The Asian payment landscape is evolving rapidly in 2024, driven by advancements in technology, changing regulatory frameworks, and shifting consumer behaviours. This evolution presents a fascinating panorama of trends that are set to redefine the way financial transactions are conducted. Let’s delve deeper into these payment trends in Asia transforming the ecosystem.
2024 trends indicate that regulatory changes are playing a crucial role in shaping the payments landscape in Asia. As governments and financial institutions adapt to the evolving environment, these changes are influencing the development and adoption of new payment systems. Regulatory actions are expected to further accelerate the adoption of innovative payment methods, ensuring compliance while fostering innovation.
In Asia, dominant past trends heading into 2024 include big tech firms having developed payment services based on e-wallets, which allow users to pay with their smartphones via QR codes or NFC. These e-wallets are linked to bank accounts, credit cards, or prepaid balances. Tech companies are innovating by being both a distribution partner and a potential threat to incumbent payments players. Super apps with embedded finance capabilities have been one of the dominant payments across Asia even before 2024.
Other payment trends in Asia preceding 2024 including the rise of B2B buy now pay later (BNPL), growing prominence of central bank digital currency (CBDC), and prevalence of composable, cloud-based ‘as-a-Service’ IT architecture models have helped shape much of what we anticipate for 2024. So what are five of the pivotal payment trends in Asia heading into 2024, and how will they be a difference maker?
Skyrocketing Rise of Instant Payment Infrastructure
The growth of instant payment systems in Asia marks a significant shift towards faster and more efficient financial transactions. These systems, operating continuously, offer the promise of instantaneous transfers, a stark contrast to the slower traditional methods. The Future Market Insights study from 2022 highlights the burgeoning potential of this sector, projecting the global market for instant payments to grow from US$28 billion in 2023 to US$125.7 billion by 2033, with a CAGR of 12.2%.
Countries like India have taken the lead with their Unified Payments Interface (UPI) registering 89.5 billion transactions since 2016. Similarly in other parts of Asia including Singapore, Malaysia, Thailand, and South Korea, QR-based payment systems are becoming increasingly prevalent, indicating a regional move towards more agile and user-friendly payment methods.
The scope of instant payments is expanding beyond consumer transactions to encompass more complex financial operations. This expansion is driven by the increasing acceptance of these systems by consumers and regulatory bodies alike. The integration of instant payments into daily financial activities signifies a broader shift in consumer preferences and behaviours, reflecting a demand for quicker and more convenient transaction methods.
Central Banks and the Adoption of Digital Currencies
Central Bank Digital Currencies (CBDCs) are emerging as a transformative force in the financial landscape. By mid-2023, nearly 130 countries, covering 98% of the global GDP, were exploring the concept of CBDCs. Notably, nearly half of these countries were in advanced stages of development, piloting, or launching their digital currencies.
Despite varying levels of initiative and enthusiasm across different markets, the significance of digital currencies is increasingly acknowledged by both commercial and central banks, especially as economies become more interlinked.
These digital currencies, divided into retail and wholesale variants, aim to facilitate transactions across various sectors of the economy. Retail CBDCs enable transactions between individuals and institutions, while wholesale CBDCs are geared towards financial institutions and large corporations. The development of these digital currencies signifies a major shift towards more inclusive and efficient financial systems.
Prototypes and proofs of concept are being developed for payment systems based on distributed ledger technology (DLT). These include cross-border Payment versus Payment (PvP) transactions and wholesale market Delivery versus Payment (DvP) transactions. PvP ensures that the final transfer of a payment in one currency only occurs once the corresponding transfer in another currency is completed. Meanwhile, DvP mandates that financial institutions deliver securities to a recipient only upon receiving payment.
Tokenisation and Blockchain to Secure Transactions
The tokenisation market and blockchain-based decentralised finance (DeFi) systems are gaining significant traction in the payments sector. The global tokenisation market, valued at US$2.39 billion in 2022 by Fortune Business Insights, is projected to expand to US$9.82 billion by 2030 at a CAGR of 19.6%.
