The adoption of digital payments is accelerating the pace of growth and innovation.
Changing preferences and continued government efforts are driving cash displacement in Malaysian consumers.
According to the Visa Consumer Payment Attitudes 2021 study, seven out of 10 Malaysians have tried to go cashless in 2021.
Additionally, the average number of digital payment transactions per capita has more than quadrupled in the last ten years, increasing from 49 in 2011 to over 221 transactions per capita in 2021, according to Bank Negara Malaysia’s (BNM) most recent data.
Last year alone, over 7.2 billion transactions were made with electronic payment (e-payment) channels in Malaysia, growing 30 percent year-on-year (YoY), making it the fastest growing year since 2006.
Digital payments use and acceptance in Malaysia has risen significantly over the past decade, but this cashless revolution truly went mainstream during the COVID-19 pandemic.
It’s a revolution that is set to continue. According to a custom study by IDC together with Malaysia Digital Economy Corporation (MDEC) on Malaysia’s digital payments market, the country’s e-commerce gross transaction value (GTV) is expected to reach US$6 billion (RM25.2 billion) in 2022, doubling from the US$3 billion (RM12.6 billion) in 2019.
The study forecasts e-commerce GTV to total US$13 billion (RM54.6 billion) by 2025, with almost all transactions conducted using digital payments.
COVID-19’s Impact on Digital Payments
In 2020, at the height of the Movement Control Order (MCO) in Malaysia, the nation saw three million new mobile banking service subscriptions. Shifting customer preferences necessitated the use of digital-enabled consumption channels, driving e-wallet usage and adoption to new heights.
An IDC survey from 2020 revealed that 42.8 per cent of customers say that concerns about the exposure to COVID-19 are causing them to change their payment preferences towards cards, contactless and mobile payments.
Merchants were quick to adapt. Over 400,000 new firms registered for QR code payment acceptance in 2020 – a 164 per cent increase from 2019.
Cashless adoption is further fueled by the Malaysian government. In 2020, the government introduced the e-Tunai Rakyat programme and the ePENJANA initiative, which grants consumers cash handouts through e-wallets like Touch ‘n Go (TNG), Boost, and Grab.
A total of RM1.2 billion was allocated to boost the Malaysian economy, stimulate consumption, and promote digital adoption as part of both initiatives.
Under Budget 2021, MDEC ran the Go-eCommerce Onboarding and Shop Malaysia Online campaigns, with the aim to onboard Malaysian businesses to eCommerce and ePayment systems while encouraging online consumption.
During its six-month campaign period, the initiative generated over RM6.45 billion in sales for Malaysian businesses, totalling over 153.92 million transactions.
While the world approaches COVID-19 endemicity and a gradual return to normalcy, the Malaysian government has continued to encourage e-wallet adoption via targeted cash handouts.
The ePemula initiative launched earlier this year gave RM150 in e-wallet credit to youths aged 18 to 20 and full-time students, allocating a total of RM300 million under Budget 2022. This is part of a widescale effort to make Malaysia a truly digital nation.
Driving Malaysia’s Fintech Sector
Driving cashless adoption is part of an ongoing effort to bolster the domestic Fintech (financial technology) landscape, with MDEC and BNM paving the way.
In August 2020, MDEC, in conjunction with BNM, developed the FinTech Booster initiative, a capacity-building programme that has facilitated local and foreign Fintech startups to build their products and services in Malaysia.
Since the initiative’s launch, over 30 public workshops have been conducted to assist startups navigate the regulatory and legal environment, covering topics from Digital banking and Islamic Fintech to taxation and cybersecurity.
As of 2020, Malaysia has produced 233 FinTech firms, achieving double-digit growth in 2019 and 2020, consecutively.
The Malaysia Financial Sector Blueprint 2022-2026, which outlines strategic imperatives to leverage on the rapid pace of digitalization, also aims to review the RENTAS access model to widen participation, including to non-bank payment service providers (PSPs), as well as explore the application of technological innovations like central bank digital currencies (CBDC) and distributed ledger technologies (DLT).
Malaysia is increasingly moving towards ‘Fintech 4.0’, marked primarily by the emergence of scale in the context of platformisation of finance. With the increased adoption of e-wallet, e-commerce, BNPL, and other digital financial services, Fintech companies, banks, and payment providers have obtained direct access to customer purchasing behaviors and demographics.
AI-enabled analytics, supported by the massive pools of customer data, allow big tech firms to increasingly become financial intermediaries, offering a growing range of digital financial services such as credit, insurance, loans provisions and investment management to underserved markets.
Indeed, as Malaysia’s population becomes increasingly familiar with the conveniences of e-payment channels and digital financial services, our relationship with finance will continue to shift permanently to “digital first” in the New Normal.