Likewise, Malaysia’s currency in circulation (CIC) over GDP of 6.1% is much higher than 3.8% on average in these countries. Over the past three years (2010 – 2012), cheque volume has declined only marginally at an average rate of 0.2% annually and the CIC over GDP remained at 6%. Malaysia has a banking population of 92% of which about 70% are internet banking subscribers. Moreover, the household broadband penetration rate in Malaysia has increased significantly from 32% in 2009 when we introduced the electronic processing of cheques, to 67% as at end-Sept 2013. With the necessary infrastructure in place, it is timely that all Malaysians migrate to electronic payments in our quest to become a high income, high value-added economy by 2020. To nudge the systematic migration to electronic payments, Bank Negara Malaysia has set targets in its Financial Sector Blueprint to reduce the number of cheques processed per annum by half from 204 million in 2012 to 100 million by 2020. At the same time, there are also targets to increase the number of Point-of-Sale terminals from 9 in 2012 to 25 unit per 1,000 inhabitants and to increase electronic payment transactions per capita from 56 in 2012 to 200 by 2020. Only by migrating from cheques and cash to electronic payments, can the country anticipate to achieve further cost savings and efficiency gains. Cost of cheques Although significant improvement has been made in the cheque processing infrastructure, cheque remains an expensive payment instrument to process at about RM3 per cheque.
The total cost is even higher when we take into account the cost incurred by the payer and payee in delivering and depositing cheques. It is estimated that cheque processing cost Malaysia about RM768 million5 per year. This amount is huge and a sheer wastage. Correcting distortion between paper-based and electronic payments Despite the cost incurred in processing cheques, cheques have not been priced directly to reflect its costs except for the stamp duty of 15 sen per cheque. On the contrary, electronic payment services such as the Interbank GIRO (IBG) are priced above cost at about RM2 per transaction. Such price distortion does not incentivize the adoption of the more efficient electronic payments on a mass scale. In advanced countries such as Australia, Norway and Sweden, electronic payment services are priced lower than cheques consistent with their respective cost of production. The correct price signals that reflect the real cost of cheques and electronic payments had facilitated a broad shift from the use of cheques to the use of electronic payments. We need to correct this price distortion between cheques and electronic payment services, Bank Negara Malaysia has announced a new pricing strategy for payment services in March this year where the price of IBG and cheques are aligned closer to their cost of production. With effect from 2 May 2013, the transaction fee for IBG conducted via internet and mobile banking was reduced to 10 sen from RM2 previously.