Wednesday, December 8

Going cashless in a digital world


The advent of the Internet has vastly transformed the way businesses are being transacted these days. Within the past few years, online businesses have grown rapidly with business-to-consumer electronic-commerce (e-commerce) sales growing 21.1 per cent. E-commerce hit US$1 trillion for the first time in 2012, according to an independent market research company eMarketer.

The eMarketer company forecast that the growth in China’s digital shopper will be expanding enormously as the number of people who buy goods online is expected to double between 2012 and 2016.

According to data released by China E-Commerce Research Centre (CECRC) recently, e-commerce in China grew by 31.4 per cent last year, reaching a total market value of more than US$2.1 trillion in 2014.

It attributed the fast growing e-commerce activities to rapid expansion of Chinese online shopping malls like and Alibaba group’s retail sites Taobao and Tmall.

Additionally, the adoption of mobile devices such as smartphones and tablets have also made online businesses, in particular online shopping, much easier and more convenient.

With increasing online shopping and e-commerce activities, cashless payment or electronic payment (e-payment) has gradually become more important as compared to conventional method of settlement such as cash and cheque.

Besides, it provides convenience to consumers as they need not carry a huge stack of cash to settle large transactions.

In Malaysia, Bank Negara Malaysia (BNM) is encouraging the use of e-payments among businesses and consumers as it reduces costs and promotes efficiency.

BNM deputy governor Datuk Muhammad Ibrahim said at the macro level, the adoption of e-payments has the potential to enhance Malaysia’s overall economic efficiency and competitiveness

He added the benefits in terms of cost savings and efficiency gains from a successful migration to e-payments are substantial.

Muhammad noted that as payments represent an indispensable activity for both individuals and businesses, increasing payment efficiency through the adoption of e-payments will improve productivity and reduce the cost of transactions.

Thus, he pointed out that the central bank is encouraging people to shift towards e-payments as a new mode of payments compared to traditional ways of settlements through cash or cheques.

“To reduce the country’s reliance on cash usage, the central bank has issued the Payment Card Reform Framework which took effect in stages beginning last January.

“The framework aims to ensure that the cost of accepting payment cards is fair and reasonable, whilst creating an enabling environment for the wider acceptance of payment cards, especially by smaller merchants.

“Over the next six years till 2020, together with the banking industry, we plan to expand the payment card acceptance network from about 240,000 terminals to 800,000 terminals and further accelerate the use of debit cards.

“These measures, if implemented successfully, will lessen the need for cash payments,” he said during an event held in Kuala Lumpur recently.

The research arm of CIMB Investment Bank Bhd (CIMB Research) in a recent note to clients following a visit to BNM’s payment system policy department said the new payment system reform framework will reduce cash-handling costs in the country, given the high number of cash payment transactions in Malaysia.

The research firm’s analyst Mohd Shanaz Noor Azam believes the new framework will help to improve the efficiency of the financial system.

He noted the central bank is committed to reduce the interchange fees (IF) between financial institutions and setting up a mechanism to ensure that banks promote point-of-sale (POS) terminal growth among smaller merchants by imposing lower IF caps.

Shanaz said the central bank also expects the reduction in IF to reduce merchant discount rates (MDR) and encourage smaller merchants to accept debit and credit cards.

He believes the reduction in IF will reduce the MDR for lower-tier merchants, which will effectively lower their e-payment adoption costs.


Efforts to encourage e-payments

Meanwhile, one of the key areas to improve the financial services sector under the Economic Transformation Programme (ETP) is to create an integrated payment ecosystem.

According to Performance Management and Delivery Unit’s (Pemandu) website, e-payment transactions are expected to increase 10-fold to 12 billion transactions per year by 2020.

As such, it explained BNM, in collaboration with the Ministry of Finance, Malaysian Electronic Clearing Corporation Sdn Bhd (MyClear), Touch and Go and merchant acquirers will develop a comprehensive strategy to expand merchant acceptance to achieve 1.3 million merchants by 2020.

In the meantime, Pemandu observed that Malaysia currently is very much a cash-based society with a substantial percentage of transactions still being performed using cash.

Similarly, Muhammad said the use of cash and cheques remains prevalent in Malaysia.

He noted Malaysia’s cash usage measured by currency-in-circulation (CIC) over gross domestic product (GDP) was about six per cent in 2013, which was 100 per cent higher than the average in advanced economies.

Likewise, he observed, Malaysia’s cheque usage per capita was 6.6 per cent in 2013, which was 33 times higher than in advanced economies.

