Benefits to SMEs Provided by the Latest Innovations in Payment Systems

SMEs are becoming an increasingly important driver in Malaysia's economy. SME loans grew from 14% of outstanding bank loans in 1996 to 18% in 2005 (Ooi 2008). Currently in Malaysia, SMEs account for 99% of all business establishments and 56% of total employment. SMEs contribute about 32% of Malaysian gross domestic product and 19% of total exports. The introduction of e-payment schemes provides enormous benefits to SMEs in terms of increased efficiency, cost reduction, enhanced security, and more flexibility through a wider choice of payment methods.

5.1 Increased Efficiency

There are various examples of SMEs enjoying improved efficiency as a result of the introduction of e-payment schemes. One example is provided by the IBG system, where interbank transfers are made electronically, settling on either a T+ 0 or T + 1 basis, that is, settlement on the day of the trade or one day after, respectively. By taking advantage of this facility, SMEs could shorten the waiting period before receiving customer payments, especially when payments are due from different states in the country. The adoption of a fully image-based check clearing system also decreases the cash conversion cycle for SMEs, as less time is spent on transporting checks between banks and regional offices.

5.2 Cost Reduction

The acceptance of Bankcard and the establishment of online payments and other services by the government could reduce the cost of conducting business in Malaysia. The electronic filing and online payment facility offered by the Companies Commission of Malaysia could save SMEs administrative costs. The e-filing service and online payment mode offered by the Inland Revenue Board offers SMEs further administrative cost savings. Figure 6 [ PDF 31.8KB | 1 page ] shows e-payment trends in the government sector. By using the Financial Processing Exchange ((FPX), or Bursa Pemprosesan Kewangan), the national internet-based multi-bank payment infrastructure in Malaysia that facilitates online payments for e-commerce transactions, Bankcards and debit cards, SMEs could reduce the amount of cash held, and as a result also reduce the cost of insurance and risk of losses due to robberies. In addition, transportation cost savings could result from reducing the frequency of visits to banks, customers, and suppliers. These are only a few of the examples cited in this report. With increased competition between the payment system providers, it is expected that the cost of accessing payment system channels in Malaysia will be further reduced, which could provide further cost reduction benefit to SMEs.

5.3 Wider Choice

The varieties of payment system channels and instruments have grown significantly during the last 10 years. SMEs can choose from a range of payment instruments and channels such as IBG, FXP, electronic checks, debit cards, and mobile banking. The increase in the variety of payment instruments affords the SMEs more choices from which to choose a channel or instrument that best suits that firm's market size and the level of technological, capital and labor intensity.

5.4 Enhanced Security

The migration to e-payment systems requires developing and maintaining users' confidence in these systems. The security features of a payment instrument, arrayed against systemic and fraud risks, are the main factors influencing user confidence. Accordingly, the central bank has emphasized security and has been continuously enhancing the security features of the payment channels in Malaysia. SMEs benefit from the increases in both efficiency and security.

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