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DIGITISATION OF FINANCIAL TRANSACTIONS FOR MALAYSIA

Updated: Jul 17, 2018

Under the Malaysia Financial Sector Blueprint 2011 – 2020, Malaysia is targeting to increase the number of electronic payments per capita from 44 in the year 2010 to 200 by the year 2020, which is comparable to the e-payment transactions per capita of the more developed countries.


According to the study in 2016, cashless transaction in Malaysia is still in early stage compared to Singapore which registered a 61% cashless transaction in year 2016.  The huge gap has to do with efforts by the banking and payment industry introducing the electronic payments to the population affecting changes to the most common payment instruments such as credit, charge and debit cards for biggest impact.



By turning Malaysia into a cashless and cardless society, Bank Negara Malaysia (“BNM”) governor Tan Sri Muhammad Ibrahim had said the online banking instant transfer fee of 50 sen will be waived for up to RM5,000 per transaction, effective from July 1, 2018.  On the other hand, beginning Jan 2, 2021, the cheque processing fee would be doubled to RM1 from 50 sen as a sign of higher processing cost.


Besides, there is an increasing number of digital players launching their e-payment platforms, the new mode of payment has received good response by the local retail ecosystem and banking industry.  Various partnership among operators such as the deal with China’s leading financial technology company, Ant Financial Services Group is also an importance milestone to ensure the development in digital payment.



What is E-Money and E-Wallet?


“Money” is not a store of value. It is a claim upon value.  Money is technology.  While the role remains the same, what we’re witnessing is the change of instruments.


In the long history of money, human have been changing their payment instruments by adopting technologies that provide preferred convenience and ease of transaction.  Shells were superseded by coins, printing press made possible paper money that replaced coins, e-banking relegates cheques into a smaller role, and now contactless payment is already making ways to replace cash. Although contactless and mobile wallet currently sounds like the future, we should expect other changes in the future.



Digital payment, or e-wallet, is essentially a form of electronic payment that has the capacity to expedite the traditional payment process through the transaction of e-money.


According to BNM’s definition “Electronic Money (E-Money) is a payment instrument that contains monetary value that is paid in advance by the user to the E-Money issuer.  The user of E-Money can make payments for purchase of goods and services to merchants who accept the E-Money as payment.  In a simplify explanation, the cash and coins but in an electronic or virtual form which it exists in the form of a card or digital form in the Internet.


For example, Touch’N Go card is an example of “E-Money”.  Each card has a stored value, which refer to the amount of money kept in the card, for example RM10.  Every time you drive or taking public transport services around Klang Valley, it deducts money from the card.


E-Wallet is a short form for electronic wallet.  An E-Wallet usually refers to a mobile application that can be installed on your smartphone to track your payment instruments.


Payment instruments could include E-Money but may also include credit cards or debit cards.  An E-Wallet usually provides more features for the benefit of the user.


Although commonly people refer them as mobile wallets or digital wallets, they often mean the same thing.


Can anyone provide E-Money?


E-Money is a licensed payment instrument under the care of Bank Negara Malaysia.


The service providers that provide this are called E-Money Issuers.  They are responsible to provide E-Money facilities either via the form of a card (e.g. Touch’N Go) or App (e.g. vcash).


According to BNM, e-money is a payment instrument containing monetary value that is paid in advance by the user to the e-money issuer and can be issued in different forms — such as card-based and network- based — which is accessible via the Internet or other devices.


At present, the central bank has approved five banks and 26 non-bank operators as e-money issuers.  E-Money Issuers have to comply with BNM’s rules and regulations to ensure safety and confidence in the usage of E-Money.


Unlike E-Money, there is no specific list by BNM for E-Wallet in Malaysia.  This means that most service providers claiming to provide an E-Wallet are piggy-backing on a licensed payment instrument such as credit cards or E-Money.



As each provider has various ways of introducing its e-wallet with ancillary products to attract users, the payment methods all carry a common concept which involves users scanning a quick response (QR) code provided at the payment counter via the provider’s mobile application.


Governance mechanism for E-Money?


E-Money Issuers are required to comply with the Guideline on Electronic Money (E-Money) issued by BNM in 2008 (“Guideline”). The Guideline sets out the broad principles and minimum standards to be observed by electronic money issuers in their operations. Breach of the guideline can result in BNM revoking its approval to the issuer for its electronic money business.


Within the Guideline, E-Money Issuers can be classified as Small E-Money Scheme or Large E-Money Scheme.


E-Money Issuers, who is issuing Small E-Money Scheme (i) with the purse limit not exceeding RM200; and (ii) outstanding E-Money Liabilities of less than RM1 million.


E-Money Issuers, who is issuing Large E-Money Scheme (i) with the purse limit exceeding RM200 with the maximum purse limit for large scheme is capped at RM1,500 or any amount as approved by BNM (purse limit means the maximum monetary value that can be stored in an E-Money instrument); and (ii) outstanding E-Money Liabilities for 6 consecutive months amounting to RM1 million or more.


Under the Guideline, an E-Money Issuer of a large E-Money Scheme should deposit the funds collected in exchange of the E-Money issued in a trust account with a licensed institution in accordance with the Trustee Act 1949 in a timely manner. We Pacific Trustees Berhad will be able to act as the Trustee on behalf of the E-Money Issuers for the E-Money arrangement as we are a qualified and duly registered trust company as per section 4 of the Trust Companies Act 1949, incorporated under the Companies Act 1965 (which was repealed by the Companies Act 2016).


In summary, 80% of the transactions in the country are currently still by cash, while 20% are done via online banking and credit cards. The e-wallet is going to replace this 80% portion. It covers consumers from a very broad spectrum, as it can be from corporate consumers, down to hawkers in any neighbourhood area. The moment e-wallets can accept payment from a wide spectrum of merchants, we will no longer need cash.


Pacific Trustees Berhad – www.pacifictrustees.com




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