Coverage: weekly note · Information to 3 May 2024
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TGB Weekly Research Note · 3 May 2024
Central bank data show real-time and digital payments in Malaysia, Indonesia and the Philippines growing strongly up to 2023, at prices that regulators and industry schemes have kept low, capped or waived, while Thai banks' non-interest income fell.
The desk view
Real-time retail payments in Southeast Asia's larger economies grew strongly between 2021 and 2023. Malaysia's DuitNow Transfer volumes grew 32% in 2023 after 26% in 2022, and Indonesia's BI-FAST, launched in December 2021, accounted for 58.3% of the value of transactions through the country's payment infrastructure by the fourth quarter of 2023. The pricing is the point: central banks and industry schemes have kept per-transaction fees low, waived or capped. The Bank of Thailand reported that Thai banks' non-interest income fell in 2023 because of lower net fee income. Our view is that volume growth on these rails is a deposit and data franchise for banks rather than a fee line, and that merchant pricing, not person-to-person transfers, is where fee models are being rebuilt.
Strong growth from uneven starting points
The three systems with comparable official data started from different places, so a single regional multiple would mislead. In Malaysia, DuitNow Transfer volumes grew 26% in 2022 and 32% in 2023, which compounds to about 1.66 times the volume of two years earlier. DuitNow QR transactions rose to 360 million in 2023 from 125 million in 2022, about 2.9 times as many. Total e-payment transactions were 11.5 billion in 2023, against 7.2 billion in 2021 on the earlier data vintage, roughly 1.6 times as many.
Bank Indonesia launched BI-FAST on 21 December 2021, starting with individual credit transfers and 21 participants in the first batch. Its share of the value of transactions through Indonesia's payment infrastructure rose from 7.3% in the first quarter of 2022 to 58.3% in the fourth quarter of 2023, a gain of 51 percentage points. In the Philippines, digital payments were 30.3% of transactions by the end of 2021 and 42% in 2022, a gain of 11.7 percentage points, against the central bank's goal of half of retail payment volume.
Real-time and digital payment indicators
| Economy | Indicator | Earlier reading | Latest reading |
|---|---|---|---|
| Malaysia | DuitNow Transfer volume growth | 26% (2022) | 32% (2023) |
| Malaysia | DuitNow QR transactions | 125m (2022) | 360m (2023) |
| Malaysia | E-payment transactions | 7.2bn (2021) | 11.5bn (2023) |
| Indonesia | BI-FAST share of payment-infrastructure value | 7.3% (Q1 2022) | 58.3% (Q4 2023) |
| Philippines | Digital share of payment transactions | 30.3% (2021) | 42% (2022) |
Source: Bank Negara Malaysia, Annual Report 2023, 20 March 2024; Bank Negara Malaysia, Annual Report 2022, 29 March 2023; Bank Indonesia, Laporan Perekonomian Indonesia 2023 (Indonesian Economic Report 2023), Chapter 3: Bank Indonesia's 2023 policy mix, 31 January 2024; Bangko Sentral ng Pilipinas (via BIS central bankers' speeches), The Philippine economy - navigating the challenging economic landscape (speech by the BSP Governor, 23 October 2022), 28 October 2022; Bangko Sentral ng Pilipinas (via BIS central bankers' speeches), Welcome message - 2nd Digital Financial Inclusion Awards (BSP Governor, 24 October 2023), 26 October 2023.
Prices held close to zero by design
The growth has come on rails whose prices were set or steered by central banks. Bank Indonesia set the BI-FAST charge at Rp19 per transaction from operator to participant and capped the fee banks may charge customers at Rp2,500, slightly below the fee for the SKNBI clearing system. In 2023 it kept that pricing and extended the SKNBI tariff, under which banks may charge the public at most Rp2,900, leaving the BI-FAST cap Rp400 lower.
In Malaysia, PayNet and the industry waived DuitNow QR transaction fees in the early stages, which meant zero merchant discount rates (MDR) for most merchants; the waiver, intended to be lifted in 2022, was extended for another year. The industry, in consultation with Bank Negara Malaysia, has since introduced a tiered model in which larger merchants pay an MDR and smaller merchants a preferential rate kept low.
