MALAYSIA: E-wallets are now Malaysia’s most popular payment method, outpacing other electronic payment methods.
While Malaysia, like Singapore and the rest of the world, is on a journey towards becoming a cashless society, experts warn of the huge risks of being a cashless society.
Singapore and Malaysia going cashless
In April, a survey by European payment company Adyen reported that over 30% of Singaporeans no longer carry cash with them, preferring mobile payment methods.
A Worldpay report also predicts that cash transactions in Singapore will decline from 2023’s 15% of point-of-sale (POS) transactions (S$23 billion) to just 7% (S$11.4 billion) by 2027.
While Worldpay noted that Singapore is leading in cashless transactions, with only 15% relying on cash compared to Malaysia’s 32%, The Star reported that Malaysia is also seeing a decline in cash transactions, with many opting for e-wallet use.
According to data from Bank Negara Malaysia, Malaysians made 3.65 billion transactions through e-money from January to September 2024, which includes e-wallets and mobile banking apps.
This made e-money the most widely used e-payment method, far ahead of debit and credit cards, which recorded 1.45 billion and 678.4 million transactions, respectively.
While e-wallets have seen a rise, cheques and charge cards are becoming less common. Over the past five years, the use of cheques and charge cards has been dropping steadily.
E-money allows users to load money onto a physical card or an app to make payments. The number of e-money users in Malaysia has been growing rapidly.
In 2019, there were only 78 million e-money users, but by last year, that number had risen to 169 million. As of September 2024, it reached 179.33 million.
Is going cashless a good thing?
Dr Yeah Kim Leng, economist and president of the Malaysian Economic Association, said this increase is a positive sign of Malaysia’s move towards a more digital economy.
He attributed the rise in e-wallet usage to the government’s efforts to push digitalisation and the financial sector’s push to reduce costs and improve services.
He added that the convenience, relative safety and security of digital-based financial services have built consumer trust, helping to drive up transaction numbers.
The government has also played a role in encouraging e-wallet usage.
In 2023, it launched an initiative where 10 million eligible adults from the B40 and M40 groups received a one-time RM100 e-wallet credit. This helped increase the adoption of e-wallets.
When it comes to transaction value, cheques still hold the lead, with a total of RM681.1 billion (about S$205.33 billion) in transactions recorded from January to September 2024.
Meanwhile, e-money transactions amounted to RM114 billion (about S$34.37 billion) during the same period. From 2019 to 2024, cheques have consistently accounted for the highest cumulative transaction value.
However, cheque transaction value has decreased over the years, while e-money, debit cards, and credit cards have seen steady growth.
Dr Geoffrey Williams, an economist and founder and director of Williams Business Consultancy, explained that cheques are still used due to outdated accounting practices, but with compulsory e-invoicing and incentives for e-payments, their use is expected to decline.
He added that cheques could eventually be discontinued due to e-payments, e-commerce and e-invoicing.
Mr Yeah added, “It’s likely to become extinct when the facility is no longer offered by financial institutions due to availability of cheaper and more convenient cashless substitutes.”
Despite the rise in e-wallets, experts still believe cash will play an important role in Malaysia’s economy for the foreseeable future.
Mr Yeah noted that while the government aims to achieve 90% cashless payments by 2025, transitioning to a fully cashless society will take time.
He also suggested that reaching 50% cashless transactions by 2030 would be a significant achievement.
Cashless transactions grew by 32% in 2022 and 21% to RM11.5 billion in 2023 but made up only 1% of Malaysia’s total consumption spending.
Mr Yeah noted that the “minuscule share” of cashless transactions shows significant potential for digital payment growth, driven by its convenience, efficiency, and traceability.
He added that this shift is likely to speed up in the coming years as mobile phone usage, Internet access, and banking services continue to grow.
The shift towards cashless payments is already visible in the decline in ATM withdrawals.
From 2019 to 2023, cash withdrawals dropped by 7.3%, from RM427.8 billion (about S$128.97 billion) to RM396.4 billion (about S$119.50 billion).
Also, the number of ATM transactions fell from 845.9 million in 2019 to 797.7 million in 2023. However, experts also raised concerns about the risks of a fully cashless society.
Risks of a cashless society
Mr Williams pointed out that technology failures could prevent people from making essential purchases, and cybersecurity threats could compromise the payment system.
He also warned that people could be left without a way to pay if their e-wallets or accounts are suspended. He argued that cash should still be available as a backup in case of issues with digital payments.
He said, “Unless people hold and use cash, they can easily find themselves without the means to pay for day-to-day essentials, which is a very dangerous risk… It is important to continue to require acceptance of cash as legal tender.”
Despite these concerns, Mr Yeah believes that “going cashless is certainly good for the economy.”
He noted that moving towards a cashless economy will improve efficiency, lower transaction costs, and offer greater convenience for consumers and businesses.
He added that integrating cross-border payments and financial transactions would boost regional and international trade, investment, and financial integration.
Mr Williams added that an e-payments tax (EPT), a small charge on every e-payment, could replace SST and GST, suggesting a 2.25% EPT as an example. However, he cautioned against the huge risks of a cashless society.
He also noted a behavioural risk with e-payments, where people tend to budget less than cash.
He said paying in cash makes people more aware of prices and their remaining money, while e-payments often lead to less conscious spending.
He said this could result in stealth inflation and mounting credit card debt, potentially causing financial problems. /TISG
Featured image by Depositphotos (for illustration purposes only)