Malaysia: The evolving role of debit

The payments ecosystem in Malaysia has experienced extensive transformation in recent years under the forward-looking stewardship of its central bank – Bank Negara Malaysia (BNM). Encompassed within the central bank’s Financial Sector Blueprint (2011-2020) for the country are specific initiatives to drive the migration to e-payments as the central bank looks to reduce the reliance of paper-based instruments such as cash and cheques. Indeed, debit cards have been positioned as the primary platform to replace cash-based transactions as BNM looks to leverage the existing payments infrastructure that supports electronic transactions.

Interestingly, BNM statistics as of end 2017 indicate that 44.1 million debit cards were in circulation in the country; widespread penetration in a market with a banked population of 18.35 million. However, while these chip-based ATM/debit cards have proliferated in the marketplace, transactions flows on the card have not followed suit given the relatively weaker acceptance by smaller merchants. According to RFi Group data while debit cards are the preferred non-cash payment method of choice among consumers, use of the local payments platform Malaysian Electronic Payment System (MEPS) and bank transfers are fast emerging as alternate instruments for conducting payments.

Source: 17H2 Malaysia Payments Council

From a macro-perspective, BNM should be credited for taking steps that provide for an enabling environment for debit card use. On pricing, BNM has reduced interchange fees for debit cards, facilitated differentiated merchant discount rates (MDRs) and enabled merchants to choose a lower cost debit network. Regarding access, BNM has established a Market Development Fund to support the expansion of the Point of Sale (POS) terminal network. The planned target is to have 800,000 EFTPOS terminals to be deployed across the country by 2020. This ensures that 25 terminals will be servicing 1000 residents effectively.

Considering that by end December 2017 only 406,229 EFTPOS terminals had been installed in the country, banks in Malaysia are hard-pressed to redouble their efforts in merchant acquisition if BNM targets are to be achieved. This is especially important given that merchant acceptance remains an ongoing area of frustration for debit card users and is the second most important benefit being sought by those looking to apply for a new card. This will be fundamental in reshaping consumer behaviour in terms of debit card usage; an intended consequence is a lesser reliance on debit cards as a conduit for withdrawing and making cash-based payments.

Source: 17H1 Malaysia Payments Council

Similarly, debit cards being used as a primary funding source for digital wallets should also be considered. As digital wallets continue to gain traction among users, enabling debit cards to become the preferred funding option within the emerging digital wallet paradigm, will be critical to maintaining the relevance of the debit card going forward. As disruptions in financial payments continue apace and given the fluidity of market dynamics a digital debit proposition is perhaps inevitable.

The rapid and sustained adoption of alternative payment methods brings in to examine the evolution of a debit card proposition in the country. While the overarching objective of transitioning to e-payments appears to be materializing gradually, the role of the debit card in Malaysia’s fast-changing payments landscape must also change. It remains to be seen how prudently all stakeholders in the country’s payments landscape can successfully drive the cash displacement agenda while still maintaining the utility of the debit card.

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