Digital Adoption To Accelerate by the Need to be Cashless

Photo Source: IDC AP Black Book Live, V2 June 2020

Malaysia’s accelerated digital economy coupled with increased digital behaviours during the crisis has brought the adoption of cashless payment methods to an inflection point – IDC estimates the volume of cashless transactions to double in 2020 as compared to the preceding year.

The reality of the crisis meant that spending behaviours shifted to digital means during movement restriction orders. The aversion to high-contact physical payments like those involving cash and signatures created changes on both sides of the transaction. This holds particularly true for micro, small and medium businesses who are starting to see the benefits of accepting digital payments.

Malaysian ICT spending is expected to contract by 3.2% as enterprises halt spending to re-assess their business priorities and transition to targeted digital spending instead. Not surprising, IDC anticipates Malaysian SME ICT spending to take a dip during the same period, and the 2020 forecast anticipates a -4.4% dip in spending as they examine the options in front of them.

However, many businesses have acknowledged the need to continue throughout the respective lockdown or semi-lockdown periods, and IDC has noted SMEs are now exploring new digital platforms that can help their business push ahead and create stability in 2021.

SME adoption of cashless payment methods were initially nascent, with few small and medium businesses willing to pay the Merchant Discount Rates (MDR) required with card machines. As of 2019, only 40% of Malaysia’s transaction volume were cashless. To this sense, the rise in popularity of QR-code based payments were championed by the three major e-wallet players as the most viable and cost-effective way of accepting digital payments. As consumers grow familiar towards using QR codes for contact tracing, it also builds a natural bridge to their adoption of QR payments.

Spurred by the ePenjana initiative that ended on the 30th September 2020, SMEs saw greater collaboration with e-wallet platforms. Aside from encouraging consumer spending through cashbacks, discounts, and rewards, the initiative also provided much needed exposure to these businesses.

“It is clear that cashless payment behaviours will likely persist post-pandemic. This increased awareness will come with a silver lining for SMEs who have embraced digital payments by providing transaction trails for businesses who have traditionally been cash-based. These could aid in applying for micro-loans and providing potential creditors more visibility into the business” said Darshiniy Selvaratnam, Senior Market Analyst at IDC Financial Insights.

If trends observed in the last 6 months continue on the same trajectory, Malaysia may well be on it’s way to achieving BNM’s aim of 200 e-payment transactions per capita by the end of 2020 (BNM’s Financial Sector Blueprint 2011-2020).