Strategy to Accelerate Migration to e-Payments in...
Transcript of Strategy to Accelerate Migration to e-Payments in...
Strategy to Accelerate Migration to
e-Payments in Malaysia
Nurul Ashikin Mohammad Bokhari
Payment System Policy Department
Bank Negara Malaysia
Global Payments Week
20 September 2016 1
Despite a highly bankable population1, Malaysia’s usage of paper-based payment instruments is relatively high
1 92% of individuals aged 15 and above have a deposit account2 Prior to 2015, cheques were not directly priced except for the stamp duty of RM0.15 per cheque3 Prior to May 20134 44 million ATM/debit cards for a bankable population of 19 million
• Pricing distortions caused users to prefer using cheques over e-payments
o Users were not charged a fee for issuing cheques even though it cost the banks
about RM3.00 on average to process2
o Interbank GIRO (IBG) was priced at RM2.00 per transaction3
• Despite a high penetration of chip-based ATM/debit cards4, ATM/debit cards are
used mainly for cash withdrawals instead of retail purchases
o Payment cards are not widely accepted, especially among smaller merchants
o The number of point-of-sale (POS) Malaysia had remained at 8 terminals per 1,000
inhabitants from 2013 to 2014
3
Key Instruments and Focus Areas
to Accelerate the Migration to
e-Payments
Key Instruments and Focus Areas to Accelerate the Migration to e-Payments
4
2 key instruments
Electronic fund transfer (to displace cheques)
Price signal
Debit card (to displace cash)
� IBG (30 banks* with 99% CASA** base)
� IBFT (20 banks* with 99% CASA** base)
� 44.3 million debit cards*
(for 19 million bankable population)
5 focus areas
Quality and value
propositionAccess points
Market incentive structure
Awareness and confidence
* As at end-June 2016** Total number of current and savings accounts
BNM’s Financial Sector Blueprint (2011 – 2020) sets the direction for the
transformation of the country’s payment landscape.
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Electronic Funds Transfer
to Displace Cheques
Measures undertaken to promote the adoption of
electronic fund transfer services
Focus areas Measures undertaken
1. Price signal • IBG (Max. of 10 sen via online banking and 30 sen via ATM)
• IBFT (Max. of 50 sen via online banking and ATM)
2. Quality and
value
proposition
• Faster crediting time for IBG
• Real-time payment for IBFT
• Payment details in bank statement to facilitate reconciliation
• Ability to schedule future-dated and recurring payments
• Features to avoid mistaken payments
3. Access points • Accessible via online banking and ATMs
4. Market
incentive
structure
• E-payment Incentive Fund
• Transparency measures to promote competition
5. Awareness
and
confidence
• E-payment roadshow
• Media engagements
• Workshops
• Strengthening security requirements
Cheques
IBG
0
2
4
6
8
10
12
14
16
18
20
J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J
Million
2015
Encouraging progress in the displacement of cheques by electronic fund transfers
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Tra
nsacti
on
Vo
lum
e (
mil
lio
n)
2014: -10%
Cheque - 2011: -1%
2015: -16%
IBG - 2011: 21%
2014: 36%
2015: 31%
IBFT - 2011: 74%2015: 77%
2014: 68%
Tiered pricing and
disclosure requirements
2014201320122011
50 sen cheque fee and
e-Payment Incentive Fund
(ePIF) Framework
IBFT fee capped at 50 sen
IBG fee capped at
10 sen
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ATM/Debit Card to Displace Cash
Measures undertaken to promote the usage of
ATM/debit cards to displace cash
Focus areas Measures undertaken
1. Price signal • Reduced Interchange Fee (IF)1 for Debit Card
• Fostering a competitive payment card market
o Differentiated Merchant Discount Rates (MDRs)2
o Disclosure of MDR and IF rates to merchants
o Empowering merchants to choose the lower cost debit network
2. Quality and
value
proposition
• Migration from signature to PIN verification for added security
• Adoption of contactless functionality for greater convenience
3. Access points • 44 mil ATM cards which double up as debit cards
• 800,000 POS terminals by 2020 (25 terminals per 1,000 inhabitants)
4. Market incentive
structure
• Market Development Fund (MDF) to fund the expansion of POS
terminal network
5. Awareness and
confidence
• E-payment roadshow and Township campaigns
• Strengthening security requirements
1 Interchange fee is an interbank fee payable between banks in a payment card transaction and is priced into the merchant fee (MDR) paid by
card-accepting merchant to the merchant’s bank.2 MDR is the merchant fee paid by a card-accepting merchant to the merchant’s bank for every payment card transaction.
