Leela S never thought there would come a time when paper money would amount to nothing. The 72-year-old had a lunch date with her daughter at a new, happening eatery. She arrived early and decided to get herself a drink and some nibbles, only to be told the only way she could pay for the items was digitally or by using a credit or debit card.
As one who had never dared make cashless payments on her own, Leela — who prefers to go by her pseudonym — cancelled her order and promptly left the place, feeling upset and anxious.
Many Malaysians feel the same way when confronted with the prospect of cashless purchases, which has gained tremendous momentum, thanks to the Covid-19 pandemic. Some pundits even predict that this trend will eventually result in the demise of cash.
What about those left behind by the rapid adoption of digital technology? How can they overcome barriers to using smart devices such as e-wallets and QR codes? Unless special outreach efforts are put in place, the elderly, the poor and the unbanked are in for a hard time when making even the simplest purchases, like a drink or a snack.
“This is symptomatic of a larger systems design issue of not creating redundancy and alternatives, and not understanding the impact of a system on the vulnerable and disenfranchised. There is a big difference between digital-first and digital-only,” says Dr Rachel Gong, senior research associate at Khazanah Research Institute (KRI).
While the move to go exclusively cashless has its perks — chief of which are traceability, transparency and security — it is undeniable that the rush towards such payment systems makes life harder for those who are already on the margins and those who are inept when it comes to adapting to technology.
The pandemic and the limitations it posed on physical transactions have accelerated the trend of transacting digitally, acknowledges Rekha Reddy, senior financial sector specialist at World Bank Group, a global partnership fighting poverty worldwide through sustainable solutions.
“Through cashless transfers, consumers could transfer funds, and pay bills and for goods and services from their home, or in a market or store setting, while maintaining social distancing. It also enabled many governments to deliver social assistance [financial aid] through cashless channels quickly, efficiently and securely into recipients’ accounts.
“We need to be cognisant that certain segments of the population may face impediments in using certain types of contactless or cashless means and ensure that these people are not excluded,” says Rekha.
“We need to act fast so as not to exacerbate the challenges posed by the pandemic. The most recent World Bank Findex [Global Financial Inclusion] data for Malaysia shows that 76% of those aged 15 and above reported making or receiving a digital payment in the last year. But the figures fell to 61% for those in the B40 bracket; 60% for those in rural areas; 53% for women; and just 39% for those who only had primary school education.
“This data indicates a digital divide and population segments where an abrupt transition away from cash payments could be more challenging,” says Rekha.
The bridge to acceptance has to be in place and often, it involves accessibility, education and information, says Rashaad Ali, CEO of Social & Economic Research Initiative (SERI).
“It is counter-intuitive to expect digital payments to expand accessibility if the required infrastructure is not in place. This includes availability, accessibility and affordability of internet, mobile internet in particular. Compatible smartphones will also be a requirement.
“The barrier to entry for cashless payments is significantly higher compared to cash, so we must ensure it is brought down if we want to expand the benefits of going cashless to all,” says Rashaad.
The challenge is not unique to Malaysia — whose unbanked segment makes up 8%, or roughly 2.6 million women, youth and individuals from low-income backgrounds — but it is particularly pressing given the rapid transition to e-payments.
Before the pandemic, debit cards and online banking were the preferred methods of transaction, at 63% and 57% respectively, Nielsen’s Malaysian Payment Landscape syndicated report 2019 shows. These were used mostly to make payments for recurring expenses, such as phone and internet bills. But only 27% of transactions used credit cards and even fewer used mobile wallets (8%). The majority of the users were between the ages of 35 and 64.
The growing adoption of digital payments, particularly mobile wallets, has largely been spurred by attractive incentives such as cashback deals, discounts and loyalty points, and government Covid-19 assistance programmes for the public through e-wallet disbursements.
This propelled many bricks-and-mortar retailers to go online to weather the lockdowns, the result of which saw e-payment usage recording a y-o-y growth of 30% to 7.2 billion transactions in 2021, compared with 13% in 2020 and 21% in 2019, states Bank Negara Malaysia.
