, HSBC’s regional head of global trade and receivables finance for the Asia Pacific, in a report by SCMP. 

This means sourcing at least 40% of inputs from within the RCEP bloc, in order for their end-products to enjoy the tariffs when they’re exported to other member nations. 

Sharma further opined that diversification of supply chains and FDI (foreign direct investment) will be accelerated as companies will find it easier to use ASEAN as a base of production, given lower associated business costs. 

He also added that it would “streamline existing FTAs in APAC and strengthen intra-regional trade linkages.”

Digitalization and cross-border trade in ASEAN

As previously mentioned, cross-border trade in ASEAN has been strong and will keep growing as regional cooperation between private and government players further harness the power of technology, given the pandemic’s movement restrictions.

According to Google, Temasek, and Bain, Southeast Asia is predicted to reach a US$1 trillion digital economy by 2030. 

Whilst trade was admittedly negatively impacted by the pandemic in the past two years, heavy damage was largely averted through several approaches. 

Digitalization in the form of enhanced digital connectivity, automation of operational services, and strong governmental policies prioritizing digitalization in cross-border trade played a huge role in dampening the effects of the pandemic in ASEAN.

Furthermore, the region is one that’s quick to recognize and take advantage of fintech. This is largely applied to foster better financial inclusion, in the region home to the world’s largest population of unbanked and underbanked consumers. 

The Asia Pacific has a huge appetite for fintech — reflecting the changing finance and banking landscape, as well as consumer demand, in these regions.

According to Findexable, five ASEAN nations — namely Singapore, Indonesia, Malaysia, Thailand, and Vietnam, are also in the top 20 Asian fintech nations. Findexable publishes the annual Global Fintech Rankings.

For example, the central banks of Malaysia and Thailand launched a cross-border QR payment system in June last year. The retail payment linkage enables consumers and merchants in both countries to make and receive instant cross-border QR code payments.

Both countries had recently undergone pivotal shifts in digitalizing payments. Malaysia promoted its real-time retail payment system and DuitNow, whereas Thailand charted an e-payment roadmap to bolster intra and inter-country retail e-payments.

Multiple countries in Asia have or are in the process of embarking on their own sovereign digital currencies, or, CBDCs (central bank digital currency). 

Singapore has taken the lead to develop retail CBDC through the Global CBDC Challenge, whereas Malaysia is still experimenting. 

In September last year, it was reported by Tech Wire Asia that central banks of Singapore, Australia, Malaysia, and South Africa will develop prototypes and test shared platforms to process cross-border digital currency transactions. 

China has successfully carried out multiple iterations of its digital yuan trials, and Japan is reportedly looking at starting its own too.

The RCEP and ASEAN’s digital economy dominance

Aside from fostering smoother payments, digitalization brings with it a host of other benefits for businesses and consumers alike, especially in the digital payments powerhouse that is Southeast Asia. 

E-Commerce has been identified as a key driving force of strong intra-regional trade between countries, and its potential is immense in developing nations such as the Philippines.

The role that technologies such as AI and analytics play, especially in e-Commerce, cannot be underestimated too. 

E-Commerce players are not just concerned with swimming with small fish — they have far bigger fish (markets) to fry.

Last year, China-based fashion mogul Shein overtook Amazon as the biggest fashion mobile e-Commerce platform in the US. Shein has quietly racked up a valuation that exceeds US$15 billion, too.

In Thailand, fashion e-commerce players such as Pomelo have developed their own machine learning system to boost their platform presence. 

Furthermore, emerging fintech such as BNPL also play a part in growing financial inclusion for not just consumers, but MSMEs (micro and SMEs) as well. 

A report by Deloitte predicts that digital trade will further accelerate, and leapfrog the region into the golden age of digital trade within the next three years.

The report also suggests that this pivotal shift will be largely facilitated by increased dynamic cross-border e-Commerce activities, which are further strengthened by regional cooperation through the RCEP, increased digitalized lifestyles, and the ongoing development of digital infrastructures.

It’s just a matter of when — not if.

The post APAC will dominate the digital economy with RCEP appeared first on Tech Wire Asia.

In fact, just Southeast Asia alone is predicted to reach a US$1 trillion digital economy by 2030, according to Google, Temasek, and Bain.