Thus, Muhammad revealed recent measures being implemented to encourage e-payments have shown desirable results.

“Promising progress has been made since the introduction of the Pricing Reform Framework in May 2013 and the more concerted efforts taken to improve and promote the use of Interbank Giro (IBG).

“In 2014, cheque usage declined at a faster rate of 10 per cent, compared to only three per cent in 2013.

“At the same time, the number of IBG transactions increased by 36 per cent in 2014 compared to 19 per cent in 2013.

“Consequently, Malaysia’s cheque usage had fallen from 6.6 per capita in 2013 to 5.8 per capita in 2014,” he said.


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As part of the government’s measure to encourage the people to shift towards e-payments in particular using payment cards for payments to the government, BNM said the interchange fee ceiling for debit and prepaid cards has been set at zero for a period of six years from 2015 to 2020.

Furthermore, BNM noted with effect from Oct 1, 2014, a tiered pricing structure was introduced for e-payment services to encourage the use of more cost-effective payment channels.

The central bank observed that under the new pricing structure, transactions conducted through online banking channels will attract the lowest fee, followed by transactions carried out at automated teller machines (ATMs) and lastly transactions performed over-the-counter (OTC).

With lower fee and reduced cost, BNM in its 2014 Financial Stability and Payment Systems Report said, “Consumers will be able to use payment cards more widely as a result of lower payment card acceptance costs incurred by merchants.

“In addition to the lower cost of payment card acceptance, merchants will also benefit from increased convenience and operating efficiencies brought about by wider payment card usage

“A higher payment card transaction volume will also generate higher revenue for banks in respect of their acquiring business and reduce the costs incurred in handling cash,” BNM pointed out.

The central bank observed that throughout 2014, both BNM and the banking industry continued to direct considerable effort and resources at improving the accessibility, efficiency and reliability of e-payment services in Malaysia.

Moreover, BNM said it introduced the e-Payment Incentive Fund (ePIF) framework which came into effect last January to sustain the drive for continuous improvements in the e-payment infrastructure and services.

The central bank said under the initiative, banks are required to channel the cheque processing fees collected into providing incentives for customers to migrate to e-payments such as waiving e-payment transaction fees, security token fees and monthly maintenance fees.

Apart from that, BNM also encourages businesses and consumers to make bill payments using electronic platforms.

The central bank recently launched an initiative known as JomPAY, an open electronic bill payments platform which leverages on the combined infrastructure and network of the entire banking industry to provide greater efficiency, convenience and accessibility for the public to make bill payments.

Muhammad during the launching said, “Businesses should leverage on JomPAY to accept online bill payments from their customers.

“Handling cash and cheques is very costly.

“Businesses incur an estimated RM2.7 billion annually for cash handling, in addition to bearing the risk of pilferage and theft.

“Businesses also incur an estimated RM113 million annually for cheque handling.

“Migrating to electronic bill payments would lower the cost of transactions and provide businesses with a faster, more secure and more efficient means of collecting payments.

“Businesses should leverage on JomPAY not only for bill payments, but also for invoice payments to facilitate a more efficient management of their receivables,” he said.

On the other hand, Muhammad pointed out that consumers should also take advantage of the increased convenience of making bill payments through the new channel.

He explained that JomPAY provides a one-stop centre for consumers to make bill payments electronically and without any transaction fee.

As for merchants, he said with JomPAY, they only need to maintain a banking relationship with one bank, in order to receive bill payments from customers of all other banks.

Similarly, he added customers only need to maintain an account with one bank in order to make bill payments to the entire network of merchants registered with JomPAY.

Likewise, Muhammad said MyClear and Malaysian Electronic Payment System (MEPS) should jointly embark on payment infrastructure projects and initiatives that would benefit both the industry and the country.

On top of that, he said the banking industry should also deploy more payment card terminals at merchant outlets, government counters and at the premises of collecting agents such as banks branches and post offices.

Moving forward, Muhammad also said MyClear, MEPS and the banks should continuously collaborate to explore new and innovative ways to achieve greater payment efficiency.

He pointed out both consumers and businesses should capitalise on the benefits and opportunities derived from the adoption of e-payments to enhance competitiveness in the fast evolving world.

Hence, a few companies have jumped on the bandwagon to provide e-payments services to businesses and consumers.

These include among others GHL Systems Bhd (GHL), ManagePay Systems Bhd (ManagePay), iPay88 Sdn Bhd (iPay88) and PayLink Global (M) Sdn Bhd (PayLink).