“This translates into an average of 221 e-payment transactions made by a person in Malaysia annually, up from 170 transactions in 2020 and 150 transactions in 2019. The number of active e-wallet users has also jumped to 13.5 million in 2021 from 8.7 million in 2020,” Bank Negara said in an email response to Digital Edge.
All of which resulted in a three-to-five-year acceleration in the use of digital payment options, states PricewaterhouseCoopers.
In Malaysia, e-wallet users are mainly millennials — they are aged between 27 and 40 and are most familiar with digital systems — as well as Gen Z. According to local market research firm Oppotus, usage of e-wallets spiked to 62% when the Movement Control Order (MCO) was first imposed in the first quarter of 2020. Users turned to cashless and online transactions because they were shielding at home and cutting down on face-to-face interactions to reduce the risk of infection.
Malaysia’s digital ambitions have also given the cashless movement a boost. Under Budget 2022, RM300 million was allocated for the ePemula scheme — which was rolled out in mid-April — to encourage cashless transactions among the youth.
Additionally, plans are underway to convert all payments for government services to cashless by this year. As at July last year, 57 government agencies were already cashless.
The country is not alone in its ambitions in this respect. The rapid adoption of mobile payments in China has seen fewer people using cash, to the point that some private Chinese banks ended services related to banknotes and coins in March and hope to become internet banks. South Korea has one of the most widely available cashless infrastructures in Asia.
Sweden, which has been actively removing cash in circulation for more than a decade now, is expected to become the world’s first 100% cashless society by March next year, although about 9% of Swedes were not ready for digital payments in 2020.
This rapid transformation that is intended to increase shoppers and broaden payment methods, is, however, constricting accessibility to some sections of society as some businesses, particularly retailers, have started to impose “cashless payments only” terms.
Can merchants reject cash?
Technically, they cannot. “Strictly speaking, merchants can’t reject cash as a payment method by consumers because the law recognises cash as legal tender for payments,” says Izwan Zakaria, founder and managing partner of legal firm Izwan & Partners.
The only caveat for a merchant to refuse any cash payment, he explains, is when the notes or coins offered by the buyer have been badly damaged or tampered with.
“Unfortunately, although guidelines issued by Bank Negara state what constitutes legal tender and what does not — such as tampered and damaged notes or coins — there is no recourse for a person if a shop or restaurant refuses his cash payment.
“To illustrate, Singapore’s currency law allows for a merchant to put up a written notice telling potential customers that it does not wish to accept, or will limit the number of, cash denominations as a payment method. In other words, so long as the notice is displayed clearly, the merchant may refuse to transact with the customer if the latter is unwilling to accept the terms of payment,” says Izwan.
Bank Negara says the decision to accept cash or e-payments is a commercial one. “Bank Negara does not control the contractual relationship between customers and business entities as long as it is within the legal tender.”
Be that as it may, merchants do want to ensure that they offer their consumers various payment methods for their products and services, he observes.
“This can be seen in a wide range of QR payment options at cash registers in the past year. The recent DuitNow QR has addressed this issue by using a unified QR code that allows payments from participating banks and e-wallets operators across the board. So, a merchant that refuses to accept cash payments may lose a significant share of the revenue from those wanting to pay in cash,” says Izwan.
In the US, states such as New York, Philadelphia and San Francisco have banned retail businesses from adopting entirely cashless payment systems, arguing that is an expression of institutionalised racism and discrimination against cash buyers.
Zokhri Idris, director of external relations at The Institute for Democracy and Economic Affairs (IDEAS), points out that even in developed countries and digital-driven countries like South Korea and Japan, cash is still used as alternatives. “Digital discrimination could happen when policies only focus on digital needs without giving equal consideration to those who are still in transition.”
He believes Malaysia has a long way to go before retailers adopt full digitalisation. “Most restaurants and grocers still prefer cash as a means of transaction because of the convenience.”
Gong concurs, adding that the country is not yet at a stage where we can entrust everything to devices and the internet.
