Plastic cards not going away in Malaysia anytime soon
Analysts won’t rule out the possibility, but say it would be a slow transition with security concerns that still need to be addressed
By Sangeetha Amarthalingam
PayPal, Apple Pay, Samsung Pay, Alipay and other leading digital wallets have become increasingly popular, thanks to advancements of technology.
According to a January 2017 report entitled “Mobile Wallet Market” by Zion Market Research, the global mobile wallet market was valued at US$594 billion in 2016 and is predicted to reach US$3.14 trillion by 2022, growing at a compound annual growth rate of 32 per cent between 2017 and 2022.
Malaysia, on its part, is embracing the contactless era, registering non-cash transaction volume totalling 1.66 billion with a value of RM7.7 billion last year (US$1.84 billion), while the volume for January to August this year amounted to 1.21 billion, translating into a value of RM5.8 billion (US$1.38 billion).
Data from Bank Negara Malaysia (BNM) showed that the transaction volume per capita (unit) for e-money rose 69.35 per cent to 52.5, with a per capita value of RM243.80 (US$58.15) last year, from 31 or RM142.40 (US$33.97) in 2012.
And some of the local banks, such as Malayan Banking Bhd (Maybank) and CIMB Bank Bhd, have their own mobile wallets. Last week, ride-hailing app firm Grab launched its digital wallet for hawker stalls, restaurants and shops in Singapore.
As of July 2017, e-wallet providers in Malaysia, which are subject to the Financial Services Act 2013 and Islamic Financial Services Act 2013, included Alipay, Visa Checkout, Masterpass, CIMB Pay and Samsung Pay.
As we increasingly switch to electronic payment, will plastic cards become a thing of the past?
According to MIDF Amanah Investment Bank Bhd senior banking analyst Imran Yassin, the move from plastic to pixels at the register may be a slow one, but he does not discount that possibility.
He is of the view that banks’ financial activities would not be impacted because e-wallet or mobile payment still requires the user to have a bank account.
“The difference here is [that] credit cards are a form of unsecured credit offered by banks, where users borrow to make purchases, while e-wallets are based on cash loaded onto the cards, or in some cases of mobile payment, based on the credit-card information,” he told The Edge Financial Daily via email.
“Hence, the credit card is still essential as there are yet any mobile payment providers willing to give credit to users. Unless this changes, we do not foresee credit cards fully replaced,” he added.
He said based on BNM statistics, there were 8.6 million principal credit cards and one million supplementary cards in circulation as at August 2017.
It was a 7.5 per cent year-on-year growth, showing that credit-card subscription was not affected despite the higher availability of e-wallets and other new forms of payment, he added.
Similarly, Imran found no significant impact on debit card usage in the near term, particularly with the introduction of payWave, a contactless payment method that has increased the ease of usage for cashless transactions. This negates the advantage of e-wallets.
“Debit cards are also tied to a person’s account, whereas some e-wallets require top-ups or value to be loaded. There is also the issue of security. Whether a perception or not, that must be addressed,” he added.
Having said that, Imran believed that physical replacement of debit cards by mobile wallets is possible because mobile phones can be used as a platform to store account information, which is then used to transact payment.
“This will be more prevalent with increasing security enhancements that can fully replace cash transactions and the need to carry physical cards.
“There is also the possibility of cost savings for banks, given that they do not have to incur the cost of printing the cards,” he added.
RHB Bank Bhd group retail banking acting head Nazri Othman sees an opportunity in the emergence of new e-payment solutions complementing existing products.
“It allows customers who predominantly pay using a physical card transitioning to virtual payment with ease through a variety of products and services tailored to their needs,” he told The Edge Financial Daily.
“There is plenty of room for synergy among banks and e-payment solutions to bring ease of access to financial payment services.
“With the emergence of e-payment solutions, the bank’s activities would likely revolve around the changes that e-payment brings to the market,” he said.
RHB Bank has a credit-card user base of nearly 500,000, which accounted for 8.2 per cent of revenue of the group’s total retail portfolio for January to September this year, Nazri said, adding that the take-up rate of e-payment would mature in the next few years, with widespread adoption.
On its part, RHB Bank has implemented key strategies to grow its card base profitably, including focusing on channels that offer better cost-efficiency, while developing new payment capabilities to capitalise on its benefits.
“These new payment concepts will complement our existing products. For example, we have launched Samsung Pay [with RHB cards] this year,” Nazri added.
That said, RHB Bank sees an encouraging trend in debit-card usage, where its value and volume grew by 19 per cent and 25 per cent year-on-year respectively, while higher e-payment adoption would boost debit-card spending.
“The key drivers for change would be convenience, speed and user experience — factors that resonate well with millennials, who have proven to be early adopters of technology,” he said.
Amid the changes to consumers’ transaction trend, card-issuing companies like Mastercard view mobile wallets as positive because they involve the ultimate displacement of cash at the end of the day.
Mastercard country manager for Malaysia and Brunei Perry Ong said Malaysians are more receptive to mobile wallets, but not so with Alipay, which targets Chinese nationals.
Mastercard has 350,000 merchants and several hundred thousand quick response (QR) codes in Malaysia.
“QR codes can be used in suburban areas, including local tea stalls, shops and laundrettes, but mobile wallets are more concentrated in tourist areas,” Ong said.
He said Mastercard pays attention to mobile wallets in Malaysia, and is confident of how it wants to play in our market, which is why it is behind the contactless movement.
“We want to concentrate on everyday merchants, such as supermarkets, coffee joints, drug stores and cinemas, which should be contactless. This makes it easier for customers to use our card as it is convenient and fast,” he said.
Mastercard Asia-Pacific digital payments and labs senior vice-president Ben Gilbey said in Malaysia, the group is working with BNM to lift the restriction of a one-time password for all low-value transactions.
“For every transaction in Malaysia, if it’s coming from the desktop or mobile, the user has to verify it with a one-time password, even if it is for a RM10 value transaction.
“We want to work with regulators to lift this requirement to ensure that smaller transactions are seamless and convenient,” Gilbey said.
In February, Visa reportedly said seven out of 10 Malaysians were willing to use mobile wallets, such as Samsung Pay. Visa said there had been a tremendous uptake of its payWave transactions in the past year, surpassing the milestone of 1.5 million monthly Visa payWave transactions in December 2016.
Its country manager for Malaysia Ng Kong Boon was quoted as saying then that it was seeing double-digit month-on-month growth in contactless payment.
Under BNM’s Financial Sector Blueprint 2011-2020, one key objective is to promote greater economic efficiency through e-payment.
This includes the collaboration between Ant Financial Services, the operator of Alipay, and Touch ’n Go, which is expected to transform the payment system landscape in Malaysia. Last Friday, the Digital Free Trade Zone (DFTZ) went live, which saw Prime Minister Datuk Seri Najib Razak flag off more than 1,500 Malaysian small and medium enterprises, which will be part of the DFTZ.