Unlocking ASEAN’s Digital Economy: Payment Systems in the Digital Era

The ASEAN region, along with the rest of the world, has experienced a significant acceleration in the importance of digital technology due to the widespread impact of the COVID-19 pandemic. According to the e-Conomy SEA report by Google, Temasek, and Bain & Company, Southeast Asia’s digital economy surpassed USD 200 billion in gross merchandise value (GMV) in 2022, with digital adoption continuing to rise as a result of post-pandemic acceleration. Among the key sectors driving the growth of the digital economy in the region are e-commerce, transportation and food, online travel, online media, and financial services. In this op-ed, we will focus specifically on the digitalization of financial services, as embracing digital payments holds the key to unlocking ASEAN’s digital economy by increasing efficiency, productivity, reducing costs, and fostering regional economic integration.

One notable area of digital transformation within the financial services sector in ASEAN is the rise and revolution of digital payments. The surge in online transactions in e-commerce, coupled with limited physical interactions during the COVID-19 pandemic, has led to an increased adoption of digital payments, with the gross transactions value exceeding USD 800 billion in 2022. This shift from offline to online consumer behaviour has prompted fintech players and platforms, including digital banks (digibanks), traditional banks, and insurance companies, to extensively digitize their services in order to keep pace with evolving trends.

ASEAN is witnessing a significant surge in the adoption of digital payments, such as mobile wallets, virtual credit cards, and wire transfers. According to Bloomberg’s 2021 report, ASEAN holds the fastest-growing mobile wallet market globally. The growth of cross-border trade in the past decade has also fuelled the adoption of digital payments. Traditionally, cross-border transactions have been associated with high costs and lengthy processing times. However, digital payments have emerged as a convenient and efficient solution to overcome these obstacles.

The rise of digital payments brings attention to the importance of robust digital infrastructure. Modern networks, hardware, software, data centres, and broadband connectivity are essential for seamless digital service delivery and the growth of digital payments in ASEAN. Improving digital infrastructure is a crucial factor in advancing ASEAN’s digital economy. Therefore, it is imperative for ASEAN to prioritize and increase efforts to improve accessibility and affordability of data connections and devices across the region.

ASEAN is also demonstrating its commitment to establishing effective data governance practices in the region. Frameworks such as The Bandar Seri Begawan Roadmap, The ASEAN Digital Master Plan 2025, The ASEAN Framework on Digital Data Governance, and the ASEAN Digital Integration Framework highlight the region’s focus on the digital economy. However, discrepancies in data governance frameworks among ASEAN Member States (AMS) still exist. A coherent and standardized data governance framework applicable to all AMS would facilitate smooth and secure data flow across national borders, reducing these discrepancies.

The growth of digital payments in ASEAN has brought to light several digital challenges both within and between countries. Digital development disparities among and within AMS, as well as concerns about privacy and cybersecurity, are the primary obstacles for digital transformation in the ASEAN region. The success of digital banking and digital payments also depends on addressing the issue of unbanked populations. The share of unbanked population varies greatly among the six ASEAN countries, with Singapore having the lowest (12%) and Indonesia the highest (81%) unbanked population. This highlights the significant digital divide in the ASEAN region.

The increasing prominence of digital payment systems raises questions about their compatibility across the ASEAN region. An inclusive and region-wide digital payment system would facilitate financial transactions and deepen regional integration in the financial sector. Currently, five ASEAN central banks—Bank Indonesia, Bank Negara Malaysia, Bangko Sentral ng Pilipinas, Monetary Authority of Singapore, and Bank of Thailand—have signed an agreement on cross-border payment systems to promote connectivity and interoperability among countries. Moreover, several central banks in ASEAN have launched bilateral QR-code-based cross-border payment systems, such as those between Indonesia and Thailand.

To thrive in the digital payments landscape, ASEAN Member States need to consider several criteria. First, while recognizing the importance of digital payments in supporting seamless cross-border digital trade, ASEAN should continue to address digital divide challenges, including disparities in digital development capabilities among countries and the gap in internet quality and usage. Second, countries should enhance digital knowledge and skills among their people through collaborations between governments, private sectors, and educational institutions. Promoting a culture of inclusiveness, innovation, and adaptability in embracing digital technologies and transformation is crucial. Digital literacy and skill development, particularly in rural or remote areas, will contribute to creating a better and more inclusive digital landscape in ASEAN. Finally, to ensure secure and free data flow within the region, ASEAN must build regional digital trust and ensure the implementation of high-security digital payment systems to prevent cybersecurity risks and data breaches.

