According to RAM Ratings’ latest commentary, Mobile payment in Malaysia – not a threat to Malaysian banks, the increasing popularity of mobile payment in Malaysia is not considered a material threat to Malaysian banks. Given the wider availability of other more established electronic payment methods such as credit and debit cards, mobile payment in Malaysia is unlikely to attain the level of ubiquity that it enjoys in China.
Even if increased payment volume via mobile wallets might reduce transactions via banks’ credit cards, the fee income earned from card transactions only accounts for a minor proportion of banks’ overall earnings. While a handful of mobile wallet providers (mobile payment players) have expanded into areas such as lending, the loan amounts are relatively low; borrowers are usually small merchants and entrepreneurs that are typically not banks’ targeted clients.
In the commentary, RAM acknowledges that mobile payment is mushrooming throughout the world. China is the global hub for mobile payment while varying levels of adoption are observed in other countries. Although mobile payment is still in its nascent phase in Malaysia, market competition is intense as Bank Negara Malaysia (BNM) has granted licences to 48 non-bank e-money issuers.
The central bank’s undertaking to promote mobile payment is consistent with its aspiration of building a cashless society, as embodied in the Financial Sector Blueprint 2011-2020. To foster its adoption, BNM has introduced the Interoperable Credit Transfer Framework (ICTF), under which all mobile payment players that have reached a certain size will have to operate on a shared payment network known as the Realtime Retail Payments Platform (RPP). The RPP will be an enormous boon to mobile wallet users, as they can then have a single wallet that pays various mobile payment players operating via the RPP.
With the aid of BNM, mobile payment players made headway in promoting this payment method as the number and value of non-bank mobile payment transactions had risen to a respective 31.1 million and RM1.3 bil in 2018 (2017: 1 million and RM240.3 mil). While this budding industry currently has 48 licence holders, only a handful dominate the field. Of these, almost all are owned or backed by high-profile businesses. For instance, Touch ‘n Go eWallet is jointly-owned by CIMB and Ant Financial while Boost is the mobile wallet established by Axiata. Partnerships with banks are also common for many mobile payment players as they seek to expand their merchant bases. Nonetheless, most of them are still loss-making. Some do not charge merchants any payment processing fee at the outset in the interest of expanding and retaining their merchant bases. Moreover, many of them have to bear high operating expenses to promote adoption.
Given all these developments, industry consolidation is very likely. The players that survive will likely be those with already substantive user and merchant bases, unique vale propositions as well as deep pockets to ride through the high levels of operating expenditure and tide of consolidation. RAM’s latest publication, Mobile payment in Malaysia – not a threat to Malaysian banks, is available for download at www.ram.com.my.