In the Philippines, the central bank's governor said in May 2023 that the central bank had suggested PHP500 as the threshold for fee-free transactions, and that one bank was charging no fees on anything below PHP1,000. The pattern is consistent: authorities treat cheap, interoperable instant payments as public infrastructure, and leave banks to earn elsewhere.
Transaction growth is outpacing fee income
The income data point the same way. The Bank of Thailand said Thai banks' profitability improved in 2023 mainly because of higher net interest income, while non-interest income decreased because of lower net fee income. Net interest income rose 16.1% to THB670 billion, while non-interest income fell 10.1% to THB230 billion, and in the fourth quarter non-interest income was 25.5% lower than a year earlier. By then it was 23% of the banking system's net income.
Bank-level results show a similar gap. Indonesia's Bank Central Asia reported that its total transaction volume rose 25.1% in 2023 to 30.1 billion, with mobile banking the fastest-growing channel at 41.6%. Its non-interest income grew 5.5% to Rp23.9 trillion, against 17.5% growth in net interest income to Rp75.4 trillion. Transaction growth exceeded non-interest income growth by 19.6 percentage points. Non-interest income covers more than payments, so these comparisons are indicative rather than exact.
Where fee models are being rebuilt
Three shifts follow from this evidence. First, person-to-person transfers are becoming a near-free utility, so their value to banks lies in primary accounts, deposits and payment data rather than fees. Second, merchant acceptance is where pricing is being reintroduced: Malaysia's tiered MDR for DuitNow QR is the clearest case, and QR registrations there reached 2 million against 875,504 point-of-sale terminals in 2023, about 2.3 to one. Third, shared infrastructure lowers the cost base: DuitNow QR runs on Malaysia's Real-time Retail Payments Platform, where participants pool infrastructure costs and compete on products.
Cross-border links are the next frontier for fees. The central banks of Indonesia, Malaysia, the Philippines, Singapore and Thailand signed a memorandum on regional payment connectivity in November 2022, and the Nexus multilateral solution was planned to go live with five ASEAN countries by 2025. Bank Indonesia's 2024 payment policy includes extending cross-border links through QRIS and BI-FAST, bilaterally and under Nexus. Banks that rely on remittance and foreign exchange margins should expect the same pressure towards low, transparent pricing that domestic transfers have already seen.
What to watch
- 2024: Project Nexus Phase 4, to operationalise the multilateral linkage among the participating central banks, on track to commence
- 2024: Bank Indonesia to strengthen links between BI-FAST and the National Payment Gateway and expand cross-border QRIS and BI-FAST links
- By 2025: Nexus planned to go live starting with five ASEAN countries
Primary sources: Bank Negara Malaysia, Annual Report 2023, 20 March 2024; Bangko Sentral ng Pilipinas (via BIS central bankers' speeches), The Philippine economy - navigating the challenging economic landscape (speech by the BSP Governor, 23 October 2022), 28 October 2022; Bangko Sentral ng Pilipinas (via BIS central bankers' speeches), Welcome message - 2nd Digital Financial Inclusion Awards (BSP Governor, 24 October 2023), 26 October 2023; Bank Indonesia, Laporan Perekonomian Indonesia 2023 (Indonesian Economic Report 2023), Chapter 3: Bank Indonesia's 2023 policy mix, 31 January 2024; Bank Indonesia, Bank Indonesia Launching BI-FAST in December 2021 (News Release No. 23/270/DKom), 22 October 2021; Bank of Thailand, Banking Sector Quarterly Brief (Q4 2023 and 2023), 19 February 2024; Bank Indonesia, BI Launches Bank Indonesia Fast Payment (News Release No. 23/334/DKom), 21 December 2021; Bangko Sentral ng Pilipinas (via BIS central bankers' speeches), The current Philippine digital landscape - what's next beyond the digital payments transformation roadmap (BSP Governor, 29 May 2023), 1 June 2023; Bank Negara Malaysia, Annual Report 2022, 29 March 2023; PT Bank Central Asia Tbk, Sustainable Growth with Solid Performance, Loans up 13.9% (full-year 2023 results press release), 25 January 2024; Bank Indonesia, Laporan Perekonomian Indonesia 2023, Chapter 5: Arah Kebijakan Bank Indonesia 2024 (Bank Indonesia's 2024 policy direction), 31 January 2024.