In a recent webinar host On the Fintech News Network show, experts from the Bank for International Settlements (BIS), Wise, Airwallex and LexisNexis Risk Solutions explored the latest trends and developments in cross-border payments, highlighting Southeast Asia’s pioneering role in this rapidly evolving sector.
While the region is leading the way in advancement of instant payment systems, the panel highlighted new challenges, particularly the growing risk of fraud, and highlighted the important role that data analytics and artificial intelligence (AI) play in mitigating these threats.
Southeast Asia emerges as cross-border payments leader with Project Nexus
Kakit Yip, an adviser to the BIS in Singapore, said Southeast Asia was rapidly emerging as a hub for innovative payment solutions, particularly in the payments sector. Instant Payments.
The region is leading efforts such as real-time cross-border payments collaboration and exploring multiple central bank digital currency (CBDC) settlements.
“Southeast Asia is really a hotspot for the interconnection of high-speed payment systems,” Yip said. “You’ve probably seen some of the bilateral collaboration that’s been happening over the years.
At first PayNow-PromptPay integration There have been several collaborations between Singapore and Thailand since then to facilitate QR payments. For example, Malaysia and Thailand, Malaysia and Singaporeetc.
These collaborations could extend the efficiency and user experience of domestic fast payment systems into the cross-border realm, making international transactions as seamless and instantaneous as domestic ones, he said.
The focus of Yip’s presentation was Project Nexus, a flagship initiative led by the BIS. Started In 2022, it aims to revolutionize cross-border payments by interconnecting existing high-speed payment systems, reducing the time and complexity of linking such systems.
“The simulation predicted that linking 20 fast payment systems would require 190 links, each taking two to three years to complete end-to-end. Therefore, the vision of a global instant payment experience is not possible in our lifetime[in this scenario],” Yip explained.
“That’s the theory that led us to come up with Project Nexus, where we are developing a hub-and-spoke model that allows different high-speed payment systems to work with each other using a single connection, thus expanding the potential of cross-border payment systems to more countries and regions in a shorter period of time.”
He said Project Nexus has already made great progress, with successful proofs of concept involving the eurozone, Singapore and Malaysia.
As of June 2024, five countries have committed to bringing Nexus to the real world: Malaysia, Singapore, Thailand, the Philippines, and India.
The next step is to Nexus Scheme Organization Yip said he aims to manage and expand the Nexus network to cover more countries and regions.
Customer expectations shape market evolution
Samarth Bansal, general manager of Y’s Platform at Y’s Singapore office, spoke about how customer expectations are driving the changing cross-border payments landscape in Southeast Asia, noting that as domestic payment systems become more instantaneous, customers are demanding similar speed and efficiency in their cross-border transactions.
“For us, the trends[in cross-border payments]are very clearly defined by customer expectations,” Bansal said. “One of the things we’ve noticed, perhaps more specifically in the Asia-Pacific region, is the number of domestic payment methods that are now capable of instant payments.”
“The trend for instant, low-cost domestic payments is now spilling over into cross-border payments, which is driving a lot of activity from a regulatory perspective that is starting to be noticed not only by our partners around the world but also by the big traditional players in the space.”
Bansal said initiatives like Project Nexus are crucial in meeting these expectations, not only by reducing infrastructure costs but also by increasing transparency and efficiency in cross-border payments.
These efforts are in line with global goals set by the United Nations, such as making remittances more affordable and transparent, he said.
Cher Hao Low, head of SME and growth at AirWallex in Singapore, spoke about some of the key trends that are driving demand for flexible cross-border payments among businesses.
He stressed that macroeconomic changes and fluctuating costs are driving companies to seek more adaptable supply chains, and pointed to the shifting geopolitical landscape, which is also encouraging companies to future-proof their operations and diversify their supplier relationships and financing strategies to mitigate risks.
Finally, Loh said globalisation is forcing businesses in Southeast Asia to think beyond their domestic markets, and in this context, initiatives such as Project Nexus are crucial in supporting SMEs’ expansion efforts.
“In terms of Project Nexus, we believe that integration between Southeast Asian countries and India is a very good thing,” Lo said.
“We see this as an expansion of the market for businesses in Southeast Asia… and ultimately they will gain the skills to be more successful globally. We are very optimistic about these efforts and how they can help businesses in Southeast Asia expand and grow.”
Addressing the risks of instant payments
While the benefits of instant cross-border payments are clear, they also bring new challenges, particularly in terms of security and fraud prevention.
Ed Metzger, vice president of payment efficiency market planning at LexisNexis Risk Solutions, discussed these risks, noting that faster and more interconnected payment systems are making them attractive targets for fraudsters, especially in regions where real-time payment adoption is surging, such as Latin America and Southeast Asia.
“As the ecosystem becomes faster and more sophisticated, reducing barriers for customers to transact, we’re seeing an explosion of fraud in these marketplaces,” Metzger said.
“As we move towards a world of cross-border instantaneous payments, we as an industry must be prepared and expect there to be very significant threats that we must address.”
One of the main challenges here is balancing the need for security with the demand for a seamless, user-friendly payment process, Metzger said. In this context, he suggested that the key to making payments more secure without impeding customer behavior is the use of advanced data and technology.
“This is about using all available data sources to understand the risk of payments and then also using the data on the fly while the payment is actually being made to verify, for example, whether the payee this person is paying is the actual owner of the account,” Metzger said.
“As the industry evolves, the challenge will be to take more data sources, more validation validation sources and integrate that into the API process flow so that customers, whether they are individuals or businesses, can have a seamless payment flow without major interruptions.”
BIS’s Yip agreed, emphasizing the need to maintain and strengthen trust and confidence in cross-border payment systems as they become faster and more widely adopted.
“In the context of Project Nexus, we have set higher expectations regarding the scheme obligations that participants must comply with to be eligible to process payments on the Nexus network,” Yip said. “The scheme’s rulebook prescribes financial fraud prevention measures that participating financial institutions must comply with, which are intended to address weakest link risks.”
In addition, the BIS Innovation Hub Centre in London is exploring innovative solutions through initiatives such as: Herta Projectaims to use network analytics, AI and machine learning to identify patterns of financial crime in payments systems.
“High-speed payment networks like Nexus generate a huge amount of data through transactions,” Yip said.
“The challenge we’re trying to address through[Project Herta]is how to facilitate data sharing while enhancing privacy and leverage AI tools to create models that can be used to provide fraud scoring to participating financial institutions. This will be one of the tools that can be leveraged to better identify and stop fraud before it occurs.”
Watch the full webinar here