The ASEAN region, along with the rest of the world, has witnessed an accelerating significance of digital technology due to the spread of the COVID-19 Pandemic. According to Google, Temasek, and Bain & Company e-Conomy SEA report, Southeast Asia’s digital economy reached ~USD 200 billion in gross merchandise value (GMV) in 2022 as the digital adoption is rising more due to post COVID-driven acceleration. There are 5 main sectors that are leading the growth of digital economy in the region, namely e-commerce, transportation and food, online travel, online media, and financial services. We will delve much more into detail in digitalized financial services, as embracing digital payments holds the key in unlocking ASEAN’s digital economy through increasing efficiency, productivity, lowering costs, and fostering regional economic integration.

The financial services sector in ASEAN has undergone much digital transformation, marked by the emergence and revolution of digital payments. The surge in online transactions in e-commerce coupled with limited physical interactions throughout the COVID-19 Pandemic has led to an increased adoption of digital payments with gross transactions value of digital payments exceeding USD 800 billion in 2022. In turn, the shift from offline to online consumer behavior induces upcoming fintech players and platforms, namely digital banks (digibanks), banks, and insurance companies, to vastly digitalize their services in efforts to keep up with current trends.

The ASEAN region is witnessing a significant surge in the adoption of digital payments, such as mobile wallets, virtual credit cards, and wire transfers. Bloomberg’s report in 2021 indicates that ASEAN holds the fastest growing mobile wallet market globally. The growth in cross-border trade in the past decade has also fueled the adoption of digital payments. Historically, cross-border transactions have been associated with high costs and lengthy processing times. Nevertheless, digital payments have become a convenient and efficient solution to these obstacles.

The narrative of rising digital payments brings us to the topic of digital infrastructure. Robust digital infrastructure is needed to facilitate growth of digital payments in ASEAN. This includes modern networks, hardware, software, data centers, and broadband connectivity, all of which are necessary for seamless digital service delivery. Improvements in digital infrastructure serve as a crucial factor in growing ASEAN’s digital economy. Therefore, it is imperative that ASEAN prioritizes and increases efforts to improve accessibility and develop affordability to data connections and devices within the region.

ASEAN is becoming more committed to establishing effective data governance practices in the region. ASEAN frameworks on digital economy, to name a few, include The Bandar Seri Begawan Roadmap, The ASEAN Digital Master Plan 2025, The ASEAN Framework on Digital Data Governance, and the ASEAN Digital Integration Framework. Despite the vast number of frameworks being introduced, the region still faces discrepancies in data governance frameworks among ASEAN Member States (AMS). A coherent and standardized data governance framework applicable to all AMS should facilitate smooth and secure data flow across national borders and decrease these discrepancies.

Across ASEAN, as there are several main players in the digibanks industry, the leading established banks who started to digitalize its products are investing more in their digital capabilities to offer better user experience and various innovative features. However, the growing of digital payments in ASEAN also brought to light the main digital challenges both within and between countries. The primary obstacles for digital transformation in the ASEAN region include digital development disparities both among and within AMS, as well as concerns on privacy and cybersecurity. The success of digital banking and digital payments would also depend on the share of the unbanked population. Between 6 ASEAN countries, namely, Indonesia, Malaysia, Philippines, Singapore, Thailand, and Viet Nam, the share of unbanked population greatly varies with the lowest unbanked population recorded in Singapore (12%) and the highest unbanked population recorded in Indonesia (81%). It shows the huge digital divide in the ASEAN region.

The rising digital payment system raises the question of its compatibility across the ASEAN region. An inclusive and region-wide digital payment system would ease the region’s financial transactions while also deepening the regional integration in the financial sector. Currently, five ASEAN central banks—Bank Indonesia (Indonesia), Bank Negara Malaysia (Malaysia), Bangko Sentral ng Pilipinas (Philippines), Monetary Authority of Singapore (Singapore), and Bank of Thailand (Thailand)—have signed an agreement on cross-border payment systems to promote connectivity and interoperable cross-border payment system among the countries. Moreover, several central banks in ASEAN have also launched their bilateral QR-code-based cross-border payment system, such as Indonesia and Thailand.

To thrive in the digital payments landscape, AMS needs to consider the following criteria.

First, while ASEAN has started to recognize the importance of digital payments to support seamless cross-border digital trade in several of its frameworks, it is also important for ASEAN to keep addressing the challenges. Digital divide could be continuous issue in the region since it is closely related to country’s capabilities to adapt with digital technology. Moreover, in terms of internet quality, e.g., internet speed or internet usage, the region still faces a huge gap.

Second, countries should also enhance their people with knowledge and skills in digital technologies. Collaborations between stakeholders, namely governments, private sectors, and educational institutions should be to promote a culture of inclusiveness, innovation, and adaptability in embracing digital technologies and digital transformation. Digital literacy and skilling, reskilling, upskilling of talent are very important, particularly in rural or remote areas, to enhance ASEAN’s effort to create a better and inclusive digital landscape.

Finally, to ensure secure data free flow within the region, ASEAN should build regional digital trust. High security digital payment systems should be ensured to prevent cyber security risks and data breaches