Thursday 28 Mar 2024
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This article first appeared in Corporate, The Edge Malaysia Weekly, on July 4 - 10, 2016.

FOR now, it may be difficult to imagine the day when the three Cs — cash, credit card and cheque — are not the common mode of payment for everyday things. But as Bank Negara Malaysia pushes aggressive targets for e-payments, what some local banks are doing with private universities offers an interesting look at what the not too distant future holds.

Private university campuses are a good place to start because they are a microcosm of a young and urban middle-class society. Campuses are also the closest thing to a closed ecosystem where a large number of people spend time, consume and transact. 

Two local banks — Hong Leong Islamic Bank Bhd and RHB Bank Bhd — have gone into private university campuses to enable cashless payments. 

In June last year, RHB Bank tied up with KDU University College to make the latter’s Utropolis Glenmarie and Damansara Jaya campuses cashless. In May this year, Hong Leong Islamic Bank tied up with UCSI University to roll out cashless transactions in the latter’s Kuala Lumpur, Pahang and Terengganu campuses.

To be sure, KDU University and UCSI University are not the first campuses to implement a cashless payment system. Other campuses, like Nottingham University Malaysia and Universiti Tunku Abdul Rahman (UTAR), already have a prepaid card system in place alongside cash payment modes. A handful of privately run international schools also have a prepaid card system in place for food and beverage purchases.

But these initiatives are prepaid card systems and do not come with banking facilities.

What the new developments signal is that banks are keen to partner universities on new initiatives, especially with dynamic financial technology disruptions happening globally in consumer payments.

Raja Teh Maimunah Raja Abdul Aziz, Hong Leong Bank’s chief operating officer for digital innovation and transactional banking, says the bank decided to go into building “ecosystems” enabled by fintech as a way of reaching out to more customers and a younger clientele.

“Some of the older generation might still cling to using cash … but when you talk about millennials, I don’t think they know any other way [to transact],” says Raja Teh, who is also Hong Leong Islamic Bank’s managing director and CEO.

But within the banking industry, there exists some scepticism about whether banks should be courting the millennials because they are deemed to be “less profitable” than middle-aged customers who take on multiple products, such as mortgages, credit cards and investment products.

Raja Teh, however, disagrees. To her, building a customer base that includes millennials is all about ensuring the bank continues to have a “stock” of future clients.

“But this is about sustainability. Where do you think you will be 20 years from now when none of today’s millennials is banking with you?” she asks.

For the likes of Hong Leong and RHB Bank, going into the campuses is a way of capturing a large pool of customers who will hopefully form a longstanding relationship with them. 

UCSI Group vice-president of group corporate affairs Leong Sat Sing says the university’s Kuala Lumpur north and south wing campuses, which are home to about 9,000 students, began implementing the cashless system in May. 

This comes after a trial run in Kuala Lumpur in April where a batch of early adopters tested the system. To date, over 3,000 new student ID cards with a banking function have been issued.

UCSI University’s Sarawak and Terengganu campuses, which have 1,000 students, are expected to get on board by next year.

The new UCSI student and staff ID card has two chips embedded in it: one for on-campus access and identification and one for banking transactions. Staff and students are also registered to use the bank’s mobile app, Hong Leong Connect, which allows them to do transactions like Payment Express (PEx) peer-to-peer mobile payments and cardless withdrawals. 

“We are not making it mandatory to go cashless because we will need to offer cash as a payment method. But we are educating and encouraging our staff and students to use it. It’s about cultivating the habit. Once they have tried it a couple of times, they will get the hang of it,” Leong says.

For consumers to get into the habit, mobile banking solutions have to be convenient and secure.

From the campus experience thus far, two key challenges stand out. For example, Raja Teh points out that there is no digital onboarding process where customers can open a digital bank account. “Today, you still need to come into a bank to open a digital account,” she says. 

Secondly, for non-cash payments to be widely accepted, more merchants have to accept digital payments. This entails paying for terminals that can often be costly.

“Terminalisation is not for everyone. If I were a small café, it would be expensive for me,” says Raja Teh. What Hong Leong has been promoting to merchants is PEx+, a digital payment platform that accepts payments on a tablet.

Leong says all vendors on campus have agreed to implement and open Hong Leong accounts so that they can accept payments via smartphones. On the vendor side, a tablet with the Hong Leong Connect app generates a QR code so that payment details can be captured.

Bank Negara has put in place very ambitious targets where e-payments are concerned. 

Its 10-year Financial Sector Blueprint 2011-2020 has made it clear that electronic payments will be promoted as the preferred medium for all economic transactions. In short, e-payments have to be accessible, cheaper and more convenient to use than paper payments.

According to the blueprint, the central bank wants to grow the number of e-payment transactions per capita fivefold from 44 in 2011 to 200 by 2020. As at 2015, there was an average of 82 e-payment transactions per capita.

Additionally, Bank Negara has targeted to reduce the number of cheques cleared by more than half from 207 million per year in 2011 to 100 million by 2020. As at 2015, the number of cheques cleared had fallen by about 27% to 148 million.

Bank Negara is also setting high terminalisation goals, aiming to achieve coverage of 25 EFTPOS terminals per 1,000 inhabitants by 2020 from eight terminals per 1,000 inhabitants in 2010.

The key reason Bank Negara is pushing for a migration to e-payments is so that Malaysia can realise more economic efficiency, cost savings and benefits.

“Various international studies have shown that e-payment transactions cost between one-third to half that of paper-based instruments. The cost savings that a country can potentially gain is about 1% of its GDP annually by switching fully from paper-based payments to e-payments. 

“The survey amongst banks in Malaysia on the cost of paper-based payments and e-payments yielded similar results,” Bank Negara says in its blueprint.

If Malaysia wants to catch up with the developed economies that have reduced the use of cash and cheques, it still has a long way to go.

Countries that have a high usage of cashless payments are largely concentrated in Europe. According to the World Payments Report 2015, Finland came out tops with about 450 non-cash transactions per inhabitant, followed by the US (360) and the Netherlands (350).

The UK’s Payments Council revealed that the use of e-transactions overtook the use of cash for the first time in the country in 2014 with e-transactions making up 52% of payments. The council further projects that the use of cash will fall from 48% in 2014 to 34% in 2024.

In Asia, Singapore and China are taking the lead in pushing for more e-payment methods.

 

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