Risk of retail price increase due to IF hikes
Payment Network A
increased IF
Issuers lowered income eligibility for
premium cards
May 2013 Feb 2014June 2013 onwards
Acquirers increased
MDRs
Card TypePayment Network A Payment Network B
BeforeMay 2013
Effective May 2013
Effective June 2014*
BeforeMarch 2014
EffectiveMarch 2014
Credit Card 1.1% 1.32% - 1.80% 1.32% - 1.85% 1.2% 1.2% - 1.8%
Debit Card 1.1% 1.1% 0.99% - 1.45% 1.15% 0.9% - 1.1%
April 2014
Payment Network A announced further
IF hikes*(unwound after
BNM’s engagement)
March 2014
Payment Network B
increased IF
• Cost of higher IF is passed to merchants in the form of higher MDR.
• Merchants are pressured to pass on the higher cost to consumers by raising retail prices.
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• Some banks had intensified promotions for premium cards by lowering the income
eligibility requirement.
• If left unchecked, this would result in an industry-wide lowering of income eligibility
requirement, contributing to a proliferation of premium credit cards in the market
and consequently a system-wide increase in MDRs.
Credit Card Type
IF rate Min. annual income requirement (industry range)
Platinum 1.32 – 1.35% RM24,000–RM100,000
Super Premium 1 1.65% RM36,000–RM200,000
Super Premium 2 1.80% RM120,000–RM240,000
IF hikes led to the lowering of eligibility requirement for premium credit cards
Payment Card Reform Framework (PCRF) to promote efficiency and competition in the payment card market
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Policy objectives
• Curb indiscriminate increases in interchange fees
• Address market distortions to enhance payment efficiency and competition
Key measures:
• Interchange fee ceiling on debit, prepaid and credit card transactions
• Unbundling of MDR for different payment card transactions
• Facilitating the identification of debit and prepaid cards
• Disclosure of IF and MDR rates to merchants
• Empowering merchants to choose the more cost-effective debit network
1
2
0.4% 0.99 - 1.20% 1.32 – 1.80%IF rates prior to 1 Jul 2015
New IF rates effective
1 July 2015
1 Between 2015-2020, the IF rate is set at 0% for the government sector with relatively low acceptance of payment cards.
2 1.10% for card schemes that establish a Market Development Fund and 1.00% for those that do not.
Domestic Brand Debit Card
• 0.15% or 50 sen+0.01%1
International Brand Debit/Prepaid Card
• 0.21% or 70 sen+0.01%1
Credit Card
• 1.10%2 (2015-2020)
• 0.48% (post-2020)
• IF ceilings for debit and prepaid cards are set at the eligible cost level to position them as cost-
effective payment cards to displace cash.
• IF ceiling for credit card are set at pre-May 2013 level (above the eligible costs) for an interim
period (2015-2020) to channel excess IF revenue for infrastructure development.
o IF ceilings may be adjusted downwards if the yearly industry targets on card terminals and
debit card transactions are not met.
IF ceilings to curb cost escalation whilst promoting market development
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20 September 2016 13
Contactless debit card initiative (MCCS1)Contactless debit card initiative (MCCS1)
Chip & PIN initiativeChip & PIN initiative
July 2015 2016 2017 2018 2019 2020
Increase POS terminals to 800k (25 terminals per 1k inhabitants) Increase POS terminals to 800k (25 terminals per 1k inhabitants)
Increase debit card transactions to 1 billion per year (30 transactions per capita) Increase debit card transactions to 1 billion per year (30 transactions per capita)
1 Under the Malaysian Chip Card Initiative, the domestic debit card (MyDebit) will migrate from its existing proprietary standard (PMPC) to adopt the
EMV standard and the contactless functionality.
