Malaysia’s Digital Payments Growth Soars As Payment Preferences Shift

April 12, 2022
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Impressive 2021 growth of non-cash transactions is transforming Malaysia into one of the most developed payments markets in the region.

Impressive 2021 growth of non-cash transactions is transforming Malaysia into one of the most developed payments markets in the region.

New data from Bank Negara Malaysia, the country’s central bank, shows a significant jump in digital payments usage and highlights the progress made from the country’s payment modernisation efforts.

Latest data shows that the rate of growth increased between 2019 and 2020 — a period that straddles the coronavirus pandemic — by 25 percent annually, which is double the annual rate of growth between 2016 and 2019.

As a result, payments penetration in the market has more than doubled since 2016, from 113 transactions per capita per year to 239 in 2021.

Not resting on its laurels, the central bank is targeting annual growth of 15 percent through to 2026, which would see non-cash transactions per capita reach 480, or roughly the equivalent of what the UK is today.

As digital payments have accelerated across the country, one of the biggest casualties has been cash. Yet, despite this shifting trend, a new study shows that cash is still an integral part of everyday payment habits.

Cash down but not out, says new PayNet study

In its inaugural Digital Payments Insights Study, Malaysian national payments operator PayNet found that since the onset of the pandemic, the percentage of Malaysians who say they use cash has fallen 11 percentage points to 78 percent.

Although the vast majority of Malaysians are still cash users, when asked about daily expenses, a growing number of Malaysians say they now prefer digital payments over cash.

Nationwide, 48 percent of respondents said they prefer to use cash for daily expenses, compared with 36 percent in urban areas and almost 66 percent in non-urban areas.

Among respondents’ top three reasons for not switching from cash to digital was the universal acceptance of cash (78 percent), fear of technological failures (53 percent) and the ease of staying within budget (38 percent). In addition, 37 percent of respondents said they use cash because of the feeling of greater security that comes with it.

According to PayNet Group CEO Peter Schiesser, Malaysia’s payments industry appears to be diverging along regional, demographic and class lines, with much greater acceptance of digital payments among younger, wealthier people in urban areas.

Similar divisions can also be seen in attitudes towards digital payments among businesses.

In Northern, Central and East Malaysia, there is a clear trend towards a preference for digital payments among businesses, whereas in the East Coast and Southern regions, most businesses still prefer cash.

As the report notes, businesses that use digital payments tend to be influenced by their customers’ and supply chains’ preferences, geographical location, and the type and size of the business.

E-payments services see surge in adoption during pandemic

Among the biggest drivers of Malaysia’s rapid and sustained growth in non-cash payments is the adoption of e-payment services.

In Malaysia, “e-payment services” refer to a wide range of account-to-account payment methods, including: instant payment service DuitNow; bill payment service JomPAY; direct debits; and credit transfers (known as Interbank GIRO).

According to the central bank, e-payment services account for more than half of all non-cash payments, or around 4.6bn transactions. A significant and growing proportion of this is from instant payments, which alone increased from 450m in 2019 to 1.2m in 2021.

Although typically preferred among consumers for paying utilities, increasingly e-payment services are being used to grow in-person merchant payments.

This has been supported by two key payments modernisation events: the development of a new instant payments service in 2018; and DuitNow QR, a national and mandated QR solution that supports merchant payments from both participating banks and non-bank e-wallets.

The success of DuitNow QR has been driven by significant merchant engagement, which has helped drive acceptance of digital payment solutions. According to the central bank, the number of DuitNow QR merchant registrations increased 59 percent, from 0.7m in 2020 to 1.1m in 2021.

Consumer payment preferences

Payment preferences tend to be context sensitive.

According to PayNet, for in-store and other proximity purchases, debit cards and e-wallets are used most. However, consumers typically use e-payment services when paying their bill payments.

Perhaps more telling, businesses have noted a significant change among their customers' payment preference over recent years.

Prior to the pandemic, businesses said that cash was their customers’ most popular way to pay. As of today, this is now the third most popular way to pay.

During the same period, e-payments services jumped from the third to top as the most popular method.

Businesses also noted a significant rise in the popularity of e-wallets, which moved from the fifth to second most popular payment method.

Competition heats up for e-wallets

According to PayNet, as consumers continue their shift to digital, “Malaysia is nearing an inflection point of consumer mindset transformation”.

One of the winners of this “transformation” is e-wallets, whose market is described as “crowded, but consolidating”.

Incentives from government, wallet providers and merchants have all contributed to increasing the popularity of e-wallets in Malaysia, and it represents a key competitive battleground in Malaysia’s payments market.

At the same time, engagement among consumers with their e-wallet is very high.

Out of the 64 percent of respondents who use e-wallet apps, 96 percent do so at least once per month. The report also notes that an e-wallet is used on average 16.8 times per month, representing a 60 percent rise since the start of the pandemic.

According to PayNet’s survey, the most downloaded e-wallets were Touch ’n Go (83 percent), ShoppeePay (58 percent), Boost (49 percent), GrabPay (45 percent) and MAE (36 percent).

Nevertheless, these top five providers and others still have much to compete for, given that 78 percent of Malaysians use more than one e-wallet.

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