RTPs: Supporting nation-building agendas

This article was originally published on Business Insider.

• • RTPs are a critical element of nation building in the region, in particular around increased digital and financial inclusion
  • India is global leader in RTPs, with 41 million transactions per day, closely followed by China
  • While domestic RTP systems are growing across almost all Asian countries, cross border payments remain a challenge
  • Business Insider has named some notable leaders transforming finance in Asia.
  • Visit Business Insider's Transforming Business homepage for more stories.

When it comes to the movement away from cash and toward a digital economy fueled by real time payments (RTPs) Asia is leading the world. According to a recent report from FIS Global, India is now the global leader in RTPs, handling 41 million transactions per day, more than double the number for 2019. Alongside India, China, with 38 million RTP transactions per day, and South Korea at 75 million, make up the global top three. South Korea also has the world's highest amount of transactions per capita.

A large part of the impetus for this shift away from cash is the growth in popularity of digital wallets and other RTP platforms in the region, led by pioneers such as Ant Group's Alipay. 

Southeast Asia is a particular growth area. In Indonesia, for instance, there are close to 50 digital wallet providers competing in that single market.  According to the Mastercard Impact Study 2020, Malaysia now has the highest mobile wallet usage in Southeast Asia at 40%, just ahead of other countries such as the Philippines at 36%, Thailand at 27%, and Singapore at 26%. Consumers and merchants alike now expect to be able to settle bills or transfer money at the touch of a button.

But for Asia in particular there is an additional reason for the rapid adoption of RTPs - the ongoing push from governments and local regulators around the region to stimulate their domestic digital economies and broaden financial inclusion. 

Singapore led the way in 2014 with the introduction of FAST (Fast and Secure Transfers), which allows the electronic transfer of funds from one bank to another. Since then, similar systems have been introduced in India, Thailand, Hong Kong, Malaysia and more.

 "The coming together of mobile smart phones, digital commerce, greater financial and digital inclusion, and a thriving global fintech community has created much of the early momentum we've seen driving the technology forward over the past five years," says Ari Sarker, co-president, Asia Pacific, at Mastercard.  "The contagion effect of RTP success has now placed them front and center in a number of governments' inclusion and digital agendas across India, Singapore, Thailand and others."

Mastercard has over the past several years partnered with several countries across Asia to support the progress of RTPs. Last year, for instance, it worked with BancNet, the operator of the InstaPay RTP system in the Philippines, providing users with enhanced services, stronger security features and better data capabilities. The company has entered a similar collaboration in Indonesia and is exploring others with governments in the Asia Pacific region.

"Consumer and business acceptance of RTPs, and the implementation of RTP solutions in the region, are growing because RTP is at the core of most governments' nation building agendas that include financial inclusion via payments digitization," adds Sarker. "And this is accelerating the adoption of this technology with innovators continuing to create new solutions for the various use cases."

Cross border challenges

The next frontier for a more evolved RTP ecosystem will be the development of cross-border RTP systems. A payment network that would facilitate and streamline payments across the region would have obvious benefits from cross-border commerce, but the lack of uniform regulations, combined with the different economic and development priorities of individual countries in the region, make cross-border payments a tough proposition.

Sarker notes that current RTPs systems and platforms in Asia are by definition domestic in nature, and as such the ecosystem has evolved though a number of country-specific technologies and regulations. Enabling cross-border transactions would require a new set of technological standards and regulatory frameworks.

"This is a governance challenge versus a technology challenge," Sarker adds. "Many facets of interoperability have to be decided and regulated, including the right of ownership of data. Also, a significant level of financial and time investment is required to build integrating connections between systems.  Attempts have been made to create interoperability between real-time payments schemes across Asia Pacific, but these have not been resounding successes yet."

That said, there are a few green shoots emerging. According to a recent research paper from ACI Worldwide and Kapronasia, Southeast Asia in particular is emerging as a global focal point for cross-border real-time payments growth.

"Unencumbered by legacy payment systems, which can impede innovation in many mature markets, Southeast Asian countries are starting to leverage domestic central payment infrastructures as a basis for cross-border linkages for both retail and commercial real-time payments," says Zennon Kapron, founder and director, Kapronasia, a research and consulting firm focused on the Asian financial services industry. 

Like Sarker though, Kapron recognizes the challenges involved. "The biggest challenge is the pooling of the these domestic systems. Singapore's FAST and Malaysia's PayNet, for instance, are in all likelihood using different messaging formats and different technology systems to support that so there is all that plumbing that needs to match up."

On top of this, there is the task of bringing together countries in the region that may have diverse digital agendas. How a unified RTP system would be managed and regulated is still not clear. 

"Five years ago, you would have said that ASEAN (Association of Southeast Asian Nations)  would be the one driving this," adds Kapron. "But there has been a lot of talk but not a lot of action, so increasingly we are seeing it being more bilateral relationships that will bring that together and form that de facto ASEAN payment program."

RTPS are here to stay

What is clear though, is that RTPs will increasingly become the main payment system for consumers and merchants in Asia, while at the same time advancing local economies. 

"Real-time payments are already graduating from domestic peer-to-peer transactions to broader domestic transactions, including government disbursements and commercial transactions," says Sarker. "With their rich messaging capabilities, they will allow for the inclusion of more data and value-added services to be built on top of these payments. And as RTPs remain a critical part of government national agendas, they will also continue driving greater financial and digital inclusion."

And like what is happening across much of the digital economy, there is the impact of COVID-19 and increased lockdowns, work from home and social isolation.

"This was a transition that was already under way, especially in places like China and India," says Zennon Kapron. "It has been accelerated over the past six months. People are more used to RTPs. They have trust in the system. To some extent these changing consumer mindsets and habits has been forced by COVID-19, but people are now much more comfortable with RTPs so I expect they'll continue with those kind of transactions."