Evolution of Payment Systems in Malaysia

As enshrined in the Payment System Act of 2003, payment systems in Malaysia are under the purview of the central bank, with one major exception. The clearinghouses, that received recognition under the Securities Industries Act of 1993 and approval under the Futures Industry Act of 1993, however, are regulated and supervised by the Securities Commission of Malaysia. As noted by the BIS Committee on Payment and Settlement Systems, a national payment system is broader in concept than the infrastructure for any particular individual payment system. It includes a country's entire matrix of institutional and infrastructure arrangements and processes for initiating and transferring monetary claims in the form of commercial bank, nonbank finance, and central bank liabilities. Payment systems in Malaysia can be broadly categorized into four groups: the Real-Time Electronic Transfer of Funds and Securities (Sistem Pemindahan Dana dan Sekuriti secara Elektronik Masa Nyata, also known as RENTAS); the National Image-based Check Settlement System, (Sistem PenjelasanImej Cek Kebbangsaan, also known as SPICK); the Automated Teller Machine (ATM) and other retail payment networks; and the Clearinghouse operating under the control of the Malaysia Securities Exchange Berhad and the Malaysia Derivatives Exchange Berhad. Table 1 [ PDF 66.5KB | 1 page ] provides indicators of the cash circulation and the size of the financial markets in Malaysia.¹ Figure 1 [ PDF 66.5KB | 1 page ] depicts the overall payment system in Malaysia.

Many reforms have taken place in the country's payment system in recent years, especially after the Asian financial crisis. Table A2 [ PDF 52.4KB | 1 page ] in the Appendix lists the major events that have taken place in the payment system in Malaysia. As shown in the Appendix (Table A1 [ PDF 41.2KB | 1 page ]), new and modern payment services based on networks and the internet were first actively introduced in the late 1990s and early 2000s in Malaysia. The emergence of modern payment services corresponds with the rapid advances in information and communication technology in the late 1990s and early 2000s. After 2005, there was an increase in both the number of payment service providers and the variety of payment channels in Malaysia.

Foreign banks started a new ATM network separate from the existing Malaysian Electronic Payment System (MEPS) ATM network. In 2004, the Government began its involvement in e-payment schemes by accepting Bankcard, a new ATM Card created by MEPS to replace the magnetic stripe ATM cards nationwide, as a payment instrument and started to offer online payment services to the public. Starting in 2006, electronic cross-border payment channels were also offered, such as cross-border ATM withdrawal services and mobile-to-mobile cross-border money transfers. The evolution of payment systems in Malaysia involved not only the introduction of new payment channels, such as internet banking, mobile banking, and MEPS Cash—a nationwide system that enables an ATM card, or a national registration card, which has the MEPS Cash logo, to make payments after it has been preloaded with funds at an ATM machine—but also the enhancement of the existing payment channels, such as the adoption of a fully image-based check clearing process, a necessary step towards transforming paper-based checks into electronic checks (Bank Negara Malaysia 2007). Enhancing the check clearing process is important as checks continue to be the most popular mode of payment in Malaysia. After 2000, marked improvements were also made to the large-value payment system. The large-value payment system, RENTAS, is conducted on a gross real-time basis, and was introduced in 1999. After 2005, further enhancements were made, such as the introduction of payment versus payment infrastructure for the settlement of interbank ringgit-US dollar foreign exchange. Since RENTAS entails a higher liquidity cost, there are plans to improve the liquidity efficiency of the system. All the reforms were in consistent with the recommendations of the country's Financial Sector Master Plan 2001.

Download this Paper [ PDF 207.5KB| 23 pages ].

Comment(s)

There are [0] comment(s) for this entry. Post a comment.