“What if we lose electrical power, or a cable breaks, a server goes haywire, or there’s a ransomware attack? A financial system cannot be entirely digital. Look at what happens, for example, on the roads when there’s a glitch with Touch ‘n Go’s RFID or SmartTag sensors. Imagine that sort of ensuing chaos at the national level.
“But this doesn’t mean we don’t aim for digital first, because of all the efficiencies it brings. To use the toll example, cashless is faster and smoother and it doesn’t require someone to sit in a toll booth all day,” she adds.
However, there will come a time when cashless payments eventually become the default, whether through QR codes or cards or payment options with Near-Fields-Communication (NFC) function.
“It may take a while but it’s definitely happening much more quickly because of the pandemic — people who were reluctant before are coming on board now. China is a good example of this, but of course, it operates on a completely different scale in terms of population. On the other hand, cashless payment take-up in the Philippines and Japan is still relatively slow.
“Bank Negara’s push for interoperability via the DuitNow QR code works with any bank or e-wallet. It has done wonders for the take-up of cashless payments and really should be commended also for not charging end-users transaction fees. Only a few years ago, there were some 40-plus e-wallets and none of them would talk to each other. Businesses and customers needed multiple payment apps. Now, everyone just needs one [assuming everything works as intended]. As they say, the devil is in the details,” she adds.
While the ecosystem needs to be further bolstered to be become more inclusive, some segments like the elderly need to undergo targeted training to get over their fear of technology, says Lily Fu, vice-president of the University of the Third Age and founder of SeniorsAloud, which started as a blog with postings of articles and videos that would appeal to older adults aged 50 and above but has evolved into a go-to site for seniors seeking information, inspiration or connection with other seniors.
Most seniors avoid using cashless options out of fear of making a costly mistake or falling prey to scams, she says. “They have a huge mental block when it comes to using technology. Just a few years ago, many wouldn’t use Facebook and WhatsApp, but today they can’t live without them. They need to get over the barrier and, for that, there needs to opportunities to help them get used to technology.”
Not ‘cashless’ but ‘less cash’
To make digital payments commonplace, Gong says a more inclusive cashless payment system is needed.
“It may mean making systems that are simpler to use: just the tap of a card or a phone, for example, using NFC. Or, using a chip compared to opening an app; scanning a code instead of entering the amount to be paid [to prevent] people from adding extra digits; or making it easier to correct or reverse mistakes, like sending money to the wrong person or entering the wrong amount.
“Policymakers and systems designers need to engage with the people who remain unable or unwilling to use cashless payments and figure out how to address their needs.
“If the cost of smartphones is the issue, why not use the MyKad chip like the chip in a debit card? Or, issue a prepaid payment card like a prepaid SIM card, but without requiring registration, so it’s a bit more anonymous?” proposes Gong.
Meanwhile, Fu says establishments — like the Activity Centre For The Older Persons — that come under the Welfare Department sometimes organise digital training for the elderly but information on the events are not publicised. “There should be a one-stop facility to disseminate such information.”
Fu also reiterates the need for devices such as smartphones to be cheaper and cashless payment interfaces to be more elderly- and disabled-user friendly considering their slower response time and lower cognitive ability.
Rekha points out that challenges to becoming a cashless or even “less-cash” society should be managed proactively.
“If we are seeing that vulnerable populations, such as those who are poorer and less educated, and the elderly, are having problems accessing these cashless mechanisms, tailored solutions with the potential to help them should be considered, such as greater outreach and more education for these groups, or products tailored to make them feel comfortable in using technology.
“The key is establishing a sound process to understand the solution identified by the technology and any potential challenges from the user perspective,” she says.
A reasonable approach should comprise a well-designed, effectively implemented system that prioritises both security and ease of use. “Training and systems required to provide efficient and safe access to financial services should be factored into implementation plans and budgets.
