KUCHING: Analysts believe that the ‘cashless’ system in Malaysia will grow by 15 per cent, five-year compounded annual growth rate (CAGR), as Bank Negara Malaysia (BNM) pushes for reform in the country’s payment system.
AllianceDBS Research Sdn Bhd (AllianceDBS Research) in a report highlighted that watershed years are ahead for payments in Malaysia as a result of BNM push for a cashless society.
It pointed out that BNM has been on the bat for migration to e-payments as it is a low-hanging fruit to boost Gross National Income (GNI).
“Reducing dependence on cash to 63 per cent (from current estimated 91 per cent) is expected to enhance GNI by RM2.6 billion and create 8,000 additional jobs. The impact to the greater economy is estimated at one to 1.5 per cent of total gross domestic product (GDP),” it said.
The research team also noted that the banking industry spends RM2.4 billion per annum to handle paper-based payments such as cash and cheques.
“Hence, according to the Economic Transformation Programme (ETP), embarking on this initiative is expected to boost GNI by RM2.6 billion and an additional 8,000 jobs (such as analytics, backoffice processing, merchandising and clearing) by 2020.
“Through productivity and efficiency gains, the impact to the greater economy is estimated at one to 1.5 per cent of total GDP,” it explained.
On top of that, AllianceDBS Research said the demographics in Malaysia points to a growing demand for superior technology adaptation.
“Malaysia has a relatively young population, with only five per cent above the age of 65. Mobile phone and internet penetration stands at 148.8 and 67.5 per cent respectively in Malaysia.
“Given that these closely track the state of developed countries in the region, we believe this suggests a society that is eager for developments in the payment system that is on par with the ranks of these countries,” it added.
The Malaysian payment system infrastructure has undergone significant developments over the years, rendering it well equipped to cater for a cashless society.
Nevertheless, the research team highlighted that consumer habits of paying with cash have hindered the full use of the infrastructure in place.
“As we hit the midpoint since the migration to e-payment agenda was put in place in 2010, it is hard to ignore that the country is still far off from its goals.
“As of 2015, paper-based payments formed an estimated 91 per cent of the total number of consumer payment transactions (vs targeted 63 per cent by 2020) while e-payment transactions stood at 82 per capita (compared with targeted 200 per capita by 2020),” it said.
The research team also noted that third Party Acquirers (TPAs) are the quintessential sidekick in the payment industry as demands for higher capacity of electronic transactions, card uptakes and new functionalities make it increasingly difficult for the banks to keep up.
Nevertheless, AllianceDBS Reserch said it expect the addressable market in Malaysia to grow by a 15 per cent five-year CAGR (2015-20F), primarily based on the assumption that card payments would increase to 35 per cent (from nine per cent currently) of consumer payment transaction volumes by 2019.
“This implies an incremental RM140 billion of transaction value for the industry. The Nilson Report expects transaction volume growth in the Asia Pacific market to hit a 10-year CAGR of 14 per cent by 2024.
“This implies a shift in market share of transaction volume from 22 per cent in 2014 to 35 per cent in 2024, overtaking the market share of the US region over time,” it added.
It further pointed out that while the banks are focused on top-tiered merchants (defined as annual turnover exceeding RM12 million), the lower-tiered merchants are the dark horses to root for as 90 per cent of businesses lie within these segments.
Overall, AllianceDBS Research believe that GHL Systems Bhd (GHL) is the best proxy to this development.
“The traction gained by GHL and ManagePay Systems (MPSB) is merely the tip of the payment.
“We expect GHL to record a three-year earnings CAGR of 55 per cent driven by monthly merchant acquisition rate ramping up to 750, 1,000 and 1,500 across financial year 2016 (FY16) to FY18F.
“While valuations based on price earnings (PE) are at a premium to global players, it is trading at a steep discount on a PEG basis.
“The discount should narrow over time, in our view, given the deep value potential hidden in the vast untapped market at its fingertips,” it said. It also noted that Datasonic Group Bhd (Datasonic) is a beneficiary from card reissuance during the transition period from chip-and-sign cards to chip-and-pin cards.