With improvements in card security, strong interest in e-commerce and above 100 per cent mobile phone penetration, the Malaysian payments market is ready to go for rapid development.
It can be easy to overlook the Malaysian payments market among its Asia Pacific neighbours. However, the rate of financial inclusion and smartphone penetration are much higher here than in countries like Indonesia and India. Coupled with the current stage of improved card security, this market is poised for exponential growth potential for payment platform providers.
In fact, the Malaysian payments sector contains enormous possibilities, thanks to consumer uptake of online shopping and widespread smartphone usage. To ensure these opportunities become reality, however, local retailers also have to get on board with the shift to digital payments.
Credit cards dominate card usage
As in many countries in Southeast Asia, cash still rules in Malaysia. However, card payments are steadily growing. There are over 50 million cards in Malaysia albeit a population size of 30 million.
With 8 million cards in circulation, credit cards are by far the most popular payment card in Malaysia. The transaction volume of credit cards vs. debit cards is 4 to 1. The credit card dominance trend is expected to continue up to 2020. This is bolster by aggressive promotion as credit card issuers continue to entice customers with attractive rewards and promotions.
Beyond the aggressive marketing strategy of the issuers, the spike in card volume is also attributed to Malaysia’s improved economy, better banking infrastructure, innovative products launched and an increased card acceptance at point-of-sale (POS) terminals at retail and on public transport systems.
Another key factor is security. With the adoption of EMV standards, card payments are more secure. In fact, in a recent report, consumers said that they are feeling safer carrying payment cards, because unlike cash, it can be blocked if stolen.
More POS terminals needed to improve card acceptance
Despite the massive growth in consumer adoption of payment cards for payments, penetration POS terminals still lags behind. There are currently about 300,000 POS terminals throughout Malaysia. According to Bank Negara Malaysia, in order to increase the POS per 1000 inhabitants to a level, which is on par with the developed countries, the country will need 800,000 POS terminals by 2020.
Both banks and telecom services have launched initiatives to encourage the adoption of card readers by retailers, especially small and medium-sized enterprises (SMEs), which make up 99 per cent of all businesses in Malaysia. The success of such initiatives is essential if card-based payments are to see more widespread acceptance in the country.
Malaysian e-commerce market is expected to expand ten-fold, to US$10-15B
Similarly, the e-commerce market in Malaysia is poised for immense growth, but has its own hurdles. Malaysia is not currently a leading e-commerce player in Southeast Asia – that title goes to Singapore – but it has the right foundation to become one: home broadband connectivity reaches over two-thirds of the population, half of Malaysians already shop online at least monthly and they spend more hours online in general than almost any other country in the region. Analysts estimate that the Malaysian e-commerce market could expand ten-fold, to US$10-15B.
However, for that to happen, fear of fraud and counterfeit exposure by consumer and retailer need to be addressed. Therefore, it is of paramount importance that provider of e-commerce payment must instil customer’s confidence to adopt online payment by incorporating a globally known and secured platform e.g. Verified by Visa and MasterCard SecureCode in their payment system.
E-Commerce growth requires buy-in from local retailers
Another challenge is that while 40 per cent of e-commerce purchases are from foreign retailers (mostly the US and China), only one per cent of the local retail market is online. About 70 per cent of SMEs in Malaysia do not have a website. If e-commerce is to grow, these local retailers have to jump on-board the bandwagon of digital transformation. According to surveys, poor bandwidth and the high cost of online involvement, including costs related to payment acceptance, have kept local retailers from adopting e-commerce in the past.
While a national high-speed broadband project is already underway, new solutions for accepting card payments and delivering products are also needed to spur e-commerce participation among local retailers. “The trend is only going to continue as more people come online and the appetite for all things digital grows.
It is up to Malaysian businesses to satisfy that hunger with all the innovation and creativity in that’s out there,” said Sajith Sivanandan, managing director or Google Malaysia.
Enormous opportunities for early investors
Few Malaysians currently use their mobile devices to make mobile payments. However, the country is already home to 13 million mobile internet users and offers more 4G coverage than most other countries in the region. With such a market condition, perhaps a mobile payment method that is secure, reliable and affordable, the face of Malaysia’s payments market could undergo rapid transformation.
To conclude, the Malaysian payments market is on track for growth in card spends and e-commerce. There are enormous opportunities for early adopters and for those who are willing to invest early.