Malaysia – on road to a cashless society

> Progress is commendable but there is still a lot of work to be done to achieve the goal

IN many ways, Malaysia’s plan to become a “cashless society” by 2020 can be said to be overly ambitious. However, the intent and overall effort put in as an industry so far is indeed commendable.

To recap, the plan is part of the bigger agenda for Malaysia to achieve high-income nation status by 2020. In line with this, the target for the number of electronic payments per capita had been set to 200 by 2020 under the Malaysia Financial Sector Blueprint 2011 – 2020 to raise the bar and meet the level within developed nations. For a middle-income nation to achieve in five years what has taken developed nations to achieve gradually over time is no mean feat.

The potential within the Malaysian market is clearly there. In MasterCard’s Digital Evolution Index, Malaysia ranked second in a list of fastest moving digital economies as a result of rapidly increasing internet and smartphone population. MasterCard shared that there has been a steady growth of small businesses and retailers that have never accepted card payments and previously operated on a cash- and invoice-only basis turning to mPOS solutions to expand their customer base and sales. Visa’s 2016 Consumer Payment Attitudes survey found that 74% of Malaysians prefer to make epayments instead of cash and approximately 60% of Malaysians are now comfortable with the use of biometrics, such as fingerprinting and face recognition for payment authentication.

Trends in the market are reflective of this and show increasing use of debit cards alongside mobile payment solutions. On the mobile payments front, a flurry of solutions including Maybank Pay, CIMB Pay, Samsung Pay and, most recently, Alipay have entered the market within the past year. There is good reason for this. Malaysia going cashless is actually catalyst for the mobile payments market. Since ideally a “cashless society” refers to a society that 100% utilises epayment methods, getting to 100% cashless will see mobile payments realise its potential as a key enabler of cashless societies. The key driver behind this is the cost effective use of app-based and online solutions in a country where smartphones are prevalent.

Although benefiting from regulatory push factor, the initial slow take up of mobile payments is mainly due to the drawbacks of today’s mobile phone as a form factor and the fact that contactless payment facilities is still far from ubiquitous. Users don’t appreciate having to juggle an additional device to complete everyday transactions and it has to be available on trolleys, at toilets, for donations and virtually everywhere. There is also a lack of comprehensive solutions to cater for segments holding on to the use of cash e.g. the poor, the old, people with disabilities, people living in rural areas and short term visitors/tourists.

Effort needs to be placed in replicating physical wallets and offering a truly seamless user experience.

On the debit card front, interchange fees have dropped to 0.15% for domestic transactions from an average of 1% and ATM/debit cards have been re-issued with contactless functionality. What this means is that more merchants particularly smaller merchants, where the previous bottleneck was, will accept debit cards going forward.

Since at least 71% of Malaysians don’t have a credit card, debit cards could be the solution to going cashless. All that is left is consumer education and awareness. However, since credit cards are predominantly used for bigger ticket transactions, what might be useful for Malaysia to consider is the removal of surcharging.

To sum up, if Malaysia is truly aiming to be a “cashless society” by 2020, there are many things that banks, solution providers together with the industry regulator need to be doing from now to realise this goal. Clearly there is a lot of work ahead.

The writer is industry principal at Frost & Sullivan