It might even overtake the West’s digital economy, and this is quickly showing potential with just how cross-border trade is flourishing in the region.  

According to a new report by Deloitte published yesterday, the ‘Technology-empowered Digital Trade in Asia Pacific’, the firm predicts that digital trade will further accelerate, and leapfrog the region into the golden age of digital trade in the next three years.

The report accounts for this dramatic shift through increased dynamic cross-border e-Commerce activities, strengthened regional cooperation through the RCEP, increased digitalized lifestyles, and ongoing development of digital infrastructures.

According to Taylor Lam, Vice-Chair and Technology, Media & Telecommunications Industry Leader at Deloitte China, the combination of the Covid-19 pandemic together with these other factors will see new development opportunities in digital trade.

“Digital technologies enable global sellers to participate in global trade without any entry barriers,” said Gary Wu, Deloitte Global Lead Client Service Partner.” 

Wu also added that the continuous improvement of digital infrastructure will effectively resolve the two major constraints affecting cross-border trade: logistics and payments, with blockchain technology also “creating a new space of imagination for digital trade.”

Digitalization, mMNEs will drive cross border trade

The report highlighted some key insights for the Asia Pacific, with the first revolving around key technologies and the important role they play. 

According to Deloitte, data factors will feature prominently alongside how other critical infrastructure such as 5G, which will help build data distribution platforms and new network architectures and facilitate the Internet of Everything (IoE). Unsurprisingly, AI will continue working alongside big data to bring deeper insights for better decision making. 

Secondly, the report identified and analyzed various APAC markets for the development and maturity of digital trade across two dimensions: cross-border e-Commerce (60%) and digitalization (40%).

Deloitte classifies the markets as follows: 

• Mature markets: China, South Korea, Singapore, and Japan;
• Developing markets: Thailand, Malaysia, Indonesia, Vietnam, and the Philippines;
• Early-stage markets: Myanmar, Cambodia, Laos, and Brunei.

Comparison of the three market types in terms of development (IMG/Deloitte)

Thirdly, there is a substantial rise of micro-multinational enterprises (mMNEs) in the region, which has been identified as the main driver of the transformation of digital trade across the Asia Pacific.

With the help of digital platforms, entrepreneurs and small businesses have become mMNEs as they are engaged in cross-border e-commerce across global markets.

mMNEs provide diversified “locally-made products” and light customization services for global buyers while contributing to over 85% of Asia Pacific’s cross-border e-commerce activities.

Here are the main characteristics of an mMNE:

• More adept at leveraging digital platforms
• Small in scale, typically with fewer than 100 employees
• Globalized operations with an average of 3.56 overseas outlets

Regional cross border business opportunities 

Invariably, the degree of digitalization differs across markets, depending on their maturity stage. As digitalization is a yardstick by which market maturity can be measured, it is crucial to track the development of digitalization across developing and early-stage markets.

Matured markets generally fared better in terms of sales, payments, and logistics, whereas developing markets tended to lead in production and trading. 

Understandably, early-stage markets are still in their nascent stages of digitalization across all facets of cross-border e-Commerce. 

Vietnam, as expected, leads digitalization in terms of production, whereas Indonesia leads in trading. Singapore, a mature market, leads in digital payments as well as logistics digitalization. 

However, this isn’t always linear. 

Degree of digitalization in cross border e-Commerce verticals (IMG/Deloitte)

Interestingly, the report found that Malaysia, classified as a developing market, leads the APAC region in e-Commerce market size at US$6.3 billion. This is a whopping 61.4% of the total e-Commerce market size in China. 

The Southeast Asian nation of 32 million also has the highest penetration rate for sales digitalization for cross-border e-Commerce, at 65.7%. However, Malaysia suffers from bottlenecks such as logistics and production (20.2%). 

WHY ROAD FREIGHT IS GAINING TRACTION IN THE SEA SUPPLY CHAIN

Aaron Raj | 19 August, 2021

At present, cross-border consumption only accounts for 42% of the market size of the internet economy in Malaysia, which is much lower than mature markets.

Although Indonesia leads digitalization in trading, they are still lagging far behind in production, sales, payments, and logistics. Indonesia has been pointed out by experts to lead the Southeast Asian region in terms of the digital economy. 