Decentralised finance, which utilises blockchain technology, employs open-source technology to reduce costly payment processing fees by minimising the need for intermediaries. The global blockchain market in the banking and financial services sector is experiencing rapid growth.
From US$1.89 billion in 2022, it is expected to increase to US$3.07 billion in 2023, representing a year-on-year growth of over 62%. By 2027, the market is anticipated to reach US$19.27 billion, expanding at a CAGR of more than 58% between 2023 and 2027, as indicated by a 2023 study from The Business Research Company.
The Role of AI in Payment Services
The introduction of artificial intelligence (AI) in the payments sector has brought a plethora of benefits. AI-powered processes have streamlined labour-intensive tasks, minimised errors, and sped up transactions. One of the key functions of AI in this domain is its ability to match incoming payments with outstanding invoices, thereby automating payment reconciliation and significantly reducing manual efforts.
AI also plays a crucial role in identifying potential payment delays, such as disputes, and facilitates proactive resolution. This capability not only hastens the payment process but also enhances the accuracy of payment data, fostering trusted relationships in the business world.
Another area where AI is making substantial inroads is in the detection of fraudulent transactions. Automated systems, powered by machine learning, are capable of rapidly analysing vast amounts of data to identify potential risks and fraudulent activities.
Research conducted for the World Payments Report 2023 indicated that 51% of payment executives surveyed identified efficient and quick customer onboarding, Know Your Customer (KYC) verification, and Anti-Money Laundering (AML) services as significant challenges. AI has the potential to optimise these processes and reduce human errors, which can in turn decrease the processing costs associated with high-volume transactions.
Furthermore, Capgemini’s World Payments Report 2023 revealed that 53% of payment firms are engaging in multiple pilot projects to harness AI across the cash-management value chain. This survey also found that half of the payment executives reported their firms are running multiple pilots to automate processes within the cash management value chain, while 61% acknowledged the benefits of collaborating with fintechs for actionable data analytics.
Out of all the 2024 trends, this one underscores the increasing reliance on AI in Asia to enhance efficiency and effectiveness in the payments sector.
Digitalisation of Accounts Management
The increasing need for efficiency, cost reduction, and rapid access to information is prompting payment companies to digitise their accounts payable (AP) and receivable (AR) processes. Early adopters are already reaping substantial benefits from employing digital scanning and optical character recognition (OCR) technologies to process incoming invoices.
Furthermore, digitised workflow management solutions are enhancing the efficiency of tracking and approvals, vendor management, and the filtering of sanctioned parties to detect, prevent, and disrupt financial crimes. The research firm Adroit projects that the market for AR and AP automation will expand at a CAGR of 17.6% from 2019 to 2029, reaching a market value of US$7.8 billion.
Payment firms are progressively implementing automation and digital transformation to enhance operational productivity. In 2021, HSBC integrated international payment and expense management functionalities into Oracle NetSuite’s banking platform, enabling enterprise clients to automate their accounts payable, receivable, and reconciliation processes.
Similarly, corporate clients using Citi’s Virtual Account Management (VAM) platform have access to automated account receivables and payables, along with instant cash management capabilities such as real-time cash concentration, account segregation, and instant reconciliations. Citi reported a significant 82% increase in virtual account balance growth in 2022, attributing this success to a 33% adoption rate of their VAM platform.
This trend underscores the growing importance of digital solutions in the financial sector, reflecting a shift towards more streamlined and efficient payment processing systems.
2024, A Transformative Era for Payment Trends in Asia
In 2024, it’s evident from the trends observed that the payment industry in Asia is on the cusp of a transformative era. The trends of instant payments, CBDCs, tokenisation, AI integration, and digitalisation of accounts management are collectively redefining the financial transaction landscape.
This transformation is not just technological but also cultural, reflecting a shift towards more efficient, secure, and customer-centric payment solutions. The future of payments in Asia, therefore, promises not only technological advancement but also a new era of financial inclusivity and efficiency.
