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By Binuri Ranasinghe - Global Research and Analysis Team
Malaysia Plans Cashless Society for 2020 — Is it Out of Reach?
2017-09-01

2. 02
Malaysia Plans Cashless Society for 2020 — Is it Out of Reach?
In its Financial Sector Blueprint 2011-2020, Malaysia’s central bank set out goals to migrate to an
electronic payments system as a step towards achieving a cashless society with modernised financial
services and improved efficiency. To this end, the central bank established specific targets with
respect to e-payment transactions per capita, debit card transactions per capita, number of EFTPOS
terminals per capita and number of cheques cleared. Moreover, the government launched several
initiatives to achieve these targets. While some progress has been made thus far, it is insufficient for
Malaysia to successfully reach its goal of becoming cashless by 2020. People’s general reluctance to
change and a shortage of aggressive initiatives have hindered the process.
By 2016, six years into its endeavour, Malaysia had not met the halfway mark in three of its four
targets: 1) increasing e-payment per capita 2) debit card penetration and 3) EFTPOS terminals.
In order for the country to reach the 200 e-payment transactions per capita target by 2020E, it would
have to achieve a growth rate of at least 19.7% over 2016-20E, in comparison to the 15.7% CAGR
recorded over 2012-16. The country also has some way to go in meeting its target number of debit
card transactions and EFTPOS terminals.
Interestingly, Malaysia has recorded a relatively high internet banking penetration rate which
indicates the country is definitely moving in the right direction. However, Malaysia is significantly
lagging behind on other measures such as credit and debit card penetration relative to more
developed counterparts.
With just a little over three years remaining, 21.0% of Malaysia's projects to achieve greater
economic efficiency through electronic payments are yet to commence. As a result, while the country
is well on its way to in becoming a cashless society, the 2020 timeframe seems unlikely.

3. 03
Malaysia Plans Cashless Society for 2020 — Is it Out of Reach?
Migration to an Electronic Payment System by 2020E, with the Goal of
Increasing Financial Sector Efficiency
Malaysia’s central bank, Bank Negara Malaysia (BNM), in its Financial Sector Blueprint 2011-2020,
announced its plans to migrate to an electronic payments (e-payments) system, making it the
preferred medium for economic transactions in order for Malaysia to become a cashless society.
BNM aims to increase the number of e-payment transactions to 200 per capita by 2020E from just
44 per capita in 2010. Its other targets are the reduction of cheque transactions, the increase of
debit card transactions, and the increase of Electronic Funds Transfer at Point-of-Sale (EFTPOS)
terminals.
Central Bank Sets Out Four Targets towards Achieving Cashless Society
Performance Indicator As of 2011 Target by 2020E Target CAGR/ CARC
(2011-20)
E-payment Transactions per Capita 49 200 16.9%
Debit Card Transactions per Capita 1 30 45.9%
Number of EFTPOS Terminals per 1,000
Inhabitants
7 25 15.2%
Number of Cheques Cleared 205 million 100 million -7.7%
Source: Bank Negara Malaysia
Malaysia’s targets and plans to become cashless were modelled after financial sectors in developed
countries. Its e-payments goal, for example, benchmarks New Zealand’s; at the time it was setting its
target number of e-payments per capita in 2010, Malaysia recorded just 44 compared with New
Zealand’s 228 (UK: 249).
Malaysia’s E-Payments Goal Benchmarks New Zealand’s (2010)
Source: Bank Negara Malaysia

4. 04
Malaysia Plans Cashless Society for 2020 — Is it Out of Reach?
BNM Lays Out Five-Part Plan towards Achieving E-Payments Target
Source: Bank Negara Malaysia
Note: Refer to appendix for the detailed strategy of the plan