RM1.1 billion to be invested by the industry for infrastructure development
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20 September 2016 14
Debit Cards: New and improved features
Existing Debit / ATM cards New Debit / ATM cards
MEPS/Bankard logo are at the back of the card
1. Contactless functionality
2. Equal prominence of debit card
brands on the face of the card.
3. ‘Debit’ imprinted on the front of the
card to facilitate identification
StandaloneCo-badged
with 2 debit brandsCo-badged with 2 debit brands
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2
3
Marketing Development Fund (MDF) to support expansion of POS terminals
• PCRF provides payment card schemes with the option of establishing a MDF to support
the expansion in the number of POS terminals
• Two major payment card schemes have established the MDF, which is expected to
channel approximately RM 455 million to increase the number of POS terminals from
240k in 2014 to 800k by 2020
Interchange fee (IF)
Issuer A
Issuer A’s MDF funds
for terminal
deployment
0.1% of the value of
credit card transaction
Under-achievement of
Issuer A’s individual
target for terminal
deployment
Disburse pro-rated
MDF funds into a
pooled account
Pooled MDF
account
Funds available to
issuers who are able
to cover the shortfall
in POS terminal
deployment
1 2 3
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0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
2014 2015 1H 2016
Domestic brand debit card
International brand debit card
Credit card
Promising progress made since PCRF implementation
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0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
2011 2012 2013 2014 2015 1H 2016
+18%
Average MDR by card types No. of POS terminals
+5%
+15%
� The average MDR has started to trend downwards across all card types.
� Growth in POS terminals had tripled from an average of 5% (2011-2014) to 18% in 2015
and 15% in 1H 2016
� Debit card transactions continue to record double-digit growth supported by progressive
roll-out of POS terminals and contactless cards
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Fostering innovation and collaboration
Desired payment landscape
Malaysia’s Payments Infrastructure
Desired Outcomes
Proportionate regulation
Network expansion and cost reduction
Effective competition
Enhance efficiency and
productivityPromote financial
inclusion
Catalyst for innovation
and value creation
Key Attributes
Safe and reliable
Open and Interoperable
Efficient and low cost
Meet user needs
Flexible and future-proof
Key Policy Thrusts
Background of the National Payments Advisory Council (NPAC)
• NPAC is an advisory body established in 2001 to provide strategic direction and market
inputs on key payment system initiatives.
– Chaired by Governor of BNM and participated by representatives from relevant
regulators, foreign central banks, government departments, banking and insurance
associations, major banks and key payment system operators.
• NPAC has been instrumental in providing strategic insights and direction that led the
formulation of the 10-year roadmap in BNM’s Financial Sector Blueprint to chart the
development of the payment system in Malaysia.
• NPAC has been transformed in 2016 to be more inclusive and effective as a strategy
setting and industry consultation and coordination body to ensure-
– Comprehensive consultation with relevant stakeholders to resolve potential issues
that would hinder the achievement of the FSB targets
– Better alignment of industry resources to avoid duplication
– Future payment system development takes into account user feedback and
innovation
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A transformed NPAC as a platform for innovation and collaboration
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Steering Committee
• Set high-level strategic objectives
• Ensure sustained transformation of the payment landscape
User Consultative Group
Service Provider Consultative
Group
Steering Committee
Service Provider Consultative Group
• To consult, coordinate and implement industry efforts
User Consultative Group
• To provide user feedback on payment services
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Conclusion
Conclusion
• To accelerate migration to e-payments, BNM has focused on creating the enabling
environment by leveraging on and strengthening existing payments infrastructure to
lower the barriers and enhance the incentives for adoption of e-payments.
• To sustain the quality of e-payment services, foster innovation and meet future needs,
the focus moving forward will be on fostering wider stakeholder engagement and
facilitating collaboration on interoperable platforms through the transformed NPAC to
expand network and spur the offering of innovative payment solutions
• Adequate focus is also directed towards strengthening the risk management measures
and consumer education and protection measures to combat the evolving cyber and
fraud risks to sustain public confidence in the use of e-payments
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