Vietnam seems to be steadily rising and doing decently in digitalization across most other facets of e-Commerce, whilst also leading digitalization in production. 

CAN TECH-POWERED STARTUPS FILL THE LOGISTICS GAP IN SEA?

Jamilah Lim | 7 July, 2021

For these developing markets to move towards maturity, these areas, especially logistics, would need to see more work in terms of development and sophistication.

But at the same time, this presents huge opportunities for private players to come in and develop these industries in these countries.

The state of e-Commerce: Opportunities and analyses

Deloitte expects that the e-Commerce consumer market in APAC will continue increasing in line with continuous digitalization penetration. Here are other key takeaways:

• Singapore: Within Asia Pacific, Singapore continues to act as a central hub for many cross-border e-commerce platforms in Southeast Asia, with companies such as Shopee, Lazada, Amazon, and Zalora setting up their headquarters there. The e-commerce market in Singapore is predicted to double in size in 2025 compared with 2020, with gross merchandise volume (GMV) amounting to US$8 billion.
• Indonesia: Demographic dividend, internet penetration rate, and consumer habits create great potential for developing e-commerce and cross-border e-commerce in Indonesia. Social e-commerce is thriving, and consumers are fond of trading on social media. Indonesian consumers like buying in-expensive products, and the average transaction is low at US$36, much lower than Malaysia (US$54) and Singapore (US$91). Users also prefer e-commerce platforms in their local language, which greatly affects their shopping experience.
• The Philippines: E-commerce has huge growth potential but is constrained by a low internet penetration rate and an undeveloped e-payment industry – the penetration rate of e-commerce users only accounts for 39% of the total population.
• Thailand: The penetration rate of cross-border e-commerce in Thailand is relatively high and has a certain digitalization foundation, but their degree of development is limited. However, quality improvements of internet infrastructure will raise the efficiency of information exchanges and unleash the vitality of e-commerce platforms.
• Vietnam: Although high logistics costs are almost the biggest challenge in cross-border e-commerce in the APAC, 61.8% of the surveyed enterprises in Vietnam believe that the largest challenge is the difficulty in customs clearance inspections, with more than 60% of businesses focusing on green development goals.
• Brunei: Brunei takes the lead in internet penetration rate in Asia even though early-stage markets have a relatively low overall level of digitalization, and generally have no sophisticated infrastructure and platforms in place to develop the digital industry.

The post Asia Pacific’s golden age in cross border e-Commerce has begun: Here are the opportunities appeared first on Tech Wire Asia.

Decades back, countries in the European Union (EU) collaborated on facilitating cross-border economic activity with free trade agreements. However, the Asia Pacific region (APAC) had been a little on the laggardly side when it comes to improving its processes, laws, regulations, tariffs, and access to financing, especially in relation to global value chains.

Countries in APAC, especially Asia, have primarily focused on improving trade within its sub-regional perimeters, such as within Southeast Asia, or Greater Asia. This can be largely attributed to the proximity of these countries with each other, and the similarity of cultures driving demand for variations of goods similar to theirs.

Although improvements in cross-border trade have dramatically improved over the past decade, the Covid-19 pandemic has been rather disruptive to this industry due to border closures and movement restrictions that interrupted domestic and external supply chains.

Despite escalating trade tensions over the past half-decade between China and the US, or political disputes between China and Japan, the region at large has so far been successful at growing and reducing poverty. 

This can be largely attributed to nations sticking by their strategies to boost regional and international trade, such as by keeping trade lines open and free. Access to precious resources such as the exchange of capital, talent, and knowledge on a regional and international scale translated into improvement of their own workforces and eventually, domestic economies.

Asia, which heavily depends on international trade, shows great promise for a post-pandemic recovery — surpassing others even. Admittedly, whilst trade was impacted negatively by the pandemic, heavy damage was largely averted through several approaches. 

Strong and proactive domestic, bilateral and multilateral cooperation; prudent fiscal regulations and access to financing, and the rapid pace of technological adoption helped businesses streamline operations, generate more economic activity, and ensure business continuity. 

Tech Wire Asia sought some insights on the impact of digitalization on cross-border trade during the pandemic in Asia in an exclusive interview with Derick Teo, Director, Enterprise Go-Digital Solutions, BIPO. 

