Interoperability a Key Driver in SEA Digital Remittances Market

By Verghese V Joseph –

The digital remittances market in Southeast Asia (SEA) is seeing remarkable growth, with a projected transaction value of US$6.11 billion by 2024 and a subsequent annual growth rate of 7.20% through 2028, culminating in an anticipated total of US$8.07 billion. The market is expected to witness a substantial increase in users, reaching 0.95 million by 2028. What makes this even more noteworthy is the global context, where the highest transaction value is anticipated to peak in 2024. This underscores the growing prominence of digital remittances on a global scale. Particularly in emerging markets, remittance inflows serve as one of the major sources of foreign capital.

In an interaction with AsiaBizToday, Joaquin Moreno, Head of APAC at dLocal, a leading cross-border payment platform, shares at length his insights on the pivotal role of digital remittances in SEA and their contribution to facilitating seamless and efficient financial transactions across borders. He also delved into the popular digital remittance options currently being embraced by consumers in the region.

Joaquin is responsible for managing and growing dLocal’s revenue in the APAC region. Joaquin has been in sales and account management leadership roles for the last ten years. Before dLocal, he was involved in a variety of different hyper-growth startups in travel tech and SaaS. Excerpts:

Q: How has the adoption of digital remittance platforms evolved in Southeast Asia, and what factors contribute to the growth of these services in the region?

A: The adoption of digital remittance platforms in Southeast Asia has witnessed remarkable evolution. Factors contributing to their growth include the region’s rapid digitization, changing customer behavior, and the need for efficient cross-border transactions. With the proliferation of mobile wallets and real-time payment systems, users now demand speed, cost-effectiveness, and reliability in their remittance services. At $40bn, the Philippines is amongst the top four countries receiving remittances, after India ($125bn), Mexico ($67bn), and China ($50bn).

Q: What challenges do individuals and businesses face in cross-border financial transactions within Southeast Asia, and what can be done to address or mitigate these challenges?

A: From its myriad languages, cultures to regulations, regional nuances and complexities abound in the fragmented market that is Southeast Asia. With its diverse currencies and economic activities, all the more, the region’s fragmented payment landscape comes as no surprise, resulting in many challenges arising when it comes to cross-border financial transactions. Emerging markets within the region, in particular, also tend to have more unstable and complex regulatory environments, which would then require highly resource-intensive solutions for any business. In order to circumvent these challenges, interoperability is key — dLocal for instance has integrated over 900 payment methods across 40 emerging markets and made them all available through a single Application Programming Interface (API), so as to create a seamless financial transaction experience for both individuals and merchants.

Q: Could you provide insights into the regulatory landscape governing digital remittances and cross-border transactions in Southeast Asian countries? How are governments adapting to the changing financial technology landscape?

A: Regulatory Authorities: The financial services are regulated by independent bodies in each of the region’s nations. The Monetary Authority of Singapore (MAS), for instance, is essential in overseeing technology and financial institutions in Singapore. The Securities Commission Malaysia and Bank Negara Malaysia are responsible for this in Malaysia.

Licensing and Compliance: For fintech companies—including those engaged in digital remittances—many nations have instituted licensing regimes or sandboxes. These businesses can contribute to a safe and stable financial ecosystem and meet legal requirements by obtaining the required licences.

Financial Inclusion Initiatives: Fintech is being used by certain Southeast Asian nations to advance financial inclusion. Governments are looking into methods to use digital technology to give underprivileged people—including those living in distant areas—access to financial services.

Regulatory Sandboxes: To give fintech companies a regulated environment in which to test their products and services, several nations have set up regulatory sandboxes. This strategy gives fintech companies the freedom to experiment while allowing authorities to keep a close eye on advances.

Alongside the need for more unified transaction processes as well as greater interoperability between payment systems across the various markets in Southeast Asia, governments in the region have been ramping up efforts to adapt to and support the evolving financial technology landscape. In September last year, for instance, the Association of Southeast Asian Nations (ASEAN) kickstarted negotiations for a Digital Economy Framework Agreement, with the goal to create an inclusive and sustainable digital ecosystem. Amongst other key priorities, these negotiations will continue to revolve around digital trade, cross-border e-commerce, and digital payments. Consider also the PromptPay–PayNow cross-border payments linkage between Thailand and Singapore: to address the disparity in anti-money laundering/combating the financing of terrorism (AML/CFT) screening between the countries, both nations reached a compromise to reconcile the different operational approaches while taking into consideration their respective regulations. Ultimately, it would be pertinent for governments to continue developing legal frameworks collaboratively — prioritizing interoperability over uniformity — as the region’s fintech landscape advances.

Q: How are financial institutions in Southeast Asia leveraging cross-border payment processes, and what benefits are they experiencing as a result?

A: From Singapore’s PayNow and Malaysia’s DuitNow payment systems linkage and Singapore’s PayNow and Thailand’s Promptpay, to Malaysia, Singapore, Thailand and the Philippines signing a memorandum on regional payment connectivity through the use of QR codes in 2022, inroads have been made to improve speed, enhance security, and reduce costs around cross-border payment processes. These not only have a huge impact on merchants but the overall economy for each of these regions.

Q: Are there specific use cases or success stories of cross-border payment processes in remittance services within Southeast Asia? How have these initiatives impacted financial inclusion and accessibility?

A: A great example of this would be the real-time fund transfer (RFT) payment link established between Singapore’s PayNow and Thailand’s PromptPay. This allows individuals to make almost-instant, real-time, low-cost payments using just the recipient’s phone number or QR code. Forget complex banking processes and regulations — with just a QR code and smartphone, initiatives such as these offer greater financial inclusion and accessibility and benefit micro-, small- to medium-sized enterprises, as well as unbanked individuals the most. This is especially the case in Southeast Asia, where smartphone penetration rates are not only already extremely high but are also forecasted to experience continuous growth.

Q: What are the key technological and infrastructure challenges hindering cross-border financial transactions across Southeast Asia, and how can these be addressed?

A: With a plethora of varying operational systems, regulations and payment methods and processes across the fragmented markets in Southeast Asia, the challenge lies in having to reconcile these differences for efficient and safe cross-border financial transactions to be possible. At dLocal, we are focused on improving the infrastructure for financial services in emerging markets, including Southeast Asia. While other players in this space focus on the product side of the business, we are merchant-driven as we believe this is the best way to cross-sell. By taking leading merchants to market, and driving interoperability of payment methods through a single API, dLocal can then help them build a route to market while engaging the wider market.

Q: In the context of digital remittances, what are the potential risks and security considerations associated with cross-border payments in Southeast Asia, and what measures are being taken to ensure the safety of financial transactions?

A: Fraudulent traffic rates are very high in emerging markets, and this is no different in the Southeast Asia region, which is made up of many emerging markets. Merchants have to frequently contend with fraud, given the relatively less sophisticated infrastructure in these markets. On top of that, new users are entering the digital economy en masse — with numbers in Southeast Asia forecast to continuously increase between 2024 and 2029 by 77.4 million users in total.

Inevitably, these new users do not have a digital footprint, which in turn increases the perceived risk of financial transactions in these markets. Needless to say, much has to be done to ensure the safety of cross-border payments, and digital payment providers need to be able to protect personal and financial data against hacking, fraud, and identity theft. Looking to the PromptPay-PayNow case study again, measures that encourage interoperability or the use of proxies such as mobile phone numbers, national ID numbers, eWallet IDs and corporate IDs instead of bank account numbers to verify the name of the recipient connected to the proxy. This also ensures that incorrect transactions can be avoided.