muhammad bin ibrahim : payment card acceptance keynote address by mr muhammad bin ibrahim, deputy governor of the central bank of malaysia ( bank negara malaysia ), at the payment system forum and exhibition 2014, kuala lumpur, 27 november 2014. * * * i am glad to be here today in welcoming you to the payment system forum and exhibition 2014, organised by bank negara malaysia in collaboration with the national cards group ( or ncg in short ). this year ’ s forum and exhibition will centre on ‘ payment card acceptance ’, an area in which malaysia needs to make significant improvement, to reduce our dependency on cash and cheque usage and accelerate the country ’ s adoption of electronic payments ( or e - payments ). my remarks today will focus on 3 broad areas : • firstly, i will provide the context of where our position is in comparison with advanced economies in the use of debit cards, and the potential benefits that we could gain in migrating from cash to debit cards ; • secondly, i will highlight the reform measures that we are taking, which include enhancement to the existing infrastructure to facilitate greater adoption of e - payments ; and • lastly, i will address the key priorities in the area of security and risk management with the aim, to further strengthen consumer confidence in the use of online banking and e - payments. malaysia should keep pace with the global shift in the adoption of debit cards malaysia ’ s cash usage remains high. in 2013, our cash - in - circulation over gdp is 6 % compared to only 2 % to 4 % in advanced countries. in terms of payment card usage, our payment card transaction per capita is relatively low, at only 13 transactions per capita in 2013. this is far below the level of payment card usage in the advanced countries with an average of more than 200 transactions per capita. it is also important to note that malaysia has a higher proportion of credit card usage compared to debit card usage, with a ratio of 7 credit card transactions for every debit card transaction. in contrast, debit card usage is more prevalent in the advanced economies, at an average of 6 debit card transactions for every credit card transaction. the debit card is a more cost - effective payment instrument compared to the credit card. greater use of debit cards would minimise the country ’ s retail payment cost and contribute to greater savings and efficiency. in this respect, the banking industry can play the important role of taking more proactive measures to widen the payment card acceptance infrastructure,

debit cards. there are only 8 terminals per 1, 000 inhabitants in malaysia compared to more than 20 terminals per 1, 000 inhabitants in advanced countries. the growth rate of the point - of - sale terminals in malaysia have slowed down considerably from 14. 6 % in 2011 to 6. 1 % in 2012 and 3. 2 % in 2013, indicating a potential saturation of pointof - sale terminals among the higher tier merchants who can afford the current level of merchant fees charged by the financial institutions. the recent hikes in interchange fee, which is the fee payable between financial institutions in a payment card transaction, are likely to make payment card acceptance even more costly for merchants. interchange fee forms a significant part of the fees paid by merchants for accepting payment cards. the continued indiscriminate increases in interchange fee would hinder the expansion of point - of - sale terminals, especially among small merchants. to prevent a system - wide increase in merchant fees, the payment card reform framework would moderate the increases in payment card acceptance cost. this would be achieved by subjecting interchange fees to ceilings which are set based on objective and transparent criteria. in addition, the framework also seeks to address distortions in the payment card market in order to foster an efficient, transparent and competitive payment card industry in malaysia. b. enhancing the payment card infrastructure to complement the payment card reform framework, the banking industry has committed to invest approximately rm1. 1 billion over the next 6 years for industry - wide infrastructure development to further enhance the payment card security and expand the point - of - sale terminal network. this would make malaysia ’ s payment card landscape more competitive. the infrastructure development that would be undertaken by the industry includes, among others : bis central bankers ’ speeches • the expansion of the point - of - sale network by an additional 570, 000 point - of - sale terminals, especially among the lower tier merchants ; • the adoption of chip and pin, which is a more secure cardholder verification method for purchase transactions, by 1 january 2017 ; and • the migration of the domestic debit card from its proprietary standard to the internationally - recognised emv standard equipped with contactless functionality by 1 january 2018. these developments are exciting changes in store for the payments sector. with it, comes an enormous opportunity to expand business and enhance value to consumers. c. highlights of development in delivery channels and payment system infrastructure as banks serve various segments of the economy, it is important to widen the accessibility of e - payment