Digital connectivity key to resilience

According to Teo, digital connectivity has been key to helping businesses navigate this disruption. As a result, we see a shift towards a greater reliance on the digital economy, underscoring a need for governments to enable digital trade and accessibility in order to accelerate economic growth and speed up recovery. 

Some of the major digitalization efforts that Teo has noticed include how key players have harnessed more robust technology to ensure greater compliance in the end-to-end process, which is needed to instill trust through transparency for all parties. An example is how businesses leveraged digital trade financing platforms such as RYTE, whereas another is by using blockchain tech in the supply chain.

SINGAPOREAN CAPITAL MARKET FIRMS MORE RELIANT ON MSPS

Aaron Raj | 16 July, 2021

Additionally, the automation of operational services such as salary disbursements or the use of electronic signature tools such as DocuSign for employment contract approvals have allowed businesses to remain strategic rather than being burdened with arduous, time-consuming tasks.

“It would be a myopic view if we consider digitalization as a tool to merely tide us through the pandemic. In fact, the impact will outlast the pandemic as cross-border trade will evolve to integrate a hybrid system of the cloud and face-to-face physical interaction once borders reopen. 

“Moreover, businesses will increasingly begin to adopt digital trade as a go-to practice and this will expedite cross-border trades at a quicker pace, leading to the rise of multi-cloud business environments.”, he added.

Government policies in cross-border trade

Teo mused that governments that prioritize digitalization are miles ahead when it comes to building resilience and innovation capabilities. With the right technological infrastructures in place, business efficiency and productivity will increase, which improves cost-effectiveness for companies. 

“Digitalization helps to transform the customer journey, provide more data-based insights, and unlocks greater cross-functional collaboration.”, he shared.

According to Teo, digitalization within a cross-border trade scenario allows for:

• The automation of processes from onboarding to offboarding
• Easier HR processes, including management of remote employees and even predicting attrition rate through technology such as machine learning
• The conversion of HR functions from being operation-heavy to strategy-first

He is of the belief that digitalization efforts by Asian players will create an enormous ripple effect on the economy as a whole. The more countries embark on enhancing their digitalization efforts, the more this feeds into the strength and robustness of regional and global economies. 

Teo, however, cautioned that “there needs to be a cautious balance of scale between countries so that all players can thrive in the trade environment. As such, digitalization is key in enabling greater collaboration and diversification of SEA’s trade economy”.

CAN TECH-POWERED STARTUPS FILL THE LOGISTICS GAP IN SEA?

Jamilah Lim | 7 July, 2021

On the topic of ‘future proofing’ the cross-border trade industry, Teo expects to see more businesses expanding regionally at a reduced cost without setting up physical offices. 

Teo opines that cross-border trade facilitation ought to be seamless, compliant, and trusted, and delivered through digital integration of tools. Also, trade should constantly evolve and look to other competitive industries such as e-commerce to innovate and keep abreast of the changing consumer behavior and demand.

“We have seen a great improvement since the height of the pandemic last year. In fact, last year we observed that many businesses were looking to expand their footprint across Asia without looking to set up a physical office in the country. 

“Such regional growth plans are indicative of a positive recovery rate. While we are still in the midst of the pandemic, it’s great to see that leaders are finding ways to expand cross-border movements, even as travel restrictions persist”, he added.

The post How digitalization averted cross-border trade disaster in Asia appeared first on Tech Wire Asia.

Just like any financial service industry (FSI), trade financing is also bound to various compliance and regulatory checks before they can implement any use of technology. However, unlike fintech, which is being applied by most FSIs, trade finance covers a broader range of services.

SATISFIED EMPLOYEES CAN REDUCE IT SKILLS SHORTAGE GAP IN APAC

Aaron Raj | 6 July, 2021

According to the Asian Development Bank (ADB)’s Trade Finance Program (TFP), there were 8,950 transactions valued at approximately $8.3 billion ($4.7 billion of which was co-financed) since 1 April 2020. However, in its September 2019 Trade Finance Gap, Growth, and Job Survey, the global trade finance gap numbering USD 1.5 trillion has become a huge global challenge that impedes economic growth and hinders efforts to reduce poverty worldwide.

The survey report also notes that small and medium enterprises (SMEs) face the biggest challenges obtaining trade finance and. These SMEs account for the majority of businesses and employment in Asia and the Pacific’s developing economies.