5. 05
Malaysia Plans Cashless Society for 2020 — Is it Out of Reach?
Why Does Malaysia Want to Go Cashless?
1) To Achieve Efficiency Gains and Cost Savings
International studies show that e-payment transactions cost between just a third and a half of
paper-based ones. By migrating completely away from a paper-based payment system, the economy
could save 1.0% of the country’s GDP annually (as per BNM), enhancing national competitiveness.
2) To Support Malaysia’s Fast-paced E-commerce Market
Malaysia’s e-commerce market is expected to grow at a CAGR of 23.2% to USD 2,585 million in
2021E, from USD 1,121 million in 2017, following a 19.5% CAGR over 2014-16, as per Statista. This
growth underpins the need for a good e-payment infrastructure, given that most payments are
made online through credit/debit cards and e-money.
3) To Establish a Safer Alternative to Cash amidst High Levels of Snatch Theft
The crime rate in Malaysia was the highest among the ASEAN6 in mid-2017, as per the Numbeo
Crime Index, followed closely by Vietnam and Thailand. Petty theft such as purse snatching,
pickpocketing, smash thefts, and residential burglaries were common, according to the Malaysia
2016 Crime and Safety Report. Consequently, consumers prefer to use cards over cash and are likely
to embrace the cashless society concept promoted by BNM. In a survey by Visa in 2015, 66.0% of
Malaysian respondents said they preferred cards over cash, with 62.0% believing it was unsafe to
carry around cash.
Malaysia Records Highest Crime Levels amongst ASEAN6 in Mid-2017
Source: Numbeo

6. 06
Malaysia Plans Cashless Society for 2020 — Is it Out of Reach?
High Preference for Cards over Cash in Malaysia
Source: Visa “Consumer Payment Trends in Southeast Asia”
E-payments: Achievement of Target Requires Pick-up in Growth;
Further Expansion in Internet and Mobile Banking, E-Money Transactions,
and BNM’s Initiatives Should Help to Some Extent
Over 2012-16, Malaysia’s e-payments per capita registered a CAGR of 15.7% to 97.5 transactions per
capita in 2016, from 54.4 per capita in 2012. However, if the country is to achieve its target of 200
transactions per capita by 2020, it would have to record a higher CAGR of at least 19.7% over 2016-
20E.
Mid-Term Goal for 2015 Not Achieved despite Growth in E-payments
Source: Bank Negara Malaysia

7. 07
Malaysia Plans Cashless Society for 2020 — Is it Out of Reach?
Growth in e-payments is driven by the use of internet and mobile banking, and e-money. Internet
banking penetration has seen a steady increase to 71.9% in 2016 from 46.4% in 2012, and stands
well above the rate achieved by New Zealand (53.0% in 2011) when the country recorded 200+ e-
payments per capita. Despite Malaysia achieving a high level of penetration, this doesn't seem to
have made a significant contribution towards e-payments growth, and brought the country closer to
achieving its target.
Internet and Mobile Banking See Increasing Popularity due to Acceptance by Younger Population
Source: Bank Negara Malaysia
Malaysia is expected to see an increase in its credit card penetration to 36.5% by 2020E (as per
Statista), from 31.4% in 2016, which is still significantly lower than the 78.0% that New Zealand
recorded in 2011. Neighbouring Singapore, is expected to increase its credit card penetration to
53.7% by 2020E, from 45.2% in 2016.
Per Capita E-money Transactions Up Steadily while Credit Card Transactions Remain Stable
Source: Bank Negara Malaysia

8. 08
Malaysia Plans Cashless Society for 2020 — Is it Out of Reach?
In 2016, BNM held 20 roadshows in nine states around the country in collaboration with the Association
of Bankers in Malaysia (ABM), the Association of Islamic Banking Institutions Malaysia (ABIM), and the
National Cards Group (NCG). These annual roadshows are intended to (1) create awareness among
individuals and businesses about the benefits of e-payments, its features, access, and pricing and (2)
educate the public on safe practices in conducting financial transactions. They also provide banks an
opportunity to showcase their new products in card acceptance and online banking. In addition,
attendees can enjoy promotional offers from participating banks and payment system operators.
Further, in 2016, BNM launched a new Real-Time Electronic Transfer of Funds and Securities (RENTAS)
system in collaboration with its wholly owned subsidiary, MyClear. The new system will introduce (1)
multi-currency settlement functions, (2) the adoption of ‘Society for Worldwide Interbank Financial
Telecommunication’ (SWIFT) messaging standards, and (3) a gridlock resolution mechanism to enable
the settlement of pending transactions. The new system reduces credit risk while providing fast and
secure real-time settlements, but requires high liquidity levels. The new system was launched as the old
system was reaching maturity, with its transaction volume at a steady 4.4 million over 2014-16
(transaction value, on the other hand, fell 3.8% YoY to MYR 51.5 trillion in 2016, following 9.0% YoY
growth in 2014; this decline could have been due to inefficiencies in the older system, and the new
system could rectify these).
RENTAS Transaction Value Declines in 2016; Volume Steady
Source: Bank Negara Malaysia

