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Digital payments regulations are expanding across all of Southeast Asia. As previously offline SMEs increasingly bring their business online, financial regulators are adapting their requirements in line with Fintech innovation.

In Southeast Asia, there are over 70 million micro-, small- and medium-sized enterprises (SMEs), accounting for 99% of all businesses in the region.

As these SMEs have begun to embrace digitisation and bring their business online at an unprecedented pace, they are reshaping the financial and technological landscape across the region.

Changes in consumer behaviours are the main reason for this era-defining shift. A recent report by Facebook and Bain & Company estimated that the pandemic created 70 million new online shoppers in six Southeast Asian countries. This report projects that, by 2026, there will be up to 380 million online shoppers in the region.

As more people shop online, the importance of digital payments has increased, both creating the need for and making the fortune of Fintech services. For instance, 37% of Southeast Asian online shoppers now use digital wallets. Another example is the growth of PromptPay, Thailand’s real-time digital payment system which grew by 9 million users from 2020 to 2021, with a four time increase of total transactions.

How have regulators fostered the shift to digital payments?

The Southeast Asia region has seen a host of new legislation being enacted in the past few years – partly to kindle the growth of e-commerce and digital payments, and partly to regulate it.

A key example is Singapore’s Payment Services Act, which went into effect on 28 January 2020. This Act serves to unify and streamline the regulatory requirements for various payment services, including electronic payments and certain cryptocurrency services. It simplifies the regulatory framework and protects the overall financial system by introducing three types of licenses: a money‑changing license, a standard payment institution license, and a major payment institution license. Each license comes with a different set of AML/CFT requirements according to the risks it poses.

Thailand’s Payment Systems Act (PSA) – which dates back to 2017 – has some similar aspects. In fact, it allows fintech and e-payment service providers to work within a single licensing framework. The objective is to minimise risks for all concerned parties, while also providing some flexibility towards the adoption of future e-payment systems.

In Malaysia, issuers of e-money are required to obtain approval from Malaysia’s central bank and financial regulator, Bank Negara Malaysia (BNM). In 2021 the regulator released a New E-Money Policy Draft, which was open for consultation until December. The new guidelines aim to clarify key requirements for e-money issuers, including around their risk management framework and internal audit function.

Similarly the central bank of the Philippines, Bangko Sentral ng Pilipinas (BSP), circulated the draft of new e-money rules in March 2022. The proposed guidance wants to increase the requirements for both banks and non-bank financial institutions in this sector and to demand enhanced due diligence for high-value e-money transactions.

Generally speaking, all of these regulations have a two-fold objective: simplify the regulatory landscape to encourage new entrants, but also put controls in place to mitigate risks to the system as the size of transactions continues to grow.

How can payment providers meet the new requirements?

As regulators react to the evolving financial landscape in Southeast Asia, Fintech and payment providers have to quickly adapt to new compliance requirements as they are introduced.

As we have seen, the current opportunities for growth for payments and fintech providers in Southeast Asia are simply unprecedented. But so are the reputational and economic risks in the case of compliance breaches.

Know Your Customer’s Modular Compliance solutions have already empowered leading payments and fintech providers in Southeast Asia and globally to streamline, digitise and automate merchant onboarding and KYB compliance.

Firms such as Aspire, Neat – A Rapyd company and ConnectPay are among the clients who rely on our award-winning technology to grow their business cross-border, safe in the knowledge that their merchant onboarding process meets regulators’ demands at home and abroad.

Let us put our expertise to your service. Contact us today to discover how we help you:

  1. Digitise all AML and KYB compliance end-to-end
  2. Easily adapt your KYB process to the specific requirements of your acquirer
  3. Embrace automation to deliver the ultimate merchant onboarding experience
  4. Seamlessly integrate with front-end and back-end systems
  5. Verify newly incorporated merchants with official registry data
  6. Grow your business internationally with the widest network of registry connections globally

Last updated on March 19th, 2024 at 06:09 pm

Claus Christensen

Claus Christensen is the CEO & Co-Founder of Know Your Customer. His vast array of previous experiences includes founding a technology company that develops email server infrastructure products for 60,000+ global customers and serving as VP Electronics at Thielert Aircraft Engines. A regular contributor to leading industry publications and a recognised expert in the anti-money laundering and financial regulation space, Claus is also the host of the RegTalks podcast and a senior lecturer of the Centre for Finance, Technology and Entrepreneurship (CFTE)’s RegTech Course.