An estimated 45% of trade finance applications by SMEs are rejected, compared to 39% for mid-and-larger-sized firms and 17% for multinational corporations. These are due to complicated processes, stringent requirements, and customer familiarity procedures especially on traditional trade financing applications to banks, with many SMEs failing to meet the application criteria.

At the same time, technologies like blockchain are helping reduce the high fixed costs of engaging in complex procedures of the global supply chain. For SMEs, blockchain helps them in terms of reducing costs, making it easier for them to participate in international trade.

A pilot boat guides a container ship to dock at the port of Singapore on June 14, 2021. (Photo by ROSLAN RAHMAN / AFP)

Introducing RYTE, a cross border digital trade facilitation platform  

To help ease the complexity in trade finance, GUUD, a Singaporean tech platform, launched RYTE, and an intelligent trade financing technology platform to connect business users to both banks and alternative financers. RYTE is expected to allow businesses greater opportunities to access funding options as well as meet working capital requirements.

Desmond Loh, CEO of GUUD Finance, the financing arm of the GUUD Group, said through RYTE, processes are streamlined and standardized allowing businesses to easily submit documents. The trade financing platform also enables businesses to pull the required digital data or documents through secured repositories like the Networked Trade Platform (NTP) or from digital trade facilitation platforms operated by GUUD such as trade declaration services.

Businesses using RYTE will have a myriad of financing options revolving around their flow, including supply chain financing, within a single platform. The platform enables them to link up with a service provider that will assist them with the requirements.

Desmond explained that what made the platform stand out is that it utilizes the power of data to not only deliver a better experience for users but also quick and secured services via a trusted network. Users can navigate their workflows digitally and simply, saving time, costs, and unnecessary errors.

During the launch, Lim Cheng Khai, Executive Director at the Monetary Authority of Singapore (MAS), said, “The RYTE trade financing platform harnesses digitalization to deliver a more inclusive and efficient experience for trade finance solutions. It is a welcome addition to Singapore’s trade financing ecosystem and reinforces Singapore’s proposition as a smart financing center. MAS will continue to work closely with the financial, technology, and trade sectors and government partners to facilitate a seamless, digital, trusted trade and trade financing ecosystem in Singapore.”

Last year, another trade financing platform was launched. Contour, the trade finance network powered by R3’s Corda, unites buyers, suppliers, and banks on the world’s first global, decentralized, digital trade finance platform open to all geographies and industries. Contour has proven to reduce the end-to-end processing time by 90% or more as well as simplifying processes that have enabled new business opportunities for banks, corporates and trade ecosystem players.

The post Simplifying trade financing for smaller enterprises appeared first on Tech Wire Asia.

• 32% have reduced reliance on cash, credit and debit cards

• Compared to before covid, 45% are moving towards real-time payments

It comes as no surprise that the days of cash transactions are numbered. Changing payment necessities and preferences as a result of Covid-19 seems to have brought this dramatic shift towards digital payments.

In the Asia Pacific (APAC) itself, almost half of consumers have shown a preference for digital payments. In fact, card payments are also being overtaken by digital payment options.

But not all digital payments are the same. Whilst digital payments rely on technology, not all of them are instantaneous like real-time payments. 

Real-time payments (RTP) are essentially digital payments that can be initiated and completed instantaneously or near instantaneously. This is different from, say, credit or debit card payments that will take longer to process as they go through layers of queries and approvals.

Cash not gonna be King for long

Consumer demand for real-time payments is on the rise in Malaysia as the pandemic accelerates digitization of payments, according to new research from ACI Worldwide and YouGov. 

The research found that over half of Malaysian consumers (52%) in Malaysia preferred real-time payment methods such as DuitNow. This is behind only cash (62%), and e-wallets requiring cash or card top-ups (62%).

A little over a third (32%) of Malaysian consumers have reduced or stopped using credit cards, debit cards, and cash since the pandemic started. Because of this, almost half (45%) are using real-time payments now as opposed to before the pandemic.

Although cash transactions are instantaneous, the rise of digitalized preferences has pushed real-time payments to the fore. Applications that give users real-time notifications on settlements and payment history are some of the features that cash transactions, although instantaneous, cannot provide.