GHL, a leading payment solution provider in the Southeast Asia (ASEAN) region is leveraging on the transaction payment acquisition (TPA) services to enhance its earnings growth.

In conjunction with the release of the company’s latest financial performance, GHL said, “The TPA initiative is imperative to the group’s strategy and 2015 will be a significant turning point for the group.

“The initiative not only enables the company to enter into the smaller merchant market, which is relatively “un-serviced” but will also enable the group to cross-sell its e-pay’s products, thereby delivering greater value proposition to merchants.

“TPA will also position the group as a major merchant acquirer within the ASEAN region,” GHL believed.

Meanwhile, the company noted it ended fourth quarter 2014 (4Q14) and started this year on a stronger footing as it signed several TPA agreements.

GHL revealed that in 4Q14, it signed TPA agreements with Omnipay Inc, a local and a telco in the Philippines.

Subsequently in January 2015, GHL said the group signed TPA agreements with Global Payments Card Processing Malaysia Sdn Bhd (Global Payments Malaysia) in Malaysia and in February, the group signed a TPA agreement with Amanah Ikhtiar Malaysia (AIM) to collect loan repayments using e-debit.

GHL’s group chief executive officer Raj Lorenz said, “The agreement with Global Payments Malaysia marked GHL Group’s launch into the banking payment service provider initiative in Malaysia.

“This deal paves the way for GHL Group to enter the small merchant segment.

“The payment service provider agreement with Global Payments Malaysia will also allow GHL to directly contract with smaller merchants for credit card payment services.

“This not only serves the national interest of broadening the card acceptance footprint but also helps fulfill the payment needs of small and medium enterprise (SME) customers.

“This will enable GHL Group to grow its presence in the cashless payment environment in Malaysia,” he said.

At the same time, GHL said as an initial roll out, the group is seeking to acquire between 3,000 and 4,000 merchants on behalf of Global Payments Malaysia during 2015 that will be able to accept payments from various international Card Associations.

The company said it expects the merchant acquisition activity to increase towards the end of 2015.

RHB Research Institute Sdn Bhd (RHB Research) in a recent report said GHL is a proxy to the e-payment growth in the Asean markets.

The research firm believed that the company is well-positioned to tap into the rising demand for non-cash payments in countries attributed to rising household income and a burgeoning appetite for consumer goods which underlies the need for those economies to go cashless.

“We see enormous potential in GHL’s diversification into a transaction-based revenue model via its TPA segment across Asean markets.

“We see this TPA-centric approach as an important milestone for the company, as the volume-driven, recurring nature of the TPA business model is more lucrative and will allow GHL to better capture the potential of increasing e-payment transactions across Asean.

“We expect TPA to be a major contributor of revenue growth to the company, potentially contributing about 78 to 85 per cent to the company’s financial year 2015 (FY15) to FY17 revenue from around 72 per cent in FY14 and 23 per cent in FY13,”  the research firm predicted.

In Malaysia, RHB Research foresees GHL as one of the major beneficiaries of the government’s push to reduce cash transactions.

The research firm noted that the central bank has encouraged e-payments through the establishment of more POS terminals.

With the need to increase more POS terminals, RHB Research said GHL which is also involved in sales and rental of electronic data capture (EDC) terminals could benefit from higher volume of business transactions.

Thus, the research firm believed the company will further expand its existing network reach of 50,000 to 60,000 POS terminals in Malaysia to further strengthen its market share.

Moving on, ManagePay said the group is moving towards developing a sustainable multiple source of income streams in the coming years by providing both third party acquiring (TPA) and third party processing (TPP) services in relation to the acceptance of electronic payment services in Malaysia and in the region.

ManagePay revealed that the group has started its TPP certification process from Visa International after successfully obtained the MasterCard TPP certification in 3Q14.

The company expects certification for the other card schemes such as MyDebit from MyClear and China Union Pay (CUP) are being scheduled to start later this year.

ManagePay’s chairman Datuk Dr Aminuddin Rouse in the company’s latest Annual Report said ManagePay is stepping up its efforts to introduce TPP services to enable the group to offer end-to-end payment services through the issuance of payment instruments, such as Visa or MasterCard powered payment cards to business communities.

He believed the introduction of TPP services will increase the group’s ability to offer payment services which is beyond the reach of competitors who are just able to offer merchant acquisition services, commonly known as TPA services.

Commenting on the group’s prospects, ManagePay in conjunction with the announcement of its 4Q14 financial results last February said the group has registered a noticeable growth in e-payment sales and strongly believed that it will register higher revenue growth in e-payment merchant acquisition activities in 2015.

