Crunch time for Malaysia's e-wallets as big firms impose merchant fees

They are charging 0.5% from merchants who use their services as subscriptions soar.

2020 dawns a new era for cardless transactions in Malaysia, with big players confident enough about their customer foothold. These firms have begun charging a 0.5% commission to the merchants who make use of their services, industry sources say. At the same time, Bank Negara Malaysia has set aside $108.75m (RM450m) and will give $7.25 (RM30) in credit to those who sign up for any of the country’s three biggest players: Touch N’ Go, Grab and Boost.

Already, the number of contactless payments via debit cards rose at an annual rate of 288% from 12.8 million in 2017 to 49.7 million in 2018, reports data analytics and consulting firm GlobalData. The same report notes that the number of contactless point-of-sales terminals in the country increased by 90.3% in 2018 to reach 207,562.

Also read: Malaysian card payments will hit $81b by 2023

Tok Kim Wah, CEO of Mobiedge, an e-wallet aggregator for banks, said that there are as many as half a million POS terminals out there for both credit cards and QR codes.

Mobiedge alone has installed over 10,000 terminals across Malaysia for Alipay, which is only usually used for big transactions. “People can use Alipay to purchase a $50,000 watch. But nobody will use it to buy a cup of coffee. So for big items they tend to use Alipay but for an everyday food stall, for example, they will use Touch N’ Go and Boost.,” he shared.

This aligns with what GlobalData’s report, which says that debit cards are more used for low-value payment transactions.

He also confirmed that the average size of a transaction using an e-wallet is around ten dollars. “It is very small for now because the wallet size is [at most] $1,500. That is already enlarged, and the usual [size] when you open up the wallet is only $200. People actually don't want more than that because in case you lose your phone, somebody can use the wallet,” he noted.

The expanding network of POS transactions coupled with the central bank’s efforts to encourage cashless adoption is forecasted to cripple away the credit cards’ dominance and push the share of debit cards in total card payments from only 25.8% in 2019 to 41.8% in 2023, said GlobalData analyst Ravi Sharma in a report.

Mom-and-pop troubles
It wasn’t all smooth sailing for the e-wallets, however. Whilst big retailers are quick to adapt to the technology, smaller businesses remain reluctant to join the trend.

“There is a lack of knowledge and some do not care much for it. But the trend is picking up. The customers are asking the store to accept e-payments and they have been forced to sign wallets up,” Tok said.

Mom-and-pop shops are the most resistant to the change. “The smaller ones, the mom and pop shops they find it very hard to understand [the system] and for most of them, if they don't have a smartphone, they find it hard to understand how it works.”

Also read: Is cash still king in ASEAN?

This suggests the need to better educate Malaysia’s SMEs on emerging technologies, added Tok.

In a bid to boost the adoption of e-wallets, the central bank has set aside $108.75m (RM450m) for new e-wallet users under the e-Tunai Rakyat Initiative. New users who sign up an e-wallet get a free $7.25 (RM30) from Bank Negara.

“It is a big hit--everyone is setting up, everyone is using the money [given by the central bank],” shared Tok. “Everyone is talking about it and there's a big fuss.”

The initiative, which launched just this January, is offered under three digital wallets: Boost, Touch N Go, and Grab, which according to him were likely chosen by the central bank because they are “the most likely to make it.” Between these three players, more than 5 million Malaysians are using e-wallets even before the launch.

“There are about 46 licencees issued--wallet licenses-- issued over the years, but only these three guys are active and gradually increase its users everyday,” he added.

By the numbers, the initiative is proving to be a massive success. As of 19 January, the central bank has reportedly received a total of 2.9 million e-Tunai Rakyat applications. Of these, 2.2 million have been approved, according to Finance Minister Lim Guan Eng.

By 5 February, the number has ballooned to 6 million applicants, with more or less $43.5m (RM180m) already given out.

Some e-wallets have also taken notice of the need to further encourage SMEs to adapt to the new technology. Apart from becoming an official partner of the e-Tunai Rakyat Initiative, Grab is now offering SME lending and microinsurance under its “Grow with Grab” roadmap, unveiled last year.

Boost is also zeroing in on small and lower-tiered merchants in 2020, expressing their desire to grow their gross transaction value (GTV) three to five times higher, its CEO Mohd Khairil Abdullah said, according to reports.