Payment services in Asia-Pacific ( APAC ) are set to improve further amid rising demand, yet more needs to be done to cater to the retail segment of the market, according to a recent report.

Financial institutions are pursuing efforts to modernize their payment infrastructure for faster and more efficient services, with a focus on enabling real-time and cross-border transactions. In Asia-Pacific, banks aim to reduce costs, meet evolving customer expectations, and comply with regulatory requirements, KPMG says in its report, titled Modernizing Payments – Global Perspectives from Financial and Retail Executives on Payment Modernization Strategies and Trends.

Traditional banks have seen their legacy systems overshadowed by the rise of non-banking financial institutions ( NBFIs ) and payment service providers, particularly in the face of a booming e-commerce market, which is projected to dominate more than 60% of total retail sales in 2025, the report says.

Fraud prevention

In Australia, one of the banks’ immediate concerns is how to combat fraud in transactions. This has sped up efforts to digitalize processes, including data rationalization and payment processing optimization.

According to KPMG, 92% of financial institutions in the country are undertaking modernization programmes, pumping a total of US$17 million into such undertakings. Amid the shakeup, however, survey respondents are worried about the disruptions in daily operations that implementing new payment systems would entail. Besides, switching payment models from obsolete systems is tricky under an ever-evolving regulatory landscape.

Meanwhile, only 83% of Australian financial institutions are currently overhauling their retail payment services to provide customers with flexible and convenient payment options. To improve their services in this area, half of the respondents are planning to outsource their payment infrastructure.

Retail payment has also been a long-neglected service area in Japan, and the majority of banks in the market now acknowledge the necessity of modernizing their payment systems. According to the survey, 18.4% of respondents have invested in accelerating their retail payment systems and business-to-business transactions amid the surge in QR payments and “buy now, pay later” plans.

Cashless payment still dominates the country’s transaction landscape, and financial institutions see the need for a tailored approach and careful selection of service providers to accommodate the uptick in retail payments. Approximately half of the modernization programmes in Japan focus on upgrading digital channels and introducing new payment methods, with the aim of improving customer experience and accelerating transaction processing.

Stiff competition

Among Asia-Pacific markets, China stands out with the high quality of its digital payment infrastructure, boasting mature NBFIs such as Alipay and Tencent which have transformed the payment landscape.

Still, financial institutions are striving to further enhance their payment services amid the stiff competition, with 91% of respondents aiming to undertake system upgrades, payment engine enhancement and outsourcing of infrastructure components. Artificial intelligence is top-of-mind when it comes to fraud prevention, especially in the wake of stringent regulations on payment verification.

“China’s financial Institutions are navigating a complex landscape, balancing modernization with competition and regulation to deliver a seamless and secure payments experience for all,” says the report.

The dominance of digital wallets has led to very advanced contactless payment systems, which in turn have effectively rendered the use of cards with high commission fees obsolete. The benefits of the service are spilling over to the entire supply chain, and taking the e-commerce market to new heights.

“Customers in China demand convenience, and integrated platforms are helping China’s retailers reduce costs in a very competitive environment,” says Willi Sun, head of advisory at KPMG China.

Nonetheless, challenges in staff training and the high cost of technology upgrades remain, hindering retailers from maximizing the benefits of digital payments.