“This fundamental shift in consumer demand and payment expectations sets forth a challenge for Southeast Asia’s banks, financial institutions, and merchants,” said Leslie Choo, managing director – Asia, ACI Worldwide. 

Real-time digital payments a result of rapid digitalization

Due to rapid technological change, consumers now expect mobile-first and real-time experiences, a facet of the financial industry that has often lagged behind.

Real-time payment systems enable consumers, merchants, and financial institutions to pay friends and customers, settle bills and transfer money instantaneously and effortlessly.

“These organizations can ill-afford to put their modernization projects on hold, despite the challenges caused by COVID-19. 

On the contrary, they can drive growth by joining the region’s emerging real-time payments ecosystem, which will improve their ability to innovate and transform while reducing the cost of infrastructure and operations.”, added Choo.

Consumers expect real-time payments abroad 

As consumers are becoming more reliant on real-time payments domestically, there is, of course, the expectation that this convenience will translate to payments beyond domestic borders. This is especially true once movement restrictions are relaxed, and people are able to more freely travel again.

In fact, almost half (49%) of Malaysian consumers who have previously traveled internationally expect increased usage of RTPs the next time they can travel. 

A whopping 70% expressed that it would be important if their preferred RTP can be used abroad. Consequently, a quarter (25%) expect that their reliance on traditional payments such as cash or credit cards will reduce.

The research also showed that three-quarters (76%) of Malaysian consumers prioritize payment safety and fraud prevention, whereas 67% think that transparency in exchange rates is more important.

A quarter (25%) of Malaysians are buying more online from regional Southeast Asian (SEA) merchants during the start of the pandemic, whereas international online shopping stands at around 23%.

According to the report, Malaysians who choose international sellers do so because they are reassured that their payment and personal data are safely transmitted, secured, and stored (36%); are able to pay with their preferred domestic payment method (24%), and are presented with a wider range of payment options as compared to SEA merchants (24%).

Real-time digital payments and their benefit to enterprises

Whilst cash may still lead slightly as a payment option, it is clear from these figures that the consumer demand for RTPs is dramatically rising. RTPs, with their convenience and speed, are emerging as a preferred form of payment, besides other digital payments such as e-wallets.

As domestic demand for RTP increases, so will regional and international demand. This demonstrates an urgent need for payment modernization not just in Malaysia, but across SEA as well.  

Doing away with cumbersome legacy payment systems can optimize and speed up payments and improve customer satisfaction. 

It is thus imperative that regional players work together to form a coherent, regional cross-border RTP ecosystem, which can boost trade and economic growth down the road. In fact, Malaysia and Thailand already have a cross-border RTP system, using QR codes.

But of course, the safety and security of personal data that are transmitted and stored should be equally prioritized in designing collaborative systems. 

In addition, RTPs can work alongside central bank digital currencies (CBDCs), which a number of Asian countries are exploring. This includes Japan, Singapore, Malaysia, China, Hong Kong, and Cambodia.

It’s not just online merchants that will benefit from RTP solutions, however. Brick and mortar sellers, even mom-and-pop stores, will find it wise to digitalize with RTP as well. 

And come to think of it, RTPs could even pave the way for the future of non-consumer payments too.

Typical payment pain points such as ‘cheque clearing’ that take days; administrative delays caused by manual or technical errors, or delays by layers of management approval can be addressed when parts of the business’ financial processes are digitalized.

Coupled with the automation of business and financial processes within a robust, physical and cyber-secure ecosystem, B2B transactions can also reap similar benefits and drive increased growth.

The post Real-time digital payments are winning the hearts of Malaysians appeared first on Tech Wire Asia.

Monetary systems are fundamentally built on trust in the currency. As such, it opined that CBDCs can open a new monetary channel based on trust in central banks. 

Given how the world is rapidly digitalizing with rising consumer trends towards digital forms of payments, a digital representation of money such as CBDCs can “better capture public interest”. 

“… digital innovation implies a “triple imperative” for the central bank in its role at the foundation of the monetary system: competition, data privacy and the integrity of the payment system,” said Hyun Song Shin, Economic Adviser and Head of Research of the BIS, in a speech at their recent Annual General Meeting in Basel.

