Indonesia and Thailand Implement QR Payment Linkage, Key to Increasing Digital Integration in Southeast Asia

Indonesia and Thailand have implemented a cross-border quick response (QR) payment linkage, meaning consumers can use their mobile applications to scan the QR codes for products and services from either country.

This initiative is in line with Southeast Asia’s increasingly integrated digital economy such that consumers from the ASEAN bloc will be able to undertake cross-border transactions with greater ease.

Further, the QR payment linkages could encourage greater financial inclusion in the region, which is infamous for its large unbanked and underbanked population.

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Indonesia’s central bank (Bank Indonesia) and Thailand’s central bank (Bank of Thailand) have implemented a cross-border QR payment linkage between the two countries after holding successful trials last year.

The new system allows Indonesian consumers to pay for goods or services in Thailand by scanning Thai QR codes. As well, Thai consumers can use their mobile applications to scan the Quick Response Code Indonesian Standard (QRIS) when buying products or services in Indonesia. There are some 76 payment service providers from both countries that have joined this project, and this is expected to grow.

Bank Indonesia is exploring other QR payment linkages with Singapore and Malaysia. For Singapore, the cooperation is targeted for launch in 2023, whereas for Malaysia, the cooperation has been in a pilot phase since January 2022 and is expected to be operational by the end of 2022.

The ASEAN Agreement on Economic Commerce

The cross-border QR payment initiatives are in line with the ASEAN Agreement on Economic Commerce, which provides a set of rules to govern cross-border e-commerce in the Southeast Asian bloc in addition to paving the way towards a regionally integrated digital economy. An important pillar of the agreement is the facilitation and easing of cross-border payments.

E-commerce grew exponentially in Southeast Asia amid the COVID-19 pandemic and the region is on track to have an internet economy with a gross merchandise value of US$350 billion by 2025, which will grow to US$1 trillion by 2030. This will mainly be driven by e-commerce, online food delivery, and a growing base of digital consumers and merchants.

How QR payments can strengthen Southeast Asia’s MSMEs

QR codes can encourage Southeast Asia’s micro, small, and medium-sized enterprises (MSMEs) to adopt cashless payment options, particularly since most MSMEs are in the informal sector and are either unbanked or underbanked. An estimated 50 percent (approx. 300 million people) of the region’s population are unbanked and a further 24 percent are estimated to be underbanked.

Financial inclusion varies among Southeast Asian countries. Singapore is one of the most financially inclusive countries in the world whereas some 70 percent of Vietnam’s population is unbanked. For the Philippines its 65 percent, and for Indonesia, it is 50 percent.

Barriers to financial inclusion in Southeast Asia

Cash is King

As most Southeast Asian MSMEs are in the informal sector, they pay wages in cash, especially in rural and low-income communities. Without bank account records, many Southeast Asian MSME firms and their employees do not have credit histories and this hinders their ability to access financial services, such as business loans or mortgages.

Financial literacy

Low levels of financial literacy are impacting the low adoption rate of financial services in Southeast Asia. Financial literacy is around 30 percent of the region’s adult population – lower than the global average.

Boosting financial inclusion

The importance of mobile phones

More people in Southeast Asia have a mobile/cell phone than a bank account. The mobile phone is thus key to achieving financial inclusion in the region as it enables users to access mobile wallets, which are linked to QR codes.

Some of the most used digital wallets in Southeast Asia are GrabPay, GoPay, OVO, MoMo, and PayFazz. Through these digital wallets, consumers can conduct online transactions without having a bank account. Moreover, as more consumers and businesses use these digital wallets, more data gets generated around their financial behavior and consumer trends. Financial institutions will then be able to tailor the type of financial products offered to this demographic.

For foreign investors in the e-wallet industry, it is essential that they deliver a customer-centric experience to allow customers to pay with the local payment method of their choice, ranging from mobile banking to payments via convenience stores.

P2P lending

Many MSMEs in Southeast Asia have business models that are not compatible with the characteristics of the financial products offered by banks and other financial institutions. That includes aspects such as payment terms for loan schemes, forms of collateral, and credit quality, among others.

Peer-2-peer (P2P) lending is one financing model that has the potential to serve the region’s underbanked and unbanked population. In Indonesia for instance, there are already over 160 officially registered fintech companies that offer P2P lending services, which was valued at over US$7 billion in 2020. These microloans are becoming increasingly popular as they take a short time to be disbursed (less than 24 hours), with the amount usually being less than US$100. Furthermore, the terms and maturity of the loans are also small and short, being repaid within a few weeks.

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