Critical for Malaysia to have efficient cross-border payment to support trade, says BNM governor

IT IS critical for a small and highly open economy such as Malaysia to have an efficient cross-border payment service to support trade and commerce with its neighbouring countries as well as all countries worldwide.

Bank Negara Malaysia (BNM) governor Tan Sri Nor Shamsiah Mohd Yunus (picture) said the central bank is now pursuing multiple efforts on many fronts such as by linking DuitNow, its fast payment system, with Asean neighbours.

“This is a no brainer. Within Malaysia, DuitNow has enabled millions of individuals and businesses to transfer money instantly and seamlessly. So imagine if we could do the same for the whole region to make cross-border payments cheaper, faster, more transparent and accessible to all 600 million plus of us in the region. The economic impact can be significant.

“Asean economies are highly integrated, with intra-Asean trade accounting for the largest share of the total trade in Asean. So think about how this can bring about a change to help people and businesses in trade and travel,” she said.

Nor Shamsiah said this during the casual talk session 1 at the Digital Economy and Finance Festival organised by Bank Indonesia themed, “Faster, Cheaper, More Transparent and More Inclusive Cross-border Payment to Promote Regional Economic Recovery”.

Also participating in the session were Bank Indonesia governor Perry Warjiyo, Monetary Authority of Singapore managing director Ravi Menon, Bangko Sentral ng Pilipinas governor Felipe Medalla, and Bank of Thailand’s deputy governor Ronadol Numnonda.

Nor Shamsiah further said, with over 10 million people in Asean living, working and studying in other countries within the region, the integration of fast payment systems will transform cross-border payment services and bring the benefits of instant and low-cost payments enjoyed domestically to the cross-border space.

She noted that Malaysia has launched QR payment linkages with Thailand and Indonesia with efforts to expand them to support peer-to-peer transfers and similar initiatives are also being pursued with Singapore and the Philippines.

“Our efforts to set up bilateral connections for payment system in Asean is important, but we also need to start thinking about how to go about it more efficiently at the regional and global level.

“That is why we are participating in the Project Nexus proof-of-concept to test the feasibility of establishing a more scalable, multilateral network of fast payment system.

“Through Project Dunbar, we have also collaborated with the Bank for International Settlements (BIS) Innovation Hub and central banks in Australia, Singapore and South Africa to test the use of wholesale central bank digital currency (CBDC) for international settlement through a common shared platform,” she said.

Nor Shamsiah shared that BNM is also implementing an industry-wide migration to ISO20022 messaging standards wherein besides facilitating faster and more seamless cross-border payments, it hoped that financial institutions could reap the benefits of data-rich payments to improve risk management and offer more value-added services.

With a lot of exciting things happening in cross-border payments, she said these will be beneficial for Asean economies by increasing efficiency and enhancing financial inclusion.

To optimally harness the benefits of interoperability, cross-border payment arrangement should have these features – neutrality, parity and inclusivity.

On neutrality, she said the cross-border payment arrangements must be technology-agnostic to support diverse connectivity and payment models by ensuring that the linkages are flexibly designed so that they can support new connectivity models, which could take the form of any possible CBDC systems.

“We also need to bear in mind that different countries are in different stages of development, with some countries not having fast payment systems at this juncture.”

For parity, she said cross-border payment arrangements should seek to allow fair and open access to all banks and non-bank payment service providers, which would foster coopetition between players, where innovation would flourish through collaboration at the infrastructure level and competition at the product level.

Meanwhile, on the aspect of inclusivity, Nor Shamsiah said there is the need to cater for new use cases and meet the needs of different user groups.

“Malaysia’s fast payment system linkages have been designed to facilitate scalability to cater for any future expansions and business model changes. Equally important are efforts to address last-mile challenges to ensure all segments of the society are able to benefit from safe and efficient cross-border payments.

“For example, to facilitate migrants who are not able to afford smartphones to send money home, cross-border remittance services should also support transfers using more affordable channels such as feature phones and smart cards,” she shared.

Payments are all about networks and system, she stressed, as many players and parts are involved, hence, in the case of cross-border payment initiatives, it is expected that the challenges are amplified.

The key challenges include obtaining strong commitment from all parties to ensure the projects are delivered in a smooth and timely manner; ensuring the long-term viability of the cross-border payment infrastructure; and identifying an appropriate governance and risk management framework, given the cross-border nature of the payment infrastructure and its likely systemic importance for the countries, individually and as a group.

“We are still learning, and I have got no silver bullet solutions. But in my mind, there are two principles that I find have helped us work through these challenges. Firstly, we need to establish a clear value proposition to all stakeholders involved.

“For this, we find that actively engaging the industry early to establish an appropriate business model is key. This can help inform and shape the prioritisation of initiatives and ensuring a win-win outcome for all players,” she said.

Secondly, there is a need to foster strong public-private sector partnerships, and ideally, the industry should drive cross-border payment initiatives.

But the reality is that the complexity of building and expanding networks across economies means that central banks must play an important role, which includes setting the overall tone and vision, opening doors, setting the tempo, fostering collaboration and ironing out differences and resolving issues among the different stakeholders, she noted.

“For us in BNM, we have found the setting-up of Project Steering Committees in each cross-border payment initiative that we are participating in as being useful in fostering strategic alignment and ensuring timely resolution of issues to drive the project forward.

“Such arrangements also provide an avenue to ensure that any initiatives are underpinned by an appropriate governance and risk management framework that adequately manages risk in both jurisdictions.

“A key success factor to this is to ensure that these committees have sufficiently diverse stakeholder representation and also a fair and equitable decision-making process,” she added. – Bernama / pic Muhd Amin Naharul