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Malaysia's war on cash

Recent action in Malaysia is making it clear: cash exceeding relatively small amounts is unwelcome. It's not

An announcement this week by Datuk Nor Shamsiah binti Mohd Yunus, the governor of Bank Negara, Malaysia, the central bank, that the cash transaction reporting threshold is to be reduced to MYR5,000 is both surprising and to be expected. Malaysia is being driven inexorably towards mobile payments and removing cash from the system is part of that campaign.

Several weeks ago, an initiative called "DuitNow." It's a demonstration of how far what was, only a decade or so ago, a primitive banking system has come in a short time.

Not long ago, payments made to bank accounts outside Kuala Lumpur took several days to reach accounts. First intra-bank then inter-bank payments sped up and are now virtually instantaneous during extended working hours. Similarly, cheques drawn on out of town branches might take several days to clear. That's been resolved with truncation.

Locally issued credit cards had no chip. Even when chips arrived there was a common practice of retailers swiping the cards and retaining the data from the stripe. That is now rare.

With the growth of non-bank money transfer services, new strict regulations were put in place and have dramatically reduced the opportunity for transfers through unlicensed transmitters and extensive action against transmitters who claimed to have a licence but did not has removed dozens from the market.

DuitNow is an initiative intended to move the market to mobile payments, whether it likes it or not. The first phase was rolled out recently when bank account holders began to receive SMSs telling them that their mobile number would be passed to the DuitNow operator unless they opted out. There was no previous communication from the banks about DuitNow, meaning that many customers were concerned the whole thing was a scam, especially as the bank sent the messages not through e.g. online banking channels but through the same bulk SMS services that spammers and scammers use, with the same originating number. Worse, it required a response which careful users would, for reasons of security, consider an unsatisfactory means of releasing what is, under Malaysia's data protection laws, protected personal data.

CIMB issued a statement saying "Customers will be able to use CIMB Clicks to link or de-link their mobile numbers and bank account to or from DuitNow at any time, once the system goes live." CIMB Clicks is that bank's online banking service. Other banks were less co-operative. One customer's response to an complaint to Standard Chartered via internet banking channels, which could be reasonably assumed to be secure, was essentially to dismiss the complaint and to say that a response to the insistence that data not be passed on would come in a couple of weeks.

DuitNow is, in fact, an initiative of PayNet which operates the ubiquitous MEPS electronic payment systems (and interbank card clearing via ATMs, etc., and other services. PayNet's largest shareholder is Bank Negara Malaysia and eleven domestic banks also hold shares: Malayan Banking Berhad (Maybank), RHB Bank Berhad, Public Bank Berhad, CIMB Bank Berhad, AmBank (M) Berhad, Hong Leong Bank Berhad, Affin Bank Berhad, Alliance Bank Malaysia Berhad, Bank Islam Malaysia Berhad, Bank Muamalat Malaysia Berhad and Bank Kerjasama Rakyat Malaysia Berhad. Paynet also created "JomPay" which provides a centralised collection account for businesses under which one sign-up provides deposit details for payers using 42 banks. For more information about the company that, essentially, runs the back-end for Malaysia's financial system, see https://www.paynet.my/about-pa... .

DuitNow is slated for launch in December this year and it's best seen as PayPal for the mobile generation. It will provide instant funds transfer to any Malaysian mobile number using that number or the account holder's identity card number. Last week, Paynet's Group Chief Executive Officer Peter Schiesser said that seven banks were in the initial phase but that there would soon be 40 banks in total using the system. He also said that seven million notices had already been sent to consumers which is remarkable in a country with a total registered population of some 27 million.

Importantly, payments under DuitNow will not attract charges for amounts up to MYR5,000.

As from 1 January, 2019, the cash transaction reporting threshold will be reduced from the amount of MYR50,000 which has been in place, with variations, for more than a decade. MYR50,000 is, typically, around USD12,000. That's not very different from the figure of USD10,000 which is widely used as a benchmark. However, the Aussie CTR figure of AUD10,000, because the AUD has had a torrid time of late, is the equivalent of just over USD11,000. Bank Negara Malaysia says the new figure will be comparable with other countries in the region. However, it must be noted that the aggregation period under CTR will remain the same - one day.

It has to be noted that CTR is much favoured by the USA and Australia but that the FATF does not require it to be in place.

While various "contactless payments systems have been on display for some years, many people do not use them. However, a recent push by AliPay has seen their flags appearing at many retail outlets, particularly coffee shops where small transactions are the norm.

There is no sign that cash is going to die out any time soon in Malaysia and it is possible that the increasing concentration of information in the hands of government departments might increase the use of cash which remains outside the banking system, as once happened in the UK second hand car industry where bank-sealed plastic-wrapped bundles of notes passed around in GBP500, 1000 and 5,000 lumps that were treated as tokens.

What the industry is seemingly paying no attention to are those users who do not want to carry any personal or financial information on their mobile phones or who, as is beginning to become "a thing," people moving away from "smart phones" to simpler devices where, often, only mobile calls and SMS are possible.

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