Asian economies must strengthen their regulatory frameworks, and invest in digital networks and infrastructure, to support contactless payment systems.
The development of contactless payment technology, which allows payments to be made without any direct or indirect human contact, is being given a big push by the fear of COVID-19 infection. In particular, digital (or online) payment has gained a lot of traction since the outbreak. At a broader level, digital technology is redefining how we work, shop, play, learn, and live in the COVID-19 world.
For instance, online shopping is a necessity during lockdowns and community quarantines when physical stores are shut down. Even after the restrictions are lifted, e-commerce is likely to grow in popularity as consumers prioritize health safety and become more aware of the convenience of online shopping. E-commerce requires e-payment, and the post-COVID-19 growth of e-commerce will thus translate into the growth of digital payment.
What does the data say at a broader level about the current state of digital payment in Asia? A sample of 28 economies from developing Asia shows they lag the global average in use of digital payments. While the use of digital payments varies across the region, it is rapidly increasing, with consumers throughout the region using fintech products regularly. Digital banking is also gaining ground in Southeast Asia, with most banks reducing the number of physical branches and improving the convenience and efficiency of online banking transactions.
For example, in the Philippines, the central bank aims to increase the use of electronic payments to 50% of the total volume of financial transactions by 2023. Digital payments have soared in the Philippines since its quarantine restrictions have been the world’s longest after being first imposed in March 2020. The country’s largest provider of mobile money services reported in May 2020 that the total amount of payments through its platform had increased eightfold from the previous year. The lender also announced plans to roll out electronic payments in transport, telemedicine, and government services by the end of 2020.
The experiences of two of Asia’s largest economies, India and the People’s Republic of China, provide valuable insights. The use of digital payments in India increased when the government demonetized its currency in 2016, forcing Indian consumers to shift to phone-based, contactless payment apps. Even when the availability of bank notes recovered, the use of electronic payments continued trending upward. Mobile payments through the Unified Payments Interface, where people link their bank accounts with their phone numbers through payment apps, increased by 163% to $287 billion in 2019.
The transition to a contactless payment system began much earlier in the People’s Republic of China. Digital payment and e-commerce took off in the aftermath of the 2003 Severe Acute Respiratory Syndrome (SARS) epidemic with the introduction of Alipay and similar payment systems. In fact, in terms of contactless payment, the country has become a global leader. In particular, QR code payment, a contactless method where payment is made by scanning a QR code from a mobile app, is now one of the leading means of payment throughout the People’s Republic of China. There is no physical touch required at all, which makes QR code payment ideal for the COVID-19 environment. In the PRC, you can even give alms to street beggars via QR code!
Notwithstanding the rapid ascent of contactless payment in the region, several challenges remain. Digital payment transactions require increased accountability and tracking, to reduce the risk of theft and breach of security. Data privacy presents another major challenge. Digitalization brings new threats such as cyberattacks, digital crimes, data breaches of payment systems, and online fraud. Thus, banks and fintech companies will need to invest heavily in advanced and reliable cybersecurity systems to protect consumer data and transactions. Finally, digital payments, including QR code payments, require a stable internet connection, so a strong digital infrastructure is essential.
COVID-19 is likely to lead to a large and lasting expansion of digital payments. To seamlessly transition to digital payments, which will be an integral part of the more digital post-COVID-19 world, Asian economies must strengthen their regulatory frameworks, and invest in digital networks and infrastructure, such as those that enable the use of digital IDs. Robust identification systems backed by a certification authority, reliable internet networks, and trustworthy financial services are prerequisites for contactless payment systems.