QR

Five regional central banks have announced plans to enable QR code-based cross-border payments. Furthermore, they want to link such a network to other regional payments platforms and eventually to central bank digital currencies. Heather McKenzie reports.

Plans to link the payment systems of five south-east Asian central banks to enable QR code-based cross-border payments will require some “very heavy lifting”, says Zennon Kapron, director of fintech research at consulting firm, Kapronasia.

The plans, announced during a panel session at the recent G20 meeting in Indonesia, “should be taken with a grain of salt”, he adds.

“Saying it is one thing, but accomplishing it is another. Regionalising and standardising QR codes is a first-level action, but the real challenges reside in the back-end standards and messaging types,” Mr Kapron says.

These back-end issues are what the Committee on Payments and Market Infrastructures is trying to resolve with its cross-border framework, he notes.

During the G20 meeting in Indonesia, Bank Indonesia (BI) governor Perry Warjiyo said that alongside his institution, four other central banks from Malaysia, Thailand, Singapore and the Philippines were planning to link their payment systems.

Under the plans, QR code payments would be made using local currency settlements. A user of an Indonesian QR code payments app, for example, will be able to make a QR code purchase in Thailand, and the exchange will be made directly between rupiah and baht. The arrangement will bypass the need for the US dollar as an intermediary currency.

In the longer term, the central banks involved will seek to link the network to other regional payments platforms and eventually to central bank digital currencies (CBDCs).

Big leap

In January, BI and Bank Negara Malaysia (BNM) launched a cross-border QR payment linkage. BNM already had a QR-code based link with Bank of Thailand (BOT) and BI also had a link with BOT.

Mr Kapron believes it is a big leap to move from such bilateral linkages to the connectivity now being sought by the five central banks. “The Association of Southeast Asian Nations [Asean] countries have, since around 2010, sought to establish a Single Euro Payments Area-like payments platform for real-time, cross-border payments. But the advantage Europe had was a common currency and regulations, which alleviated many of the challenges that cross-border platforms face.”

Even bilateral links are complex, requiring different settlement times, message formats and styles of settlement to be dealt with, he adds.

In addition to these challenges, Mr Kapron says, there is the thorny issue of regional geopolitics. The 10-member Asean community has been “the obvious place” to try interlinkages given the proliferation of domestic real-time payment systems among members and the lack of geopolitical tensions that exist between countries such as China and Japan, for example.

Worth the effort

Despite the difficulty in establishing bilateral links – and the more complex prospect of wider interlinking – central banks and governments in the region believe the hard work is worth it. Mr Kapron notes that cross-border transaction fees in south-east Asia are high, amounting to between 5% and 8% in total for individuals and merchants. “Coming out of the Covid-19 pandemic, governments’ priorities in the region are to meet the needs of merchants, particularly the small and medium-sized enterprises, which are the backbone of the economy, and consumers,” he says.

The big question is: how realistic is this recently announced approach and how fast can the central banks move on it?

Zennon Kapron

A recent paper from the Bank for International Settlements (BIS) examines the role of QR code payments in credit provision to merchants, based on the experiences of China’s Ant Group. The BIS researchers found that the use of QR codes for payment services allows offline merchants to gain not only access to credit from the big tech company (Ant Group), but also access to unsecured bank credit. “We also document positive real effects of the use of big tech credit, including during the Covid-19 pandemic, when recovery in transactions was 20% more pronounced for users of big tech credit than for non-users,” the paper states. There is potential for big tech companies to provide credit services to previously unbanked small firms, it adds.

Interoperability is also an issue for CBDCs, which were another topic of interest during the G20 meeting. “It is unlikely there will be a central platform for CBDCs and globally we are likely to see interoperability between platforms,” says Mr Kapron.

Providing better, faster and most importantly, cheaper, payments is a priority for south-east Asian governments. “A lot of work has already been done in establishing real-time payments, so the QR-code linkages are a natural extension of this work and can deliver many benefits,” he says.

To move beyond bilateral linkages, he adds, will require a government-driven or third-party centralised infrastructure that operates along lines similar to Swift or the Depository Trust and Clearing Corporation. The technology exists to enable this.

“But the big question is: how realistic is this recently announced approach and how fast can the central banks move on it?” asks Mr Kapron. “It is very easy to over-simplify what is a very complex undertaking.” 

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