It recommended that CBDCs function as part of a “two-tier system” where the central bank collaborates with the private sector, with each playing to its own strengths. The central bank will operate the “core of the (CBDC) system”, and ensure its safety and efficiency, whilst private sector players such as banks and other payment service providers bear the brunt of customer-facing activities. In Asia, several countries have or are considering developing CBDCs, including China, Japan, Malaysia, and Cambodia.

CBDCs should be designed around digital identity

Reinforcing its disdain for decentralized cryptocurrencies, BIS pushed for CBDC designs to be built around digital identity with a focus on data security and privacy. A trusted digital identity approach can stave off illicit activity, while at the same time, protect data privacy and facilitate cross-border payments. 

“Central bank digital currencies are moving from concept to practical design and renew the institution of money in a new form designed for the digital age,” writes the Bank for International Settlements in its Annual Economic Report 2021.

The report covered several design options for CBDCs and included an economic analysis of its implications for financial institutions, central banks, and customers.

As central banks are trusted and function as overseers of each nation’s monetary system, CBDCs will merely have to piggyback on their status to ensure the finality and certainty of payments made in transactions. 

Central banks ensure adequate liquidity in payment systems to function and are able to level the playing field; as such, CBDCs can be “made available on an equal basis to all parties”.

BIS, in its analyses, suggests that the most viable and practical design for CBDCs would entail one that is tied to digital identity. 

This means that users would have to identify themselves to use this currency system, which reduces the option for using a decentralized identity approach such as blockchain. 

They did, however, talk about possible designs that borrow from distributed ledger technology (DLT) in the form of “permissioned DLTs”.

However, this is still an ongoing area of research that is assessing the merits of such a design. 

CBDCs require high data security and protection

BIS noted the importance of data security and protection of customers’ data, and frequently emphasized their necessity in CBDC designs. Exploring various digital identity (DI) management approaches, BIS referenced DIs from Big Tech such as Facebook and Huawei. Such players often build private DI ecosystems within their products and services, which can also be used across other services with facilities such as single-sign-on (SSOs). They also mentioned harmonized DIs that work across consortiums of private firms (e.g. multiple banks) but highlighted how this approach would lead to silos and limited interoperability with other services. And there’s also a hybrid approach where private and governmental operators could harmonize and provide interoperability for DIs such as those seen in Estonia and Singapore. 

The Singapore government utilizes a biometric digital national identity system for citizens called SingPass, which is required to access government services, but which can also be used to access services by certain private players. As BIS condones CBDCs, they emphasized how CBDCs should also come with a high standard of cybersecurity, especially since the pandemic has led to a rise in cybercriminal activity and attacks. Incidents such as data breaches and coordinated or state-backed cyberattacks further reinforce the critical need for higher security as CBDCs will similarly face cyber threats.

BIS concluded that CBDC designs ought to be careful to protect users against personal data abuse whilst at the same time protecting the sovereign payment system against money laundering and financial crime.

Facilitating cross border financial activities

In addition, the BIS says international cooperation on design will be vital if central banks are to harness the full benefits of CBDCs and to improve cross-border payments while countering foreign currency substitution. Cross-border trade is big in Southeast Asia (SEA), and the rise of digitalization and consumers hungry for e-commerce will further spur more cross-border trade.

Recently, China’s JD.com launched the first ‘In-ASEAN’ cross-border trade with Thailand, and Malaysia and Thailand also launched a cross-border QR code payment system. These suggest that the necessity for an interoperable payment system is all the more important, especially in this region.

A key challenge highlighted by BIS is the lack of interoperability of DIs across countries. Some countries may be hesitant to provide DI information to other countries that do not have similarly stringent or different data protection regulations.

As such, it recommends that countries collaborate to develop a mutually recognizable system for DI credentials. This can be grounded on fostering KYC (know-your-customer)  and cross-border information sharing; reviewing interaction between data frameworks and cross-border payments, and “factoring an international dimension into CBDC design.”

BIS asserts that such cooperative efforts can lead to robust payment arrangements. It highlighted the multi-CBDC (mCBDC) approach that links CBDCs so they interoperate across borders. This can be done by coordinating national CBDC designs with “consistent access frameworks and interlinkages to make cross-currency and cross-border payments more efficient”. 

The post BIS: CBDCs keep up with digitalization trends; still needs identity and high security appeared first on Tech Wire Asia.