Traveling and shopping in Southeast Asia used to be a headache for the average jet-setter. Despite the two countries’ relative proximity, obtaining local currency can be a time-consuming and expensive process. However, this situation is rapidly changing.
Last year, the governments of Indonesia, Singapore, Malaysia, Thailand and the Philippines signed a groundbreaking cross-border payments agreement that enables transactions via a simple QR code.
This is a landmark moment for Southeast Asia’s highly fragmented payments market. Therefore, now is the time for the region’s business community to ride the wave of payments innovation and ensure seamless transactions and the highest payment conversion rates for their customers.
A long-awaited innovation
Regional travel has become popular in Southeast Asia since border restrictions due to the novel coronavirus were lifted. Tourists to local destinations are expected to surge in 2023 and 2024, increasing by 94% compared to 2022.
Previously, travelers used currency exchange offices to exchange local cash or used debit or credit cards in tourist-heavy locations. However, the effort and fees associated with these traditional payments have long proven to be a barrier to facilitating seamless cross-border spending.
Modernization of the cross-border payments sector has been long-awaited, with Southeast Asian consumers, especially millennials and Gen Z consumers, increasingly preferring mobile payments and e-wallets.
In a region of approximately 700 million people and 1,200 languages, merchants have long grappled with numerous challenges in providing localized payment options and customer support across the market. Businesses often struggle to partner with other payment providers due to highly complex regulations and a huge amount of regulatory red tape to understand.
Meanwhile, businesses must deal with exchange rate fluctuations that affect pricing, profitability, and financial stability. Improving cross-border payments is therefore critical to future business success. A better payment experience will not only improve the tourist experience, but also enable expansion of Southeast Asia’s booming e-commerce market and other regional trade.
Strengthening travel and commerce
Last year’s QR code agreement by five countries represented a step in the right direction towards payments interoperability. But as a bilateral agreement, it remains a small one in the grand scheme of global travel to Southeast Asia. There remains a significant need for cross-border interoperability through the establishment of common standards and protocols for payments.
According to a 2022 G20-related panel discussion, the agreement will need to work with other regional groups around the world to create a more centralized framework. On the other hand, some have proposed a local currency transaction framework that would allow trade settlements between companies without the need for foreign currencies such as the US dollar.
When it comes to FinTech, Indonesia stands out as a regional leader, a country where digital wallets are the preferred means of non-cash payments. In Indonesia, QR payments have tripled almost every year since its launch in 2019.
Southeast Asian businesses can look to Indonesia as a successful model for digital payments. Across regions, companies can also follow startups such as Africa’s use of mobile money, Brazil’s instant payment method PIX, and India’s rival mobile wallet. For Brazil, this has a huge impact, with three out of four Brazilians using his Pix to complete e-commerce purchases last year.
Future Southeast Asian FinTech innovators and local businesses can learn from these platforms and understand the aspects that will underpin the future of cross-border payments. The focus should be on user-friendly interfaces, personalized experiences, and seamless integration with other services such as e-commerce, travel, and lifestyle platforms.
Companies need to segment and prioritize sectors such as travel to foster growth and integrate alternative payment methods to help underserved communities access international commerce. There are some things you need to keep in mind.
Last but not least, travel transactions must be secure. Digital payment providers must be able to protect your personal and financial data from hackers, fraudsters, and identity thieves. Travelers expect their money to be encrypted and safe when using digital payment methods abroad, so businesses need to ensure they are working with trusted and certified providers. there is.
Innovations in cross-border payments offer transformative potential for Southeast Asia’s tourism industry. Travel not only benefits the tourism industry, but also extends to the wider community, helping local people, traders and businesses.It stands to reason that ease of payment creates ease of doing business
Continued innovation and cooperation between stakeholders and payment providers in this sector will only drive further growth and strengthen the Southeast Asian ecosystem and its overall potential for success.
Joaquin Moreno is dLocal’s Head of APAC.
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