Muhammad bin Ibrahim: Increasing payment efficiency to improve
productivity
Keynote address by Mr Muhammad bin Ibrahim, Deputy Governor of the Central Bank of
Malaysia (Bank Negara Malaysia), at the JomPAY's Official Launch Event, Kuala Lumpur,
9 April 2015.
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In today's challenging and rapidly evolving world, one must constantly find innovative and
efficient ways to remain productive, or risk being left behind. As payments represent an
indispensable activity for both individuals and businesses, increasing payment efficiency
through the adoption of electronic payments (e-payments) will improve productivity and
reduce the cost of transactions. At the macro level, the adoption of e-payments has the
potential to enhance Malaysia's overall economic efficiency and competitiveness.
The benefits in terms of cost savings and efficiency gains from a successful migration to
epayments are substantial. The launch of JomPAY today is part of the journey towards
realization of these objectives. JomPAY provides greater efficiency, convenience and
accessibility for the public to make bill payments. It also represents a conscious strategy that
will contribute towards making the way we conduct financial transactions more efficient.
My speech today focuses on 3 areas:
Firstly, I will provide an update on the recent developments in Malaysia's payment
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ecosystem and the progress that we have made thus far in accelerating the
country's migration to e-payments;
• Secondly, I will highlight how JomPAY helps to address the current limitations in
online bill payments and how it complements the existing efforts to expand
epayment services; and
• Finally, I will elaborate on the importance of industry-wide collaborative efforts and
the role that MyClear and the industry can play in bringing the online bill payments
market to greater heights.
Recent developments in Malaysia's payment ecosystem
The use of cash and cheques remains prevalent in Malaysia. Malaysia's cash usage
measured by currency-in-circulation (CIC) over GDP was about 6% in 2013, which is 100%
higher than the average in advanced economies1. Likewise, Malaysia's cheque usage per
capita was 6.6 in 2013, which is 33 times higher than that in advanced economies2.
But the recent measures being instituted have shown tangible results. I am pleased to inform
you that promising progress has been made since the introduction of the Pricing Reform
Framework in May 2013 and the more concerted efforts taken to improve and promote the
use of Interbank GIRO (IBG). In 2014, cheque usage declined at a faster rate of 10%,
compared to only 3% in 2013. At the same time, the number of IBG transactions increased
by 36% in 2014 compared to 19% in 2013. Consequently, Malaysia's cheque usage had
fallen from 6.6 per capita in 2013 to 5.8 per capita in 2014. This is indeed an encouraging
development.
To reduce the country's reliance on cash usage, the Bank has issued the Payment Card
Reform Framework (Framework) which took effect in stages beginning 2 January 2015. The
Framework aims to ensure that the cost of accepting payment cards is fair and reasonable,
whilst creating an enabling environment for the wider acceptance of payment cards,
especially by smaller merchants.
Over the next six years till 2020, together with the banking industry we plan to expand the
payment card acceptance network from about 240,000 terminals to 800,000 terminals and
further accelerate the use of debit cards. These measures, if implemented successfully, will
lessen the need for cash payments. While this target seems ambitious, we can achieve this
milestone with collective efforts by all.
Cash and cheques are still the main modes for bill payments in Malaysia
Whilst efforts are being made to facilitate the wider acceptance of payment cards, bill
payments in Malaysia are still predominantly made with either cash or cheques. In Malaysia,
bill payments made via electronic channels3 are still relatively low at 2.4 transactions per
capita4 in 2014 compared to more than 10 transactions per capita5 in countries with
successful electronic bill payment platforms such as Australia.
Malaysia has an online bill payments model where merchants need to maintain multiple
banking relationships in order to receive bill payments from customers who bank with
different banks. Merchants, especially SMEs, find it difficult and costly to maintain multiple
banking relationships. As a result, only about 1,000 merchants are currently registered to
accept online bill payments via the individual banks' proprietary bill payments system.
Therefore, there is still tremendous potential for greater efficiency and cost savings through
the consolidation and expansion of the online bill payments market in Malaysia.
Enhancing the efficiency, accessibility and convenience of online bill payment via
JomPAY
JomPAY addresses the limitations of the current bank-centric model by establishing an open
electronic bill payments platform which leverages on the combined infrastructure and
network of the entire banking industry. With JomPAY, merchants only need to maintain a
banking relationship with one bank, in order to receive bill payments from customers of all
other banks. Likewise, customers only need to maintain an account with one bank in order to
make bill payments to the entire network of merchants registered with JomPAY. The
JomPAY model thus reduces duplication and facilitates the pooling of resources from the
entire banking industry. This in turn will enable us to build a wider and more efficient network
for online bill payments.
Businesses should leverage on JomPAY to accept online bill payments from their customers.
