muhammad bin ibrahim : migration to electronic payments keynote address by mr muhammad bin ibrahim, deputy governor of the central bank of malaysia, at the payment system forum 2013 “ migration to electronic payments ”, kuala lumpur, 9 december 2013. * * * it is my pleasure to welcome all of you to the payment system forum 2013 organized by bank negara malaysia in collaboration with the association of banks in malaysia ( abm ) and the association of islamic banking institutions malaysia ( aibim ). overview of the payment system forum the objectives of the payment system forum are : • firstly, to build greater awareness amongst the business community on the wide range of electronic payment solutions available in the market ; and • secondly, to showcase experiences by businesses who have successfully migrated to, and are reaping the benefits of, electronic payments. besides featuring presentations by banks and payment system professionals, and the sharing of experiences by businesses, i am pleased to announce that the payment system forum has also brought together 27 exhibitors. the exhibitors comprise representatives of banks, payment service providers and government agencies who will showcase their electronic payment solutions. members of the business community are encouraged to visit the exhibition booths located outside of this auditorium and sign - up to the latest offers. enhancing malaysia ’ s payment system infrastructure an efficient, reliable and secure payment system is critical to the stability of a country ’ s financial system, besides contributing to a country ’ s economic growth and competitive position. in this regard, bank negara malaysia has constantly strived to improve the payment system infrastructure in this country. payment system efficiency has contributed towards making malaysia a competitive and efficient economy. cheque truncation bank negara ’ s effort in improving the payment infrastructure has been continuous. a significant milestone was achieved in 2009 when the e - spick system, an image - based cheque - clearing system was introduced. this modernized cheque processing in malaysia. in essence, e - spick is a cheque truncation system which converted paper - based processing to electronic processing of cheques. physical cheques are no longer sent to the issuing bank and the cheque clearing center for processing. instead, images of cheques are sent electronically. cheques which previously took up to 8 business days to clear ( or t + 8 ) can now be cleared within 2 business days ( or t + 2 ). this was done at a time when the country ’ s broadband penetration rate was low at 32 % compared to 67 % today. the move to transmit cheques

improvement has been made in the cheque processing infrastructure, cheque remains an expensive payment instrument to process at about rm3 per cheque. the total cost is even higher when we take into account the cost incurred by the payer and payee in delivering and depositing cheques. it is estimated that cheque processing cost malaysia about rm768 million5 per year. this amount is huge and a sheer wastage. correcting distortion between paper - based and electronic payments despite the cost incurred in processing cheques, cheques have not been priced directly to reflect its costs except for the stamp duty of 15 sen per cheque. on the contrary, electronic payment services such as the interbank giro ( ibg ) are priced above cost at about rm2 per transaction. such price distortion does not incentivize the adoption of the more efficient electronic payments on a mass scale. in advanced countries such as australia, norway and sweden, electronic payment services are priced lower than cheques consistent with their respective cost of production. the correct price signals that reflect the real cost of cheques and electronic payments had facilitated a broad shift from the use of cheques to the use of electronic payments. we need to correct this price distortion between cheques and electronic payment services, bank negara malaysia has announced a new pricing strategy for payment services in march this year where the price of ibg and cheques are aligned closer to their cost of production. with effect from 2 may 2013, the transaction fee for ibg conducted via internet and mobile banking was reduced to 10 sen from rm2 previously. in addition, a cheque processing fee of 50 sen per cheque leaf will be imposed 11 months later on 1 april 2014. norway, sweden, denmark, finland. rm636 million ( banks ) + rm19 million ( myclear ) + rm113 million ( businesses ). rm113 million for businesses was computed based on the ecb study that businesses incur a cost amounting to 0. 012 % of gdp. bis central bankers ’ speeches the 11 - month grace period before the implementation of the cheque processing fee is intended to afford both the public and the businesses ample time to familiarize with, adjust and migrate to using electronic payments such as the ibg for their payment transactions. improving accessibility, security and convenience of electronic payments based on a recent survey conducted on businesses, we have identified 4 key hindrances to the adoption of electronic payments, namely : • concern of