Fintech apps will surpass the case for a pan-Asian currency

It’s a $10 trillion opportunity, according to McKinsey. A large part of this additional consumption will be covered by small and medium-sized businesses, and much of it will happen online. But credit cards and PayPal are expensive options for small merchants. And while Indonesian merchants can easily accept QR code-based transfers from local digital banking or fintech apps, they cannot do the same for Singapore’s banking customers. National borders get in the way. As Ravi Menon, head of the Monetary Authority of Singapore, said in a recent speech: “The current state of cross-border payments is not fit for the 21st century.”

Fortunately, an upgrade is on the way. From Singapore and Malaysia to Thailand, Indonesia and the Philippines, countries in Southeast Asia want a multilateral payment network by 2025. Their customers already have access to mobile apps to settle claims in real time, but these are local. The next step is to connect them via a Nexus arrangement, designed by the Bank for International Settlements as a worldwide web of payments, a set of rules that any economy can use to set up a gateway.

The rules will harmonize compliance standards and message formats – the instructions that intermediaries send each other to move money domestically. When the platform takes off, international banks will be available on it with competitive currency conversion services. The experience for the customer will be no different whether they are paying someone next door or a thousand miles away.

Using a smartphone app, an individual or business can already collect money instantly and almost free of charge from another participant in the same national banking system. For cross-border money transfers, however, the average cost is still as high as 6%, according to the World Bank. The technology of correspondent banking, which involves a lender providing a local account to banks based abroad, has improved significantly since the practice developed in the late 1800s. But transfers via the Swift messaging system can still take more than two days on several of the slowest.

International transfers with Nexus will not be completely free. First, currency will still need to be exchanged. But it may be possible to push the average cost of paying a business in another country to 1% or less and eliminate any corridor where costs are higher than 3%, which is the G20’s target for the end of 2027.

Asian policymakers have two other reasons to shatter the status quo: One, access to Swift is at the discretion of American and European politicians; it can be cut off, as it was for Russian institutions earlier this year as punishment for the war in Ukraine. Second, much of global trade is done in dollars, and the US currency is expensive right now. In regional trade, especially where small firms in one country sell goods and services to retail customers in another, it is possible to reduce dependence on a rising dollar with technology.

The banking industry’s annual payment revenue pool is dominated by the Asia-Pacific region, which collects approximately $90 billion from cross-border trade. Financial institutions are resigned to the idea that their fees per transaction will fall. What they don’t want is for volumes to disappear, which could happen if blockchain-based private stablecoins or central bank digital currencies (CBDCs) become the preferred route for international transfers. From their point of view, the advantage of Nexus is that it will not try to bypass banks.

A single Asian currency would have transformed the regional payments scene and reduced the dollar’s dominance. Some Chinese government researchers recently called for a single digital token tied to a basket of 13 regional currencies. But the eurozone’s problems have shown that it is impractical to think about such a monetary arrangement without a fiscal union.

Since a division of taxpayer resources between rich Singapore and poor Myanmar is hard to swallow even as a fantasy, the next best option to reduce the friction caused by different mediums of exchange may be to harness the power of the smartphone. When a Singapore banking app can be used to pay someone in Jakarta in 60 seconds – at a cost of 1% or less – the question of a single currency becomes moot.

Andy Mukherjee is a Bloomberg Opinion columnist covering industrials and financial services in Asia.