The Malaysian payments market remains cash-reliant, but has high growth potential as it shifts towards digital payments.
The government and banks have started to provide basic financial and banking services by expanding banking infrastructure, launching new branches, promoting agent banking networks, and making efforts to change consumer habits. This has helped payment cards become more accepted in the country.
The growth of POS terminal penetration, the cap on interchange fees, the complete migration of cards to EMV standards, and significant recent developments in e-commerce have all contributed to the ongoing digital transformation of the market.
Adoption of contactless technology, e-commerce growth and the emergence of alternative payments are expected to boost electronic payments in Malaysia.
As part of its Financial Sector Blueprint 2011-2020, the central Bank Negara Malaysia is constantly promoting electronic payments.
Moves include waiving fees on instant transfers of up to MYR5,000 ($1,235) and increasing cheque-processing fees. To improve the country’s payment infrastructure, the central bank plans to have 800,000 POS terminals across Malaysia by 2020.
To support this aim it set up the Market Development Fund in 2015, under which credit card scheme providers share 0.1% of interchange fees towards the development of POS infrastructure.
Debit cards favoured
Debit cards remain the largest card type, accounting for 80.6% of the total number of cards in circulation in 2018, largely as a result of the country’s high banked population.
Although debit cards are traditionally used for cash withdrawals, they are now gradually being used for payments, especially for low-value transactions, driven by rising consumer awareness, the introduction of contactless debit cards, and expansion of the POS network.
Bank Negara Malaysia’s move to cap interchange fees on debit card transactions in July 2015 also drove acceptance among merchants.
The Malaysian e-commerce market jumped in value from $1.2bn in 2014 to $4.9bn in 2018, an impressive CAGR of 41.1%. The proliferation of internet users, growing interest in online shopping, high smartphone penetration and the increasing number of online merchants have all contributed to this growth.
Meanwhile, the emergence of alternative solutions such as PayPal, Masterpass and Visa Checkout has also boosted the e-commerce market.
Prepaid market growth
Prepaid cards are increasingly gaining acceptance among Malaysian consumers, as they do not require a bank account and are accessible to consumers who do not qualify for a credit card.
The prepaid card market registered robust growth in terms of number of cards in circulation, recording a CAGR of 4.1% during the period 2014-2018. The transaction value increased from $1.3bn in 2014 to $2.7bn in 2018 at a CAGR of 19.7% – a trend that is expected to continue over the next five years.
The sharp decline in the number of prepaid cards in 2016 was most likely a result of the cancellation of inactive cards. Co-branded prepaid cards are popular in Malaysia. Maybank partnered with English Premier League football club Manchester United to launch the Visa Manchester United prepaid card, which is aimed at young individuals.
The card can be reloaded with between $2.47 and $2,471. Similarly, RHB Bank offers the SOGO-RHB prepaid card, which enables card holders to earn reward points for monthly purchases at SOGO outlets.
The number of POS terminals has recorded strong growth, rising from 233,248 in 2014 to 488,546 in 2018, at a CAGR of 20.3%.
This can partially be attributed to the rise in contactless POS terminals. According to Bank Negara Malaysia, the number of contactless POS terminals increased from 33,721 in 2016 to 96,601 in 2017.
Growth was supported by the establishment of the MDF, under which 0.1% of credit interchange fees is put towards boosting deployment of POS terminals.
The cap on interchange fees set by the central bank has encouraged merchants to accept card payments.