Connecting CBDC Hype with Reality - What Does the Future Hold for Asian Cross Border Payments?

Central banks across Asia are swiftly signing a slew of cross border payments agreements to integrate their real-time and quick response (QR) payment systems. Singapore’s PayNow is set to link with Thailand's PromptPay, Malaysia’s DuitNow, India's Unified Payment Interface (UPI) and Philippines’ InstaPay in its latest initiative.

Strategic partnerships between eWallet providers such as Ant Group’s “AlipayHK”, Malaysia’s “Touch ‘n Go”, Thailand’s “TrueMoney” and Singapore’s “Nets” are also forming a flourishing ecosystem of mobile wallets region-wide. Within existing payment networks, Visa B2B Connect offers a non-card based payment network enabling seamless bank-to-bank cross border business transactions while SWIFT’s global payment initiative (gpi) provides an instant service connecting high-speed cross-border rails with real-time domestic infrastructure.

Resurgent cross border payments innovation and collaboration is a welcome development by major industry stakeholders and arguably is a move that is long overdue.

With the pandemic induced consumer behavioural shift towards eCommerce now firmly embedded, what more can be done by key financial services players to set the stage for safe, simple, cost-effective and real-time cross border payments?

Will central bank digital currencies (CBDCs), a digital version of fiat currencies, emerge as the missing piece in the puzzle that has prevented wider scale adoption of international money transfer innovation until now?

Proprietary East & Partners research provides a snapshot of key cross border pain points routinely experienced by CFOs and corporate treasurers, along with their view on CBDCs.

Enormous Scope for Cross Border Payments Innovation

These issues are not new, but any efforts from providers to help corporates achieve these – simplifying compliance management, increasing predictability of payment transactions and enhancing payments visibility – would address the concerns of more than half of the large corporate market at the top of town. 

Major Cross Border Payments Pain Points Experienced by Top 1,000 Asia Corporates 
% of Total

Source: East & Partners Asian Transaction Banking Markets Program – November 2021 (N: 934)

The key question is are corporates prepared to incur a premium for these functions and at what rate? 

Positive Receptiveness Towards CBDCs

Adoption sentiment is a crucial factor in determining whether CBDCs will become a reality, along with other considerations including regulations and uptake of cryptocurrencies. With one in three (36.3 percent) corporates in Asia expressing interest in using CBDCs as a mode of cross-border payment, the technology appears to appeal more to these corporates in contrast to the muted response cryptocurrencies garnered. This is partly driven by the possibility of CBDCs solving many cross border payment pain points currently faced.

Willingness to use CBDCs for Cross Border Payments if Available
% of Total

Source: East & Partners Asian Transaction Banking Markets Program – November 2021 (N: 934)

Perhaps unsurprisingly, corporates in China, Singapore and Hong Kong are more receptive to CBDCs, reflecting the current pace of innovation and development in each market. How will this change in the next six months? What is holding back exceedingly wary corporates in India, South Korea, the Phillippines and Thailand?
Own the CDBC Industry Narrative
Lack of familiarity appears to be the underlying motivation behind why Asian corporates are shunning wider scale adoption of CBDCs. This, coupled with the fact that one in three CFOs approched for direct interview as part of East & Partners long running Asia Transaction Banking Markers Program hold no immediate thoughts on CBDC generally (32.4 percent), suggests that there is an immense “learning curve” and CDBC market education opportunity. At a broader level, there is a distinct chance for banks to own the industry narrative around CBDCs.

CBDC Familiarity
% of Total Not Planning to Use CBDCs

Source: East & Partners Asian Transaction Banking Markets Program – November 2021 (N: 292)

The impending risks of a newly launched CBDC is becoming too big to ignore. Should banks be worried about potential disintermediaries or losing its retail deposits?

How can banks lay the foundations for competing
on this next battlefield?

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