9. 09
Malaysia Plans Cashless Society for 2020 — Is it Out of Reach?
Debit Card Transactions: Reaching 2020E Target Unlikely
Debit card transactions per capita grew at a CAGR of 29.7% over 2012-16. Moreover, with 3.4 debit card
transactions per capita in 2016, Malaysia is far behind its target of 30.0 transactions per capita by 2020E.
The target will be missed unless it achieves a CAGR of at least 72.3% over 2016-20E. As per Statista, the
debit card penetration in Malaysia is expected to increase to 69.4% by 2020E, from 57.1% in 2016,
which will still be well behind New Zealand’s 188.0% in 2011. In comparison, debit card penetration is
also well below Singapore’s 93.3% in 2016 (95.7% by 2020E).
Debit Card Transactions Gradually Up
Source: Bank Negara Malaysia
In an effort to facilitate cashless payments and increase the security of card payments, BNM
implemented a project to migrate to a Personal Identification Number-based (PIN-based) card system in
2017. Accordingly, in terms of infrastructure, 99.8% of point-of-sale (POS) terminals were upgraded to
accept PIN authorisations by end-April 2017, while 96.1% of POS-active debit cards and 100.0% of credit
cards were replaced. As per the Association of Bankers in Malaysia (ABM), complete migration was not
achieved by end-April (two months ahead of the deadline) amidst general reluctance to change.
However, if cards and terminals had not been replaced by 1 July 2017, merchants would not have been
able to accept card payments. Additionally, Visa and other card issuers are working with merchants to
train cashiers. Meanwhile, banks are working on improving awareness and education among customers
so that the full benefit of the PIN system can be realised.

10. 10
Malaysia Plans Cashless Society for 2020 — Is it Out of Reach?
Share of PIN-based Transactions at Four-Fifths on Approach of Replacement Deadline of 1 July 2017
Source: Bank Negara Malaysia
EFTPOS Terminals: Behind Target
EFTPOS terminals per 1,000 inhabitants grew at a CAGR of 19.5% to 10 terminals per 1,000 in 2016 from
7 in 2014 and 8 in 2013. The decline in terminals in 2014 was due to population growth being faster than
the rate of terminal additions. Growth in the number of terminals needs to reach a minimum CAGR of
25.7% over 2016-20E if the country is to meet its target of 25 terminals per 1,000 inhabitants by 2020E.
EFTPOS Terminals Per Capita Steadily Up, Except in 2014
Source: Bank Negara Malaysia

11. 11
Malaysia Plans Cashless Society for 2020 — Is it Out of Reach?
Cheques: On Track to Reach 2020E Target
BNM has succeeded in limiting the use of cheques: the number of cheques used declined at a CARC of
10.1% over 2012-16 to 133.1 million in 2016 from 203.8 million in 2012. If the rate of decline does not
fall below 6.9% over 2016-20, Malaysia will be on track to achieving its targeted 100 million cheques by
2020.
In its efforts to reduce the use of cheques, BNM initiated a pricing reform framework in 2013 to make e-
payments more affordable. The price per interbank GIRO (IBG) transaction performed via internet
banking or mobile banking was reduced by 95.0% to MYR 0.1 from MYR 2.0. Moreover, with effect from
January 2015, banks began to charge MYR 0.5 on the issuer of a cheque in addition to stamp duty of
MYR 0.15 per leaf. This charge was to progressively increase to reflect the true production cost of MYR
3.0 per cheque (as of 2013). The increase in the cost of issuing cheques, combined with the lowered
price of IBG transactions, was intended to promote migration to e-payments as the more cost-effective
option.
Due to successful price signalling, IBG transactions grew at a CAGR of 25.5% to 174.1 million over 2012-
15. Transaction volume grew 36.2% YoY in 2014 in response to price reforms introduced in 2013 and
then slowed to 16.8% YoY in 2016 as the market adjusted to the reforms.
Plans to Reduce Use of Cheques Successful as Mid-term Target Is Surpassed;
IBG Transactions Steadily Up
Source: Bank Negara Malaysia

