Zeti Akhtar Aziz: Migration to E-payments
Keynote address by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Payment
Systems Forum and Exhibition 2005, Kuala Lumpur, 28 November 2005.
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Bismillahhirrahmanirrahim
Distinguished guests,
Ladies and gentlemen,
It is my pleasure to welcome all of you to the Payment Systems Forum and Exhibition 2005. The
theme of this inaugural forum is the "Migration to E-Payments" with a focus on the issues and
challenges in the transition from paper-based payments to electronic payments in Malaysia. The
issues that need to be addressed for a nation to effectively migrate from paper-based payment
instruments to electronic means of payments are multi-faceted. This will require changes in the
infrastructure and business processes, developing and sustaining users'confidence and inculcating a
change among all the relevant stakeholders, including the service providers and the customers.
Our objective is to transform the payments system into one that is competitively leveraged on a
modern market-based system. Indeed, this will need to be achieved by the cumulative efforts of all
parties involved, including the industry and the authorities. This forum and exhibition has, therefore
been organised to provide a platform to discuss the range of significant issues and challenges in
achieving the common vision of migrating to e-payments in Malaysia and to increase public awareness
of the various payment channels available in the market today, as well as to discuss views on the
development of services and infrastructure for the next generation of systems. The forum is designed
to encourage active dialogue and deliberations from the different perspectives, notably between the
service providers and the users. The dialogue will also serve as a platform to discuss how the industry
may effectively operate in the context of the prevailing regulatory environment, policies and practices.
From the regulators'perspective, the aim is to develop an enabling environment to facilitate and foster
greater use of more efficient payment mechanisms in Malaysia.
Ladies and Gentlemen
An efficient, reliable and secure electronic payment system is critical to the soundness of the financial
system, the efficiency of the financial markets and the economic growth and development process.
With the rapid technological advancements and increasing consumer demands for more efficient
delivery services, the Malaysian financial landscape has continued to transition towards the increased
significance of an electronic payment systems and channels. Despite the progress that has been
achieved, Malaysians however, remain high users of currency notes and coins, with the
currency-incirculation amounting to about 6.4% of GDP. In contrast, the average ratio for high users of electronic
payments such as in the Scandinavian economies is only 2.9%. The use of cheques is also dominant
in our financial system, accounting for 96% of the total value of non-cash payment instruments. These
indicators suggest that measures to encourage more active use of e-payments would need to go
beyond building the electronic payment infrastructure. It needs to address the broader issues revolving
around building public awareness and confidence, promoting greater convenience; reviewing business
and operating practices and finally, addressing the commercial interfaces between the customers and
the service providers. Allow me to take this opportunity to elaborate on these issues.
Ladies and Gentlemen,
E-payment increases operational efficiency and improves productivity levels through expedient
payments and receipts of funds as well as through the reduction or redeployment of resources used
for handling cash and cheques. Whilst the migration to e-payment may require considerable
investment and effort to provide the enabling infrastructure, the use of e-payments provide consumers
with greater convenience and security that would result in cost savings in the long run. In this regard, it
is important for the financial institutions and payment service providers to provide more widespread
access points for electronic payment services via multiple channels, including the automated teller
machines, the point-of-sale terminals, the gated toll and parking gantries and through the network
channels and devices, such as the Internet and the mobile phones. Needless to say, the payment
products and services need to be continuously enhanced to meet the changing needs of the
consumers.
In addition, the efforts to increase the use of e-payments will not only hinge on the capacity of the
service providers to ensure that e-payment services are convenient, but also secure. In the area of
fraud prevention, the industry would need to be constantly vigilant to maintain consumers'confidence.
Robust technology and strong internal controls must be in place to protect and preserve the integrity of
the financial system.
In line with this objective, our banking institutions have successfully replaced the magnetic stripe ATM
and credit cards with chip-based cards to ensure a more secure environment for payment cards. This
move has effectively eliminated counterfeiting and fraud involving ATM and credit cards in Malaysia.
This has provided Malaysia with the platform to further enhance payment card services by maximising
the chip infrastructure. The conclusion of this year will see the completion of the industry-wide
migration to Europay-MasterCard-Visa (EMV) standards with all of the point-of-sales terminals being
fully EMV-compliant. With this, Malaysia will become the first country in the Asia-Pacific region to
successfully migrate on a national scale from the magnetic stripe environment to the EMV chip-based
credit card infrastructure.
Ladies and Gentlemen,
For Malaysia to fully adopt e-payments, the task ahead requires great determination and commitment
from all sectors. From the Central Bank's perspective, a strong motivation for promoting e-payments is
in the eventual savings from the reduction of paper processing and printing, and the more efficient
distribution of money in electronic form in the financial system that generates immediate economic
value. Research studies have shown that shifting from an all paper-based to an electronic-based
payment system will generate annual savings of about 1% of the GDP. All stakeholders, including the
financial institutions, payment system providers, the authorities, the corporate sector, and the
consumers, have their respective roles to play to support this national agenda to reduce the use of
paper-based payment instruments, particularly cheques, in Malaysia.
