Bringing Our Digital Payments Infrastructure into the Future

The adoption of digital payments across the globe is on an upward trajectory, and this has further accelerated in light of Covid-19. From Paypal to Bitcoin, cashless innovations over the years has led to digital payments volumes reaching USD$4.1 trillion worldwide in 2019.[1]

Some regions have traditionally been further ahead of others and despite the mobile payments boom, the Asia-Pacific region is still a while away from being fully cashless, mostly due to complexities within the region for digital payment providers.

Singapore faces an interesting conundrum—despite our early adoption of digital payment services over 30 years ago, to the proliferation of digital payment solutions today, we’ve stumbled in getting full buy-in for digital payment services, and cash continues to reign supreme in Singapore.

Only with the recent COVID-19 situation have we seen an increased uptake of digital payment services, spurred partly by the need for contactless payments. Nearly 50% of global shoppers report using digital payments more than before the pandemic[2], with Singapore ride-hailing giant Grab saw double-digit growth in transactions on its digital wallet service GrabPay within the first few weeks of social distancing.[3]

Singapore has had a slow start to our digital payments journey. In fact, with the thoughtful regulation of payment services posing a challenge, it was only this year where the Payment Services Act finally came into action as a forward-looking and flexible framework for the regulation of payment systems and payment service providers in Singapore.

In a recent conversation with Mr. Sopnendu Mohanty, Chief FinTech Officer at the Monetary Authority of Singapore, we spoke about Singapore’s journey towards achieving a holistic digital payments infrastructure and what the future holds for the digital payments landscape.

Setting the Stage for Our Digital Public Infrastructure

Despite our initial slow start to digital payment adoption, Singapore has built a remarkable public infrastructure in the payments space. From peer-to-peer transfer services such as PayNow offering corporate and individual services, and the Fast And Secure Transfers (FAST) electronic transfer service being opened up to non-bank players by end of the year, we have seen a massive upgrade of our infrastructure in the public sector to simplify and make the payment process seamless and secure for both consumers and businesses.

An example of such is the sudden rise of mobile payment methods which resulted in an abundance of different payment barcodes that proved frustrating for consumers, who ended up falling back on cash instead. Singapore has taken steps to remedy that with Singapore’s first universal QR code system, SGQR, which consolidates them into a single QR code for payment from any of the wallet apps.

Though this system still has room for improvement in terms of penetration, the development of this strong public infrastructure sets the stage for the rollout of a holistic digital payments infrastructure in Singapore’s future.

Bringing Legacy Systems into the Future

Whilst building out this digital payments infrastructure, a significant challenge has been the integration of the traditional banking players’ pre-internet, legacy systems into the internet-based systems of digital native Fintech players.

Much thought has to be put into developing the technological infrastructure required to enable this journey for the traditional banking players, as well as supporting the ecosystems to facilitate their IT workloads, including digital payments in real time. This has required a fundamental push to restructure architecturally, by getting banks to provide access in the form of Application Programming Interfaces (APIs)—allowing other players within the B2B Fintech space to be able to plug into the banking systems in order to digitize them.

Having APIs is now a critical component in the whole process of digital transformation for banks with legacy infrastructure. This is the key for traditional banks to leapfrog faster and grow beyond their legacy structure in order to integrate fully into the digital payments space.

For this safe breakdown of legacy systems into APIs to occur, interconnection is needed to enable the safe transfer and traffic of data without involving third parties and for the speed and convenience of electronic payments that customers will expect. In fact, in Mr. Mohanty’s own words, this is “a non-negotiable architectural contract” if banks want to successfully build an ecosystem for safe, secure and fast data transfers. This makes interconnection an integral part of Singapore’s digital payments future.

The Future of Open Banking for Singapore

Open banking in Singapore is conceptualized to be a game changer in the way that the digital payments landscape will work. This centers around data sharing between different institutions, and Singapore is hoping to evolve and mature to a point where banks participating in a common infrastructure will be able to provide API services and allow access to customer data at an individual level.

This would revolutionize the customer experience, allowing individual customers to consent to the sharing of data across entities for a consolidated snapshot of finances, as well as tailored recommendations. Banks and non-banking institutions will be able to interconnect and seamlessly pool data via this common infrastructure as opposed to having individual customer information siloed across organizations.

Another tenet to growing the ideal public digital infrastructure critical for the future of our economic growth is developing a highly interoperable payment services system that interconnects with not just other domestic players’ payment systems, but with other payment systems across the board. Interoperability will be key to getting international payment networks connected, and essential to solving the upcoming challenge of cross-border payments.

Over the years, Singapore has made strides towards developing a holistic digital payments infrastructure that not only serves customers and businesses in a seamless way, but has the potential to lay the ground for the future of payments in the region.

Amongst these developments, there is also a common demand of the digital infrastructure that will be needed to develop a frictionless customer experience. The need for real-time collaboration and communication between the different ecosystems present will require them to be richly interconnected—necessitating the support of a network-dense, scalable and interconnected environment for seamless data sharing not just across organizations, but across borders and countries in the near future.

[1] https://www.statista.com/outlook/296/100/digital-payments/worldwide

[2] https://www.researchandmarkets.com/reports/5117132/global-online-payment-methods-2020-and-covid-19s

[3] https://fintechnews.sg/41475/mobilepayments/south-east-asia-payments-trends/