Harmonizing Digital Payment Regulations Across Asia

In an exclusive interview with Asia Business Outlook, Raghu Malhotra, President of Global Enterprise Growth, Mastercard, shares his views on regulatory differences impacting digital payment systems, advanced security protocols to protect consumers, educational initiatives to increase digital literacy, strategies to achieve seamless integration, and more. Raghu is an international business, technology, and finance executive with a proven track record in driving organizational impact and elevating growth and profitability.   

How do regulatory inconsistencies across different Asian countries impact the standardization of digital payment systems, and what measures can be taken to harmonize these regulations to support seamless cross-border transactions?

You have to view this in the context of what is happening. Regulations vary by country but they are driven by needs in each of the economies. So we shouldn’t be surprised there are differences across economies when it comes to regulation. We are seeing a shift to digital economies, and so the governments and private sector of Asian countries have to create digital infrastructure and digital ecosystems. As they do that, they have different needs. For instance, Indonesia is very different from India or Singapore; their digital literacy rates, rate of adoption, and financial inclusion metrics are different. Hence, various governments have devised different regulations based on what they need to solve and their priorities. Most economies are on the path to digitization, which means better financial inclusion and better access to credit for SMEs, to drive the growth of economies.

At the same time, you need to think of economies of scale and scope. If the policies were more consistent, there could be more seamlessness, less friction, and higher productivity. And it is better for consumers because we are a globally connected world, and economies can never be standalone - they are always interdependent. Consistent regulatory policies help to give consumers choices and allow seamless delivery of user experience. So, there is a bit of inconsistency at the moment but for each country, it works. More importantly, there is a huge opportunity as economies continue to digitize.

In what ways do cybersecurity threats and fraud vulnerabilities challenge the security of digital payments in Asia, and what advanced security protocols can be implemented to protect consumers and businesses?

While creating digital infrastructure, it is essential to build a regulatory framework that deals with cybersecurity differently – but not just cybersecurity. Data protection for consumers and institutions must also be considered. Once digital infrastructure is implemented, it is equally important that companies, innovators, fintech, and governments keep track of how to protect the ecosystem and remove vulnerabilities. For instance, over the past five years, Mastercard has invested around $7 billion into cybersecurity, which has helped to protect 140 billion-plus transactions per year by leveraging AI and Cyber technology, helping prevent $20 billion of fraud because of these technologies. This is an example of how a firm can help protect the entire ecosystem.

There are a slew of new technologies are coming in which will make life easier and more secure. For example, the majority of consumers prefer biometric technology as it offers a better user experience and is reliable, and, most importantly, they trust it.

What infrastructural barriers are faced by rural and underserved regions in Asia that hinder the adoption of digital payments, and how can these challenges be addressed to ensure inclusive financial access?

There are three key barriers relating to financial inclusion. Firstly, access to digital infrastructure. Statistically, 47% of Asia is not covered by mobile internet; they have mobile coverage but don't have mobile internet. This creates a productivity issue, and economically, you are unable to maximize what could have been done if the people had been included. And if you don’t have mobile internet it is difficult to truly achieve financial inclusion.

Another challenge is the transparency of flows; if there is no flow transparency, the lending process becomes complicated. SMEs employ more than 80% of the world's population but only 22% of all global finance goes towards SMEs. This is a huge barrier. If better lending can be done to SMEs then you’ll see a better job being done in financial inclusion that will lift the economy as they are the biggest employers worldwide.

The final one is literacy. People need to be both technologically and financially literate – they go hand in hand.

How does the lack of digital literacy and trust in technology among certain populations in Asia impede the adoption of digital payment solutions, and what educational initiatives can be implemented to overcome this challenge?

COVID taught us many lessons – not just about our health and well-being but also about what the world of tomorrow could look like through greater digital adoption. The amount of technology adoption that took place is unbelievable, with the faith and ability to do e-commerce, mobile banking, and Internet banking going through the roof. These changes impacted supply chains and shifted economies.

We have talked about how financial and technology literacy is a key barrier, but one that can be overcome if performed in a very concentrated way. For instance, installing a small tech center in every village – not just in Asia but globally; having just one computer in a small town of 100 people can help kids to be comfortable with technology when they are growing up. This will lead to higher digital literacy, greater adoption rates, and increased financial inclusion. This is not merely the job of governments – the private sector, governments, and NGOs should come together to create these environments.

Can you elaborate on the positive impact of accelerating digitization in payments to support inclusion, economic growth, and SME enablement?

The next bastion of growth for the world will come from emerging markets, but more specifically from the people not currently included in the formal economy or businesses that aren’t digitally enabled. Around 1.4 billion people – over a sixth of the world’s population - are still not financially included. And in Asia, 97% of all companies are SMEs.

This is a huge opportunity for the world, if we build digital ecosystems for better access to credit for SMEs and in parallel tackle financial exclusion, bringing more people into the formal economy. Mastercard is creating programs with partners around the world to help support these aims and accelerate payment digitization.

What role do interoperability issues between different digital payment platforms in Asia play in creating user and merchant friction, and what strategies can be employed to achieve seamless integration and compatibility?

An open system allows better access, consumer experience, and innovation to thrive. In contrast, creating a closed digital infrastructure stifles innovation, challenges the economics of scale, and creates a single point of failure.

Hence, creating open ecosystems seamlessly across borders, allowing people to participate, and having an even playing field for all is essential. If you don’t do that, you will not have the best consumer experience, the most innovative programs, or even the best economics for the consumer. If there can be a seamless operation across four countries versus a single country, the economics will differ and that will benefit the end consumers and the merchants.