In this regard, the Government had recently announced in the 2006 Budget its intent to increase the
acceptance of electronic means of payment with the Government and to promote the use of
epayments nationwide. This should provide a catalyst for the adoption of e-payments on a national
scale, as most individuals and businesses have payment transactions with the Government. Key to
making this a success is the need to review the business and operating practices and address any
impediments that may hinder the use of e-payments. These practices ranges from the inability to store
and collect bank account numbers, acknowledging electronic payment and receipt notices, instructing
payments electronically, and many more that may be identified during the discussions at this forum. All
corporations and institutions that are present at this forum should consider undertaking a business
process reengineering in your own organisation to fully use the e-payment channels that are being
offered by the service providers and the financial institutions. As a national agenda, I would like to
propose that this forum debates and considers the feasibility of setting a realistic target date, perhaps
by the year 2010, for a full implementation of a national e-payment roadmap that specifically outlines
the strategies and realignments of the business processes and operating practices, for the nation to
be fully engaged in making the migration a success.
Ladies and Gentlemen,
Let me now move on to the third key point mentioned earlier on the commercial interfaces, whereby
the underlying business models and pricing mechanisms for electronic payments, should take into
account the need for an incentive structure that promotes the increased use of e-payments. In recent
years, several notable developments in e-payments in Malaysia have taken place. Following its
introduction in 2000, the Inter-Bank GIRO system, an electronic credit transfer system, had recorded
on annual average increase in transactions of 160% in terms of volume and nearly 200% in terms of
value between 2003 and 2004. The credit card is also becoming a popular means of payment card,
with the total value and volume of increasing annually by 15 and 20 percent respectively. The growing
acceptance of Internet banking as a convenient delivery channel for accessing banking services has
translated into a significant growth of Internet banking subscribers, which today comprise two thirds of
the total internet subscribers. The latest mode of electronic payments channel is the mobile banking
services that provide convenience to consumers to access a range of payment services such as funds
transfers, bill payments and credit card services through mobile phones. In addition, the establishment
of an Internet-based multi-bank payment system in Malaysia, the Financial Process Exchange in
October 2004, would facilitate online payments for a variety of payments by providing convenience
and an efficient channel for businesses and consumers to undertake their payment transactions
through the internet.
While these positive developments will support the attainment of the objective of migration to
epayments, the commercial issues between the consumers and the service providers have often times
inhibited growth in the volume of the e-payments. The business and pricing models have at times
inadvertently promoted a less efficient system, such as in the case of the low price that customers pay
for using cheques compared to the Inter-Bank GIRO payments, and the popularity of the credit card
against debit card, which is a more efficient system that carries less risk. In addition, service providers
have also had difficulties in agreeing on a common business platform, due to their own competitive
positioning strategies. Such differences have contributed to containing the increased acceptance of
epayments, which is further reinforced by the consumers'need to see a wide spread acceptance by
merchants before deciding to use the e-payment mode, while the merchant needs to see a critical
mass of consumers before putting in place the required infrastructure. In this regard, a comprehensive
review of the industry-wide related issues involving payment instruments and systems needs to be
undertaken to make Malaysia more competitive, with a view to promoting the more efficient payment
systems and addressing the commercial hurdles. In order to further improve the growth and promote
the e-payments, the payments industry may wish to consider establishing a Payment System
Association to deal with the industry-wide issues involving electronic payments. A Payment System
Association would be able to address the lack of common technology standards between service
providers to promote interoperability, and the lack of a collective forum to identify, understand and
manage the spectrum of stakeholders' interests and expectations. I should add that this idea is not
new, as payment associations are already in existence in several other countries.
Ladies and Gentlemen
The future landscape of the payment industry is one that will continuously evolve with market
innovations, resulting in enhanced services that offer improvement in efficiency and cost savings
compared to traditional payment methods. Bank Negara Malaysia will continue to play the role of a
facilitator to spearhead the development and improvement of the payments system infrastructure and
to promote a conducive enabling environment for such developments to take place. In this respect,
Bank Negara Malaysia has taken several initiatives to promote greater use of electronic payments by
the public sector and in bringing about a mindset change amongst the users. Several taskforces have
been established, involving users and service providers to promote the sharing of information and
cooperation amongst the players, to develop industry-wide best practices and security standards, and
to collaborate with relevant agencies to promptly deal with security infringement issues. Bank Negara
Malaysia is also currently undertaking a series of measures to increase the efficiency and reduce risks
in the payment systems, and facilitate a progressive transformation and migration of the payment
systems infrastructure. In this regard, a cross-border link between the Ringgit and the USD settlement
systems in Hong Kong, that is the RENTAS and USD CHATS in Hong Kong, will be established to
reduce foreign exchange settlement risk via a simultaneous payment versus payment mechanism
between Ringgit and USD in the same time zone. A cheque truncation system is also being developed
to improve operational efficiencies through the elimination of the physical movement of cheques with
the use of electronic images and data.
Bank Negara Malaysia also aims to provide a conducive regulatory framework that is supportive of
market-based innovation and ensuring transparency for the benefit of consumers. In this regard, I
certainly hope that the results of your deliberations in this Payment Systems Forum and Exhibition
2005 will provide valuable input for the formulation of strategies and modalities for both the industry
and authorities to accelerate the migration to e-payments in Malaysia. It is also hoped that the
exhibition will heighten public awareness of the various payments products and services available in
Malaysia, as well as globally.
On this note, Ladies and Gentlemen, I have great pleasure in declaring open the Payment Systems
Forum and Exhibition 2005.
Thank you.