Handling cash and cheques is very costly. Businesses incur an estimated RM2.7 billion6
annually for cash handling, in addition to bearing the risk of pilferage and theft. Businesses
also incur an estimated RM113 million7 annually for cheque handling. Migrating to electronic
bill payments would lower the cost of transactions and provide businesses with a faster,
more secure and more efficient means of collecting payments. Businesses should leverage
on JomPAY not only for bill payments, but also for invoice payments to facilitate a more
efficient management of their receivables.
Consumers, on the other hand, should also take advantage of the increased convenience of
making bill payments via this new channel. JomPAY provides a one-stop centre for
consumers to make bill payments electronically anytime, anywhere and without any
transaction fee.
By migrating to electronic bill payments, a lot of time and effort previously incurred by
travelling and queuing to make over-the-counter payments can be saved and redirected to
more productive use.
Importance of industry collaborative efforts
Now I will touch on the third and last point. The payments industry in Malaysia has a history
of collaboration in industry-wide infrastructure developments. A notable example is the
migration from magnetic stripe to chip-based cards. The migration exercise, which was
completed in 2005, successfully eradicated cases of counterfeit fraud and contributed to
greater confidence in the use of payment cards in Malaysia. As a result, the investment cost
of about RM200 million was recovered in just two and a half years, most of it arising from
cost savings from fraud avoidance. Tourist spending via credit cards had also doubled from
RM4.3 billion in 2006 to RM8.7 billion in 2014, signifying greater confidence and the ease of
use of payment cards in Malaysia. This is a very good illustration on how industry
collaboration in the area of payment systems has contributed to the country's economic
growth.
A successful payment system is often dependent on the network of payment systems
reaching an optimum size, thus enabling its participants to build critical mass and achieve
economies of scale. However, building a payment system infrastructure and expanding the
network can be costly to an individual market player. Hence, the industry should pool its
resources to develop and share infrastructure costs.
As a principle, basic payment infrastructure should not be used as a competitive tool but
rather as a means to reduce cost, promote inter-operability and support an enlarged network.
Such collaborative industry effort in infrastructure sharing would allow the industry to
compete directly on product offerings and the quality of services provided, thus providing
better value to both consumers and merchants.
In this regard, the recent industry-wide initiatives to enhance the payment card infrastructure
and to modernise the online bill payments market via JomPAY are commendable and should
be sustained. In this respect, I would also like to call upon MyClear and MEPS to jointly
embark on payment infrastructure projects and initiatives that would benefit both the industry
and the country.
Role of MyClear and the industry moving forward
Achieving the critical mass in terms of usage and acceptance remains a key priority. In this
regard, banks in collaboration with MyClear should take concerted efforts to expand the
number of businesses accepting JomPAY, especially among the underpenetrated sectors of
SMEs and the federal and state government agencies. This can be done through
coordinated media campaigns, workshops, roadshows and other outreach programs.
MyClear and the participating banks should target to register 5,000 merchants onto JomPAY
by 2020.
To educate the public, especially those who are not IT savvy to use JomPAY, MyClear and
the banks should also come up with instructional videos and pamphlets to provide the
necessary guidance and assistance. This should move in tandem with the industry's plans to
promote the usage of electronic fund transfer services such as the Interbank GIRO (IBG) and
the Instant Interbank Fund Transfer (IBFT) via different payment channels, and to drive more
pervasive usage of debit cards.
To provide the public with an alternative channel to access JomPAY services, banks should
also accelerate the offering of JomPAY via the network of about 12,000 ATMs and
2,700 self-service Internet kiosks (SSKs) nationwide. This would expand the accessibility of
online bill payments to a greater segment of the society, including those that have limited
access to the Internet. This is also one specific area where MyClear and MEPS should
mobilise their resources for the collective good.
To drive the reduction in paper-based bill payments over-the-counter (OTC), the banking
industry should also deploy more payment card terminals at merchant outlets, government
counters and at the premises of collecting agents such as bank branches and post offices.
With a high penetration of 45 million debit cards for a population of 30 million, Malaysians
have the option of using their debit cards to pay bills over-the-counter, thus lessening the
need to carry cash.
In addition, banks should continuously enhance the value proposition of JomPAY to bring
greater convenience to consumers and efficiency to the business processes of corporate
customers. Efforts should be directed towards creating an end-to-end solution by integrating
electronic bill payment facilities with electronic presentment of bills and e-invoicing to
minimize the cost of print-and-mail billing. Banks should also explore the offering of real-time
payment facilities for bill payments where there is demand for such services.
Conclusion
Ladies and gentlemen, the introduction of JomPAY will complement the existing measures to
accelerate the country's migration to e-payments. Moving forward, MyClear, MEPS and the
banks should continuously collaborate to explore new and innovative ways to achieve
greater payment efficiency. Both consumers and businesses should capitalize on the
benefits and opportunities derived from the adoption of e-payments to enhance
competitiveness in this rapidly evolving world.
Let me conclude by congratulating MyClear and the banks on the successful establishment
of the national bill payment scheme, JomPAY. I hope such a collaborative spirit will be
enhanced to drive the country towards a successful migration to e-payments.