“A ‘human-centred’ design approach can help balance people, processes and technology by focusing on users and their needs and requirements. One example is to be cognisant of the challenges faced by a vulnerable segment of the population. Voice-based services could present a barrier to the hearing impaired, so mobile technology and platforms and reporting mechanisms via text or sign language videos can help facilitate communication and provide reliable information sources about financial services,” says Rekha.
To ensure that the cashless transition prioritises giving equal attention to people and processes, Rashaad suggests figuring out what is needed to meet the needs of users from the digital and social perspectives. “These two are not mutually exclusive if we are serious about tackling the inequality gap that plagues the nation.”
Rashaad adds that digital infrastructure should be built alongside social safety nets to address the gap.
“Transitioning to a fully cashless society becomes difficult if large sections of society depend on cash payments due to the nature of their work. Informal workers, petty traders and day labourers — a disproportionate number of these are likely to be B40 women.
“This is where policy suggestions, such as a minimum or living wage, would be effective in guaranteeing a minimum amount of income for those who need it most. Similarly, universal basic income would guarantee regular income and help alleviate the precarity that society’s most vulnerable live in. In these cases, digital infrastructure and technology can be used to disburse funds quickly and efficiently.
Cash is still king
Cash is still the preferred payment method despite the exponential growth of digital payments, reveals Bank Negara Malaysia data.
“Cash withdrawn from ATMs [automated teller machines], a proxy of cash usage, recorded 779.6 million transactions valued at RM386.3 billion in 2021, higher than 2020 where 768.7 million transactions valued at RM377.3 billion [were recorded], but still below the pre-pandemic level,” said the central bank. “This implies that cash remains in use by the general public.
“There was also an increase of 15% for cash in circulation (CIC) last year compared to 14.3% in 2020 and 7% in 2019. Other countries have also reported a similar trend in CIC, attributing it to the precautionary holding of cash during a period of uncertainty,” Bank Negara tells Digital Edge.
Although currency notes and coins remain the legal tender in Malaysia, e-payment is becoming the preferred way of making payments given its manifold benefits such as convenience, and greater cost savings and efficiency, which would in turn boost the nation’s productivity and competitiveness, it adds.
“From a business perspective, the shift to e-commerce and e-payment not only helps businesses to sustain their operations during this challenging time but also enhances competitiveness by allowing businesses to serve new market segments beyond geographical barriers in a faster, secured and cost-effective manner.
“Besides, e-payment also enhances transparency and provides better data access for financial management as it allows businesses to monitor and track financial activity in real-time. The benefits of e-payment to small businesses are evident in the strong adoption of e-commerce solutions among the small merchants, which increased from 490,000 at end-2020 to 509,000 in the first half of 2021,” says the regulator.
Bank Negara too recognises that there are gaps in access to digital payments for certain segments of the society, which is why multiple initiatives have been rolled out to ensure that these communities will benefit from digitalisation.
This includes widening e-payment acceptance among smaller merchants, it says.
“While the number of merchants accepting e-payments has increased in recent years, there are still segments that are less penetrated such as the cost-sensitive small and micro-enterprises.
“In fostering inclusion, Bank Negara facilitates the introduction of a wide array of e-payment options in the market such as QR payments that offer a more cost-effective solution for merchants compared to card payments,” it says.
To enable interoperability between the various bank and non-bank e-payment providers, the financial services industry has also collaborated to launch the DuitNow QR, a unified QR code. With this, merchants only need to sign up with one e-wallet operator and display DuitNow QR to accept payments from customers of other participating e-wallet operators.
“Currently, there are 34 banks and non-bank providers offering DuitNow QR solutions to the merchants,” says Bank Negara.
In promoting a more inclusive digital society, industry stakeholders have also undertaken initiatives to ensure that payment solutions and financial services remain available to all market segments, it says.
This includes building greater awareness and trust towards e-payments through outreach programmes via media channels and roadshows to educate the public, including the underserved on the benefits and steps to migrate to e-payments.
“As understanding of e-payment increase, the elderly or the disabled can now independently pay bills, buy prepaid top-ups or conduct online shopping from the comfort of their homes, without having to travel a distance to withdraw cash and run their errands.
