While there will be no stopping the gradual transition to a cashless society – expected to save the economy up to 1% of the annual GDP – a lot more has to be done to educate and encourage consumers to adopt and trust digital transactions.
The idea of a cashless society is not a new one, dating way back to the first issuance of a credit voucher in 1880 to the first plastic card by US-based Diners Club in 1950 – which started with 200 users and had registered 20,000 customers at the end of one year. Since then, cashless transactions have grown more sophisticated and increasingly digitalised with the rapid advancement of technology.
This evolution is essentially good news for businesses, considering that UK financial service provider, Sage Pay, reported in 2014 that the average cost of handling cash for British SMEs had reached more than GBP17.8b (RM108.44b) annually. In the US, Tufts University reported that businesses and consumers lose up to US$200b (RM780.08b) annually from everything, from cash thefts to ATM fees to lost tax revenue.
Before 2014, the Malaysian government had recognised the importance of reducing the amount lost from physical currency transactions. Part of the Finance National Key Resource Area (NKEA) of the Economic Transformation Programme (ETP) that will see the transition of the country to developed nation status by 2020, establishing an Integrated Payment Ecosystem that is identified as one of the entry point projects (EPP). The plan is to reduce the rate of cash transactions from 90% to 63%, while increasing electronic payments to 200 per capita annually by 2020.
However, there are a number of challenges that have to be overcome. For instance, some merchants only accept a minimum spent before credit or debit cards are accepted. This is because for every non-cash online transaction, merchants have to pay a fee (called the interchange fee, currently 1% and more than 1.2% for debit and credit cards respectively) to the Acquirer.
If the amount billed is low, then many merchants feel the transaction is not worth it. There are also issues of safety. When cash was king (it still is in Malaysia), bank vault robberies were the norm. As financial transactions and services move online, criminal activities have also done the same, with increasingly sophisticated methods of breaking into ATMs and hacking databases belonging to financial institutions. Other challenges include controlling the spend limit of cards to curtail excessively high household debts, and ensuring that merchants and cardholders have easier access to Point of Sale machines.
Guidelines to 2020
These and more are what Bank Negara Malaysia (BNM) is trying to remedy with the Payment Card Reform Framework, which it published in December 2014. Among others, the guideline proposes a number of targets that need to be met by 2020 to strengthen cashless transactions.These include increasing card terminals from 220,000 currently to 800,000, 30% of which will be contactless systems. These systems are expected to cost as low as RM150 for mobile POS (mPOS) and up to RM1,000 and above for each electronic data capture (EDC) terminals, while monthly fees will start at an affordable RM15 for the mPOS system and software and RM50 for EDCs. To make use of these terminals, all debit cards must have contactless service enabled by 2017 – which means debit cards will need to be re-carded. Debit card transactions are also expected to rise from 56 transactions per capita in 2012 (compared to 132 and 195 in Australia and Sweden respectively) to more than 200 by 2020. According to the Framework, merchants should encourage consumers to use debit cards through attractive offers, as interchange fees are expected to decline to 0.15% and 0.21% for domestic and international transactions respectively. Changes proposed by the Reform Framework also encompass credit cards, which will enjoy similar discounts in their interchange fees, with a cap at an interim 1.1% up to 2020 and down to 0.48% thereafter. Meanwhile, all cards will be required to use personal identification numbers (PIN) by 2017, as opposed to the current signature-based system.
In the almost five years before the target date to achieve the set goals in the ETP, moving from a cash-based system to a digital one is expected to have far-reaching benefits on almost all sectors of the economy. With the implementation of the Payment Card Reform Framework, consumers no longer have to pay the cost of transactions when using their cards, which should attract more users. In essence, while cashless transactions hold potential for businesses and the national economy, stakeholders have to put the necessary infrastructure in place to ensure and strengthen user safety, as well as introduce attractive offers to entice consumers.