12. 12
Malaysia Plans Cashless Society for 2020 — Is it Out of Reach?
Older Generation’s and Small, Rural Merchants’ Reluctance to Change Poses
Challenge on Path to Cashless Society
Cyber security concerns, phishing attacks, and credit card fraud have contributed to a reluctance to
progress towards a cashless society, especially among the older generation. Furthermore, small
merchants in rural areas have been slow to accept e-payment systems, preferring cash and even
imposing minimum charge policies for credit card payments. This highlights a lack of awareness among
merchants of the fact that bank commission for credit cards is either fixed or reduces with increased
credit card transactions.
At Current Rates, Malaysia Unlikely to Achieve Targets by 2020
Reporting on the status of its targets in its current annual report, BNM stated that more than half of its
projects to achieve greater economic efficiency through electronic payments are on track (53.0%), with
26.0% already completed and 21.0% either under review or yet to commence.
Majority of Projects Promoting Greater Economic Efficiency through Electronic Payments Are
Completed or On Track
Source: Bank Negara Malaysia

13. 13
Malaysia Plans Cashless Society for 2020 — Is it Out of Reach?
By end-2016, Malaysia has not met the halfway marks of three of its four targets for 2020E. While the
country is on track to meet its goal of reducing the use of cheques, it has fallen short in its targets
relating to e-payments per capita, debit card transactions, and EFTPOS terminals. Consequently,
Malaysia is unlikely to meet its targets over the three and a half years to 2020E.
Malaysia Falls Behind in 2016 in the Achievement of 2020E Targets
Source: Bank Negara Malaysia
A potential catalyst is the increasing proportion of the population that is comfortable with the use of
technology, as young, technologically conversant consumers continue to qualify to carry out financial
transactions. This could lead to a slightly faster pace of growth in the achievement of the central bank’s
four targets. Nevertheless, in the absence of additional initiatives by BNM over the next three years,
Malaysia’s migration to a cashless society is still some way off.
Growing Proportion of Technologically Conversant Population a Potential Catalyst for E-Payments Growth
Source: Population Pyramid

14. 14
Malaysia Plans Cashless Society for 2020 — Is it Out of Reach?
Appendix: Five-Part Plan in BNM’s Financial Sector Blueprint 2011-2020
Plan Strategy
Enhance e-payment
infrastructure
i) Widen access to Real-time Electronic Transfer of Funds and Securities (RENTAS) system via
electronic channels for large value transactions promoting the use of e-payments
ii) Adopt international messaging standards for the RENTAS system by streamlining treasury
processing for domestic and regional operations, thereby lowering infrastructure costs and
allowing greater straight-through processing
iii) Provide adequate payment information to beneficiaries, making reconciliation of electronic
transactions more efficient
iv) Mechanism to facilitate payment assurance and timely information of rejections for unsuccessful
electronic transactions
v) Introduce rules in collaboration with financial institutions, benefitting merchants through reduced
risks and improved cash flow
vi) Facilitate higher transaction limits via e-channels by leveraging initiatives such as mobile public
key infrastructure (mPKI), promoting the use of e-channels as a more viable payment alternative
to cheques
Enhance the mobile
banking channel
i) Implement strong and secure authentication method that is simple and cost effective, such as
mPKI, instilling user confidence in mobile banking and payments
ii) Introduction of Electronic Bills Payment Portal, allowing consumers and billers the efficiency and
convenience to pay all bills using one portal
iii) Leverage Near Field Communication (NFC), offering convenient mobile payment services
Widen the payment card
infrastructure
Increase usage of payment cards/debit cards and reduce the use of cash, by
i) increasing the number of point-of-sale (POS) terminals that accept payment cards,
ii) instituting an incentive structure that would encourage the use of debit cards,
iii) facilitating the deployment of standalone POS terminals at smaller merchants, and
iv) widening the acceptance of the domestic PIN-based debit card or e-debit among merchants
Provide the right price
signals for the paper based
and electronic payment
systems
Remove price distortion between e-payments and paper-based payment instruments to encourage
users to switch from costly paper-based payment systems to lower-cost e-payment systems, by
i) allowing charges to be imposed on cheques to reflect the higher costs, while lowering the price of
e-payments,
ii) introducing cost-efficient banking products that promote the use of e-payments and discourage
the use of cheques,
iii) supporting government and private corporation efforts to reduce the acceptance to cheques, and
iv) exploring the introduction of tax incentives to encourage behavioural changes that complement
the new pricing structure for payment services
Creation of awareness
among users
Enhance awareness and promote user confidence, while eliminating doubts of security with regard to
e-payments, by
i) establishing a one-stop information portal about e-payment mechanisms available, the benefits,
and tips to ensure the safety of transactions, and
ii) increasing promotional campaigns, such as road shows and exhibitions
Source: Bank Negara Malaysia

15. 15
Malaysia Plans Cashless Society for 2020 — Is it Out of Reach?
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