The company disclosed that in 4Q14, the group secured two business communities, each with thousands of sales agents to utilise its mobile point of sale (MPOS) solution to accept e-payment such as Visa and MasterCard as a form of payment for their products and services.

ManagePay noted the projects are being implemented at different stages at present and the payment transaction shall start before the middle of this year.

The company believed those large e-payment acquisition projects will contribute to improve the group’s financial performance for 2015.

Financially, ManagePay said its net profit for financial year 2014 (FY14) jumped 50 per cent to RM1.41 million on the back of 10 per cent increase in revenue to RM9.73 million.

The company attributed the improved financial performance achieved in FY14 as a result of increased in revenue derived from the payment segment as well as better profit margin for its services recorded during the year.

As for this year, the company told Bursa Malaysia that it has received two contract awards, one in January and the other in February.

On January 15, ManagePay said its wholly-owned subsidiary ManagePay Technologies Sdn Bhd (MTSB) has accepted a letter of offer from Multimedia Development Corporation Sdn Bhd (MDeC) to grant MTSB RM749,185 for the purpose of developing and commercialising a project known as MPAY Collection on Delivery (COD) Solutions Services.

ManagePay said the project is designed to support the growth of e-commerce in Malaysia.

The company added the project will allow the sale of goods by mail or online order where credit cards or debit cards payment is made through MPAY Mobile POS on delivery rather than in advance.

The company believed that the project will provide the group with an additional source of revenue stream as it is estimated that a substantial portion of the total e-commerce transaction will be fulfilled through COD services upon the market and service maturity in the next few years.

As for the second job award, ManagePay said it has received a letter of approval from BNM on February 24 to issue electronic money (e-money) through the proposed online wallet known as MPAY Balance and prepaid card known as MPAY Master Card.

The company said the MPAY Balance and MPAY MasterCard will come with a respective wallet limit of RM10,000 per account holder.

ManagePay revealed that the company shall start the issuance of MPAY Balance and MPAY MasterCard within one year from the date of approval from the central bank.

Apart from that, iPay88 offers online payment services under its brand name iPay88 to local online retailer or e-commerce merchant in the country.

According to iPay88’s web portal, the company claimed that it is a leading regional payment gateway provider in Southeast Asia with presence in several ASEAN markets such as Malaysia, Singapore, Indonesia, the Philippines and Thailand.

The company disclosed that its Malaysia operations arm Sdn Bhd is notified under Malaysia’s Payment System Act and also in compliance with Payment Card Industry Data Security Standard.

iPay 88 pointed out that the company has successfully provided e-commerce and online payment services to more than 5,000 merchants globally and regionally since 2006.

In February 2009, iPay88 said the company launched its multi-currency gateway and became the first local regulated payment service provider then that provide Internet payment processing for e-commerce in foreign currency.

In 2010, the company formed a partnership with global online payments provider PayPal to boost online payment services.

Furthermore, another online payment services provider PayLink offers innovative and customised e-payment that can be operated on a variety of payment interfaces such as kiosks, mobile applications and web-based applications.

PayLink, in which its holding company is based in Kazakhstan aims to be the corporate provider for wireless transactions, settlements, clearing and a solution provider for e-payment in Malaysia.

PayLink was reportedly said to deploy about 10,000 multi-payment kiosk across Malaysia that enable consumers to make payments to service providers or merchants such as for mobile prepaid top-ups, utility bills, payment to municipalities and remitting funds overseas.

The company also said it aims to extend its services by providing e-money and mobile banking facilities that caters to different needs of the people.


Looking ahead, with the shift of payment methods moving towards lesser use of cash or paperless through online as well as mobile, consumers can save time making payment by reducing the hassle of queuing up at counters to pay for goods or bills.

Besides, studies have shown that consumer’s shopping experience improved as new channels of payment such as online payment are faster, more convenient and secure while businesses could generate better sales.

In spite of that, the issue of security remains the most crucial factor for consumer in deciding what is the best option to use for transactions.

Notably, some of the concerns with regards to online transactions are financial fraud and Internet scams that could impact the reliability of e-payment.

Given such a case, e-payment services providers ought to ensure that the payment system is well-protected.

Likewise, industry players should also collaborate in addressing some of the challenges faced by consumers while using e-payments.

By creating a conducive method and a secure payment infrastructure for consumers to perform business transactions, businesses will reap the benefit of higher sales and more recurring income.

Hence, this will strengthens the financial system, thus providing confidence to consumers while making payments through the Internet.