Traveling and shopping across Southeast Asia used to be a headache for the average jet setter. Despite the nations’ close relative proximity, getting local currency could prove a lengthy and costly process. However, this is a landscape that is rapidly shifting.

Last year, the governments of Indonesia, Singapore, Malaysia, Thailand, and the Philippines signed a landmark cross-border payments deal that allows transactions through a simple QR code.

This is a milestone moment for Southeast Asia’s highly fragmented payments market. As such, it’s now time for the region’s business community to stay on the pulse of payment innovation, ensuring seamless transactions for their customers and the highest payment conversion rates.

Long overdue innovation

Since the removal of COVID-19 border restrictions in Southeast Asia, regional travel is flourishing. Tourism to local destinations is expected to skyrocket in 2023 and 2024, rising by 94 percent compared to 2022.

In the past, travelers would likely use currency exchanges for local cash, or use their debit and credit cards at places with a bigger tourist presence. However, the effort and fees associated with these traditional payments have long proved a hindrance to facilitating seamless cross-border spending.

With Southeast Asian consumers, especially those within the Millennial and Generation Z brackets, increasingly showing a preference for mobile payments and e-wallets, the modernization of the cross-border payments space is long overdue.

In a region of almost 700 million people and 1,200 languages, merchants have long dealt with numerous challenges in providing localized payment options and customer support across markets. Coupled with intense regulatory complexity, businesses often struggle to partner with other payment providers, given the sheer multitude of regulatory red tape to understand.

Businesses, meanwhile, have to contend with fluctuating exchange rates that impact pricing, profitability, and financial stability. As such, improving cross-border payments has become imperative for future business success. A better payment experience not only improves the tourist experience but also enables the expansion of Southeast Asia’s thriving e-commerce market and other regional trade.

Enhancing travel and commerce

Last year’s five-nation QR code deal represents a step in the right direction toward payment interoperability. However, as a bilateral agreement, this remains small in the grand scheme of worldwide travel into Southeast Asia. There is still a tremendous need for cross-border interoperability through establishing common standards and protocols for payments.

According to a G20-related panel discussion in 2022, this agreement needs to connect with other regional groups globally for a more centralized framework. Others, meanwhile, have suggested a  local currency transaction framework to enable business-to-business trade settlement without the need for external currencies like the US dollar.

In terms of FinTech, Indonesia, a country where digital wallets are the favored form of non-cash payments, stands out as a regional leader. In Indonesia, QR payments have tripled nearly every year since launching in 2019.

Southeast Asian businesses can look to Indonesia as a model of digital payments success. Beyond the region, businesses can also follow the rise of players like Africa’s use of mobile money, Brazil’s instant payment method PIX and the scores of competing mobile wallets in India.  For Brazil, this has had a significant impact, with three out of four Brazilians having used Pix to complete their eCommerce purchases last year.

Future Southeast Asian FinTech innovators or local businesses can learn from these platforms and understand the facets that will underpin the future of cross-border payments. Focuses should include user-friendly interfaces, personalized experiences, and seamless integration with other services such as e-commerce, travel, and lifestyle platforms.

Businesses should be mindful of the need to segment and prioritize sectors such as travel to drive growth and integrate alternative payment methods that will enable underserved communities to access international commerce.

Last but not least, travel transactions need to be safe. Digital payment providers need to be able to protect personal and financial data from hackers, fraudsters, and identity thieves. Travelers expect their money to be encrypted and secure when using digital payment methods overseas, so businesses must ensure they are working with reputable and accredited providers.

Innovation in cross-border payments has transformative potential for Southeast Asia’s tourism industry. Travel not only benefits those in the tourism sector but trickles down to the wider community, aiding local people, merchants, and businesses. It is a no-brainer that ease of payments yields ease of business

Continued innovation and collaboration between stakeholders in the sector and payment providers will only drive further growth and enhance the ecosystem in Southeast Asia and its overall potential for success.

Joaquin Moreno is Head of APAC, dLocal.

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