“In this respect, e-payment offers greater empowerment and convenience to the elderly and disabled compared to cash. Programmes targeting the elderly and the retirees will be ramped up in the near future,” says Bank Negara.
Advocacy on safe practices in using e-payments is also an ongoing endeavour, it states. “As adoption of e-payment continues to grow, so do financial scams and cyberattacks on payment services across all levels of users.
“Protecting oneself from financial fraud and scam is a shared responsibility. While law enforcement agencies and the financial industry will do their part, it is also important for users to continuously stay abreast of the latest threats through the programmes provided by Bank Negara and the industry. For example, the public can visit the Amaran Scam Facebook page that has more than 38,000 followers and is updated regularly by the various agencies involved in the fight against financial fraud,” says Bank Negara.
Moreover, the regulator is working on getting employers to migrate salary payments from cash to e-wallets, particularly for migrant workers. “E-wallet providers would directly onboard the unbanked migrant workers to utilise the e-wallet to save and [to make] payments and remittances to their home countries. It is worth noting that there is no barrier imposed for these migrant workers, regardless of their immigration status from making a remittance transfer, as long as the relevant details are captured.”
Bank Negara is also working on strengthening the role of agent banks to promote digital payment in rural areas, particularly in areas with limited ATM networks.
“Given the locations of the agent banks, that mostly reside in rural areas, their roles are further enhanced to assist the rural communities to conduct payment and financial transactions such as facilitating the opening of savings accounts, fund transfers, bill payments and cash withdrawals.
“Measures are also being undertaken to instil behavioural change from an early age to introduce students to e-payments, via initiatives undertaken by industry players to promote the usage and acceptance of payment cards and e-wallets in schools, colleges and universities,” says Bank Negara.
Digital connectivity is another challenge in rolling out e-payment facilities in remote locations, acknowledges the central bank. “Over the years, internet penetration rate has improved, going from 66.6% in 2014 to 87.4% in 2018. However, there are still areas that lack access to stable and reliable digital connectivity, particularly in rural areas.
“To address the broader digital infrastructure challenges, the government has launched Jendela, a comprehensive five-year digital infrastructure plan aimed at addressing the needs and demands for quality fixed and mobile broadband coverage nationwide.
“In addition, the government has implemented various initiatives to improve public access to smart mobile devices. These include Jaringan Prihatin, which provides subsidies to the lower-income households to purchase mobile devices and subscribe to mobile broadband services.”
Boost’s inclusive proposition
Fintech players like Boost — which has nearly 10 million e-wallet users to date — are among the few that serve the unbanked and underbanked segments.
All that is needed to gain access to basic Boost wallet functionalities is an internet connection, an email address and a phone number. However, a Malaysian identification or passport is required for those who want to access its premium features, such as peer-to-peer transfers.
Group CEO Sheyantha Abeykoon says Boost’s user base doubled during the first two years of the pandemic and merchant touchpoints increased by 3.4 times in the same period to nearly 500,000.
“The majority of our user base comprises millennials (26 to 45 years old), followed by young adults (18 to 25 years old), and Gen X (45 to 55 years old),” he says.
Sheyantha says bill payments using the e-wallet grew by 220%, petrol transactions doubled, and entertainment and gaming credit purchases grew by 240%. “We also introduced micro-insurance in 2020, which was very timely during the pandemic, with heightened awareness of the need for health and income protection to cushion from unforeseen circumstances.”
“While we have seen a burgeoning rise of fintech players in Malaysia offering digital financial services, there is still a lot of potential and room for us to grow and cater to the underserved segments, especially in addressing their unmet financing needs.
“Some of our future plans include scaling our micro-financing businesses to reach more thin-file customers leveraging the use of alternative data and artificial intelligence, expanding into the buy-now-pay-later space, and rolling out merchant solutions catered to the needs of micro, small and medium enterprises and bringing them into the digital economy. For our users, we will continue building more convenient solutions that complement and simplify their growing digital lifestyle,” says Sheyantha.