Cross-Border Payments in APAC: Regulatory Challenges and Solutions in 2024

According to Statista, the digital payments market worldwide is projected to grow at a rate of 9.52% (CAGR 2024–2028) resulting in a market volume of $16.62tn by 2028. A large share of the digital payments market, including cross-border transactions, is based in the Asia-Pacific (APAC) region. According to Euromonitor International, APAC recorded the highest paperless payment transaction value in 2023, worth $29,063 billion and accounting for 52% of the global total.

Indeed, digital payments in APAC are on the rise, while cash payments are declining. Digital wallet payments are forecasted to amount to three quarters of e-commerce payment methods and over half of point-of-sale payments in the APAC region by 2025.

APAC faces a number of unique obstacles in cross-border payments, which banks, fintechs, and neobanks must adapt to in order to successfully enter and operate in the region. This includes regulatory barriers, AML compliance, and technological fragmentation. Let’s dive into these challenges and explore possible solutions.

What are cross-border payments?

Cross-border payments refer to transactions in which money is transferred from one country to another. While cross-border payments can be digital, not all digital payments are cross-border — as digital payments include any payment made electronically, whether the transaction is domestic or international.

There are various types of cross-border transactions, including but not limited to:

• Bank or wire transfers. This is the traditional method of sending money from one country to another.
• Credit and debit card payments. Payments can be made using credit or debit cards for purchases from international merchants or for sending money abroad. Credit cards are the most popular form of cross-border payment in Singapore, Hong Kong, Malaysia, South Korea, and Japan.
• Digital wallets. These are services that allow users to store funds digitally and make international transactions. China has long been a global leader in digital wallet adoption with AliPay and WeChat Pay. The Philippines, Indonesia, India, Malaysia, and Vietnam are all expected to drive the growth of digital wallets through 2026.
• Money service businesses. This includes Western Union and MoneyGram, which specialize in sending money across borders.
• Cryptocurrency transactions. This involves using cryptocurrencies such as Bitcoin or Ethereum to transfer funds across countries.
• Mobile payment services. Mobile payment services allow users to make financial transactions using their smartphones or tablets. In the APAC region, this includes companies like Paytm, GrabPay, and GCash.
• Foreign Exchange (Forex) transactions. Buying and selling foreign currencies for various purposes, including cross-border payments.
• International checks and money orders. Less common nowadays, but still used in some contexts for cross-border payments.

Issues with cross-border payments in APAC

Cross-border payments in the APAC region face several challenges, mostly due to diverse regulatory environments and technological disparities.

Lack of a single payment scheme. Each individual market within the APAC region has its own preferences for payment methods, creating challenges for cross-border businesses. The absence of standardized payment systems and protocols hinders the seamless integration of cross-border payment services. Differences in clearing and settlement mechanisms can delay cross-border transactions and increase operational complexities.

​​Regulatory fragmentation. APAC countries have varied regulatory frameworks and compliance requirements, which complicate cross-border transactions. Each country has its own set of rules regarding anti-money laundering (AML), counter-terrorist financing (CTF), data protection, and currency controls. There is also a lack of harmonization and standardization in regulatory practices across the region, making it difficult for financial institutions to implement a uniform strategy for cross-border payments.

Strict AML compliance requirements. Financial institutions must comply with stringent AML/CTF regulations. These include customer due diligence, transaction monitoring, and reporting suspicious activities, which can vary significantly between jurisdictions. Ensuring compliance with different AML and CTF regulations across multiple jurisdictions increases operational costs for financial institutions. Learn more about the details of AML regimes in different APAC countries below:

Anti-Money Laundering (AML) in Singapore: Complete Guide 2024

AML/KYC in the Philippines: Complete Guide 2024

KYC Requirements in Australia — Complete Guide (2024)

AML/KYC in Indonesia — One of the Strongest Economies in the APAC Region

Malaysian AML Regulations — Necessary Compliance Information

Foreign exchange restrictions and volatile rates. Some countries in the APAC region, such as Malaysia, impose foreign exchange controls and restrictions on currency movements, affecting the flow of cross-border payments. Fluctuations in exchange rates can pose additional risks and complexities in managing cross-border transactions.

Technological Disparities. The technological infrastructure for financial transactions varies widely across APAC countries, leading to disparities in the efficiency and security of cross-border payments. Different levels of cybersecurity readiness and regulatory requirements across countries pose risks to the security of cross-border payment systems.

Financial inclusion. In some APAC countries, limited access to financial services and digital payment infrastructure can hinder cross-border payment initiatives. Large rural and unbanked populations in certain regions pose challenges to achieving widespread adoption of cross-border payment solutions.

Suggested reads:

AI Regulations in APAC in 2024

Singapore Crypto Regulations

Crypto regulations in Malaysia — 2024 Guide

How Sumsub can help

KYC

A reliable Know Your Customer (KYC) service provider can significantly help fintechs and banks overcome regulatory challenges associated with cross-border payments by automating compliance processes and enhancing due diligence. As a global RegTech service provider, Sumsub can offer our clients the following services:

• Sumsub can monitor transactions in real time and update protocols to ensure adherence to AML and CTF regulations across multiple jurisdictions.
• Sumsub is able to perform comprehensive due diligence and risk scoring, aiding in informed decision-making.
• Sumsub will facilitate compliance with diverse regulatory requirements and ensure data privacy.
• Sumsub’s OCR can detect various Asian languages.
• Sumsub uses machine learning (AI/ML) to detect fraud, generating real-time alerts for suspicious activities.
• Sumsub reduces operational costs and speeds up customer onboarding through automation, enhancing the overall customer experience.
• The scalability of the Sumsub’s KYC solution accommodates high transaction volumes efficiently.
• Sumsub automates regulatory reporting, including detailed audit trails to simplify compliance.
• Sumsub allows businesses to continuously monitor customer transactions and behavior for any suspicious activities. Ongoing monitoring is crucial for detecting and preventing fraudulent or illegal activities, as well as regulatory compliance.

Sumsub’s KYC facilitates more efficient, secure, and compliant cross-border payment systems.

Suggested read: KYC for Neobanks in the APAC Region

KYB

Financial institutions and payment service providers seeking to onboard individuals and entities in APAC should use a reputable Know Your Business (KYB) provider. This will significantly enhance due diligence processes, mitigate regulatory risks, and streamline operations in an increasingly complex regulatory landscape.

Sumsub offers:

• KYC/KYB compliance solutions tailored to different regulatory environments
• Business verification, AML screening, and regulatory compliance
• Customizable solutions and focus on regulatory compliance.

Check out this article to learn more about KYB, who needs it, and how Sumsub can help verify business partners.

Crypto Travel Rule

Sumsub’ crypto Travel Rule solution helps virtual asset service providers comply with local regulations and prevent fraud. This solution facilitates secure information transfers between VASPs in accordance with compliance requirements, enabling crypto firms to both send and receive Travel Rule messages for corresponding transactions. Sumsub’s crypto Travel Rule solution also helps deal with Travel Rule challenges, such as the “sunrise issue” and differences in crypto regulations across countries. Check out the complete Travel Rule guide here: What is the FATF Travel Rule? The Ultimate Guide to Compliance (2024).

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