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As the Malaysian government moves towards ending Touch 'n Go's two-decade monopoly on toll booth and transport payments, how significantly will this affect the country’s wider payments market?
Launched in 1997 to provide cashless payments for Malaysia’s toll booths, the Touch 'n Go Card has enjoyed an unbroken state-backed monopoly on Malaysia’s toll highways for more than 25 years. In 2008, Touch 'n Go's non-cash payment monopoly branched out to trains, metros and buses.
But as the Touch 'n Go empire has continued to expand, with its latest offerings including digital wallets and a Visa-backed debit card, both regulators and consumers are turning against the Malaysian payments giant.
Zennon Kapron, founder and director of Singapore-based consultancy Kapron Asia, told VIXIO that Touch 'n Go has become a “Frankenstein’s monster” of the Malaysian government.
“The Malaysian government chose its winner, and now they're faced with a situation where Touch ‘N Go is so strong that it is standing in the way of their efforts to increase competition,” he said.
Going into 2023, what began as a torrent of complaints about a new Touch 'n Go Visa Card has evolved into a wider campaign to break Touch 'n Go’s monopoly and force it to rebrand certain products.
Authorities step in
In January this year, Malaysia’s Ministry of Internal Trade and Cost of Living (KDPN) responded to complaints about the Touch 'n Go Visa Card, alongside complaints about other Touch 'n Go products that were criticised for lack of coverage and customer support.
A significant number of consumers obtained the Touch 'n Go Visa Card thinking that they could use it to pay at Malaysia’s toll booths, as well as make regular debit card payments. However, these payments are restricted to the original Touch 'n Go Card (a closed loop payment card).
Following a dialogue with Touch 'n Go, the KDPN asked the company to submit an action plan that would make its product specifications clearer, including a possible name change for the Touch 'n Go Visa Card that would remove any confusion.
One month later, the KDPN confirmed that it had received and reviewed Touch 'n Go’s action plan, but had deemed it “unsatisfactory” to address the regulator’s concerns, which included a disclaimer to the Visa card application process, stating that “This is not the Touch 'n Go Card”.
Ultimately, the KDPN asked Touch 'n Go to come back with a revised action plan.
This month, Touch 'n Go’s troubles reached something of a crescendo when Prime Minister Anwar Ibrahim suggested breaking up its monopoly.
Speaking at the 2023 Youth Empowerment Fair in Kuala Lumpur, Anwar was asked whether the government has any plans to end the Touch 'n Go monopoly.
Anwar responded: “You see, Touch 'n Go has been in operation for more than two decades, but there has not been convincing development or progress in the system. And I think you are right, we will have to reconsider it.”
After Anwar’s comments hit the headlines, the Malaysian Competition Commission (MyCC) issued its own statement, saying that it “stands firm” with Anwar and the public on Touch 'n Go.
“MyCC applauds the recent commitment by Prime Minister Anwar Ibrahim to urgently look into the monopoly of Touch ‘n Go in the payment system for tolls and public transportation, including reconsidering possible alternatives to stimulate competition,” it said.
To ensure “concrete development”, MyCC said it will work through a KDPN taskforce to “monitor” Touch 'n Go and “guarantee” seamless entry of new players into the relevant markets.
New opportunities
Although the government is clearly mobilising to end Touch 'n Go’s transport monopoly, it remains to be seen to what extent other firms would be able to steal market share from such a longstanding and dominant incumbent.
Ultimately, transport minister Anthony Loke has said that all Touch 'n Go payment terminals will be upgraded to accept debit and credit card payments, with toll booths set to upgrade by 2025 at the latest.
But as Kapron pointed out, card penetration is still relatively low and costs, until recently, have been relatively high, which has led to the emergence of other cheaper forms of payment, such as QR codes, in their place.
During the pandemic, three mobile wallet services in particular — GrabPay, Boost and Touch ‘n Go — were given a boost after they were selected to funnel government stimulus fees to citizens during lockdown.
But Kapron said the Malaysian government has demonstrated its commitment to increasing competition, and improving outcomes for merchants and consumers, through its capping of interchange fees.
This year, the government has capped interchange fees at 60 basis points for credit card transactions and between 10 to 40 basis points for debt card transactions. Previously, Malaysia's interchange fee on credit card transactions was as high as 1.1 percent.
Breaking up Touch 'n Go’s transport monopoly would put further downward pressure on fees across the board, Kapron added, a move that would benefit merchants and consumers but would chip away at revenues for payment firms.
“I think the challenge for any payment company is that the writing is on the wall globally about decreasing fees,” he said.
“Whether that's cross-border payments, with companies like Wise and Revolut really compressing fees, or governments’ focus on MDR, the largest payments companies are now thinking about how to grow their business outside of payments.”
Touch 'n Go, for example, already has a line of wealth and insurance products aimed at consumers, although in all of these areas it competes with Grab, its closest rival and local super app.
The good news for Touch 'n Go is that it is already profitable, whereas Grab is yet to turn a profit.
With that being said, Kapron suggested that Touch 'n Go could easily withstand a loss of market share in its payments business, while pivoting to other sectors.
