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Singapore’s PayNow and Malaysia’s DuitNow will link up in 2022, the respective countries’ central banks have announced.
The Monetary Authority of Singapore (MAS) and Bank Negara Malaysia (BNM) have agreed on a phased linkage of their payment systems, with the first phase due to begin in the fourth quarter of 2022.
Remittances between the two countries reached 1.3bn Singapore dollars in 2020 and, before the pandemic, 12m tourists passed between them on average per annum.
“Singapore’s remittance corridor with Malaysia is our largest remittance corridor,” pointed out Sopnendu Mohanty, MAS’ chief fintech officer. Remittances are payments abroad.
According to Mohanty, the PayNow-DuitNow linkage will be an important piece of infrastructure that helps individuals and businesses make cross-border payments and will help digital economic activity between both countries grow.
“The linkage also offers MAS and BNM a valuable opportunity to incorporate the use of distributed-ledger and smart-contract technologies in the wholesale cross-border payments space,” he said.
Once in use, it will allow customers in the participating financial institutions to make real-time fund transfers between the two jurisdictions using mobile phone numbers only.
Customers will also be able to make retail payments by scanning NETS or DuitNow QR codes that merchants display at their storefronts.
“By bringing the efficiencies observed in domestic payments to cross-border payments, the PayNow-DuitNow linkage will be a game-changer resulting in faster, cheaper and more accessible payment services for the people of both countries,” said Fraziali Ismail, BNM’s assistant governor, who thought that the agreement would reinforce economic ties between the two countries.
This linkage represents a huge opportunity for participating firms to capitalise on one of the busiest border crossings in the world, noted Prasad Thandapani, a regulatory monitoring associate at VIXIO with expertise in these markets.
"Pre-pandemic, nearly half a million commuters crossed the Malaysia-Singapore border everyday. Many of these commuters were Malaysians who work in Singapore but live and spend their earnings in Malaysia," he pointed out.
At present, most of these commuters simply carry their earnings back in cash, often shopping around currency exchangers to avoid high overseas bank transfer fees. With this new linkage, they will no longer be subject to the inconvenience and security risks that this entails, noted Thandapani, a former resident of Malaysia's capital, Kuala Lumpur.
Likewise, he pointed out, Singaporeans often travel to Malaysia to take advantage of relatively cheaper prices for amenities such as petrol and groceries.
Singapore’s and Malaysia’s new agreement is one of many linkages between the payment systems of jurisdictions in Asia that central banks have agreed upon this year.
In April, the MAS agreed on a payment linkage with neighbouring Bank of Thailand. Customers of participating banks will be able to transfer funds of up to S$1,000 or 25,000 Thai bahts daily.
Last month, Thailand’s central bank also agreed on a payment linkage with Bank Indonesia.
Indonesia joins the likes of Japan, the People's Democratic Republic of Lao, Cambodia and Vietnam, which have already established QR linkages with Thailand.
Unlike the regulators in Europe and the United States, the Association of South-East Asian Nations (ASEAN) is taking a bottom-up approach to integrating payments in the region, said Thandapani.
"Allowing individual nations to develop their own payments ecosystem has enabled ASEAN member states to come up with solutions that suit and will appeal to their own markets rather than trying to twist a single solution to fit," he said, pointing out that this has allowed the ASEAN countries to develop at their own pace rather than being held back by states where cashless payments and technological literacy have yet to take off.
As Asia is also a generally less developed market than North America and Europe in terms of payment systems, most of its inhabitants use international bank account number (IBAN) transfers, QR codes or e-money as their first non-cash-based payment methods — unlike Europeans, who simply see these methods as alternatives to cards, said Thandapani.
"The uniqueness of this situation makes it much easier for these new payment linkages, and their associated providers, to penetrate local markets."
