This article first appeared in Digital Edge, The Edge Malaysia Weekly on December 14, 2020 - December 20, 2020

Cashless payment methods have reached an inflection point. The International Data Corporation (IDC) attributes this to Malaysia’s accelerated digital economy development, coupled with the digital behaviour of consumers during the pandemic, which will set the stage for the future growth of digital payments.

Unsurprisingly, IDC also says there will be a higher number of consumers embracing cashless payment methods for the first time this year.

Darshiniy Selvaratnam, senior market analyst for IDC Financial Insight tells Digital Edge that the introduction of Movement Control Orders this year was the game changer as a large number of transactions that would normally have taken place in person and be conducted in cash terms moved online. In addition, merchants who had been slow in getting online had no choice but to drive their sales through digital channels.

“In August, Lazada’s CEO said the company saw a 200% growth in the number of new sellers on the platform in just the first half of 2020,” she says, adding that the aversion towards physical contact also drove the cashless movement.

Bank Negara Malaysia has played its role in providing the necessary frameworks to facilitate digital payments. And this past year, the government has started to encourage consumers to adopt e-wallets via various initiatives.

Inevitably, older and less technologically inclined consumers may lack the necessary education to make the move to e-wallets. Darshiniy says: “The onus of education now lies with stakeholders who want to inspire change or appeal to specific demographics that are less technologically savvy or from the B40 (low-income) group who rely on cash in hand for their day-to-day necessities.”

The three major e-wallets in Malaysia that spurred e-payment are Touch n Go (TnG), Boost and Grab, through which the first e-Tunai Rakyat Initiative and subsequent ePenjana disbursements were made. Darshiniy notes that their earlier journeys in capturing market share were unique to each player, as they each had a key differentiator in their appeal and approach to users.

“Boost carried out large-scale merchant acquisition campaigns targeted at micro, small and medium enterprises (MSMEs) and this was done in conjunction with rolling out gamification features, coins and rewards to draw users to the e-wallet. In this sense, Boost had done a lot of the groundwork required to get traditional cash-based businesses to begin accepting non-cash payments.

“TnG’s e-wallet appeal was its integration with radio-frequency identification. GrabPay, on the other hand, built market share through its ride-hailing and food delivery business,” says Darshiniy.

She adds that the common denominator is how all three have grown to have their own large networks today, connecting multiple merchants within an ecosystem, building loyalty and encouraging users to spend through the apps.

Contactless commerce retail behaviour is likely to accelerate cashless payment trends, says Darshiniy. The current and growing list of technologies (mobile payments, contactless cards, QR code, peer-to-peer payments and wearables) will only increase accessibility and convenience for consumers.

“Retailers will not be able to bet their future on whether pandemic-associated consumer behaviour is episodic or more permanent in nature. They will continue to deploy new payment technologies to be able to offer multiple options for cashless payments, even as foot traffic starts picking up again,” she says.

Darshiniy adds that digital payments will grow alongside the digital economy but, at the same time, plastic cards will be here to stay, for in-person payments.

While Malaysia only has a middling credit and debit card penetration, about 75% of these cards had near-field communication (NFC) capabilities in 2019, she adds. “We’re also seeing new innovations in the market that enable smartphones to accept card payments using NFC technology, replacing traditional POS (point-of-sale) terminals.”

Sudev Bangah, managing director of IDC ASEAN, shares that IDC believes it is important to separate ePenjana from holistic economic building and short-term economic stimulation. Ultimately, the ePenjana initiative was introduced as an injection to help boost domestic spending and aid SMEs enduring trying times because of the pandemic.

“It served as a slight catalyst for consumers to consider a transition to digital payments, but it is not enough for a holistic economic recovery,” he says.

“We think it helped Malaysians get used to cashless transactions, and aid in a wider spread of digital commerce in the country. But it truly does stop short of being an effective long-term solution for SMEs to build upon.”

Now, it has come to a point where it is common to see an array of QR payment options at cash registers. Darshiniy says, from a consumer’s point of view, it may cause confusion at point-of-sale and when it comes to maintaining balances in several e-wallets, as some merchants may not accept a certain e-wallet.

Meanwhile, for businesses, sales reconciliation also becomes a lot harder. “At some point, a convergence is bound to happen. DuitNow QR aims to solve that problem with a unified QR code that is interoperable and accepts payments from participating banks and e-wallets.

“Consumers can pay with any participating bank or e-wallet, and merchants will need to display only one code. So far, however, none of the e-wallets have gone live yet. TnG and GrabPay are expected to go live in December,” she says.

At present, SMEs are caught between forking out cash to transition to a digital platform and simply staying alive. Sudev says during the MCO, he saw many SMEs hop on social media to use “free” platforms to promote their services, especially food and beverage (F&B) outlets that transitioned to delivery services during that period. However, many transitioned out straight after.

“Very quickly after the MCO was lifted and when Malaysia moved towards the recovery MCO, you could see many SMEs transition back to their day-to-day style operations, ramping up as much as they could to drive physical business back to their premises,” he says.

With the conditional MCO back in effect, Sudev says, he is seeing SMEs scramble all over again to use digital means to serve their customers. Despite this, across the board, their digital spend has been limited to either hardware purchases or nothing at all.

“As they now accept that there will be a prolonged pandemic, however, the SMEs are pivoting towards more digital platforms,” he points out.

IDC still notes that free social media platforms are the preferred channels of engagement, while a good part of the SMEs are attempting to stay open and operate during the conditional MCO period.

“Eight out of 10 SMEs are saying the only way to survive is to create their personal value chain with periphery services that will help them transition towards a larger outreach to ensure their bottom line remains in the black month-to-month.”

Sudev adds that, based on IDC projections, SME ICT (information and communications technology) spending will increase a modest 2.1% from 2020 to 2021. The increase will be driven primarily by connectivity and hardware purchases as most SMEs continue to explore digital for them to target their markets and serve their customers.

Faster internet connectivity and provisioning of devices to employees are also driving spending as employers take measures to ensure employees are connected and able to stay productive throughout the prolonged pandemic situation in Malaysia.

“Their mentality right now is to continue to push through in hopes of finding a new manner of engaging with their clientele. Collaboration by SMEs in F&B and retail, together with ride-sharing applications, is an example of how these ecosystems will continue to intertwine to help one another economically.

“At the moment, ‘infrastructure’ is a big word for SMEs and, at most, they will explore cloud-based solutions or tools to help manage funnels, customers, inventory and engagement,” he says.

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