How does Bank Negara Malaysia's regulatory policy affect the payments industry?

introductory

In recent years, the payments industry has undergone tremendous changes globally with the rapid growth of the digital economy. As one of the key financial centres in Southeast Asia, Malaysia's central bank (Bank Negara Malaysia, BNM) seeks to strike a balance between promoting payments innovation and strengthening regulation. This paper examines how Bank Negara Malaysia's regulatory policies are affecting local and international payments businesses, consumer behaviour and the future trends of the industry as a whole.

1. Role of Bank Negara Malaysia in the Payments Industry

(1) Main duties

Bank Negara Malaysia (BNM) is responsible for formulating and implementing financial policies to ensure the stability of the country's financial system. In the area of payments, BNM's main responsibilities include:

• Overseeing e-money and digital payments compliance
• Promoting the development of secure and efficient payment systems
• Prevention of money-laundering and terrorist financing risks

(2) Key Regulatory Framework

BNM has introduced a number of important regulations in recent years to regulate the rapidly growing payments market:

• Financial Services Act 2011 (FSA)-Establishes the legal status of non-banking institutions to provide electronic payments.
• Electronic Money Issuance Framework (EMIF) 2020-Strengthening the management of e-wallets and prepaid cards.

The implementation of these policies has a direct impact on the direction of traditional banks, third-party payment platforms and emerging fintech companies.

2. Impact of BNM regulation on various types of market participants

(1) Impact on traditional banks

Commercial banks are facing competitive pressure from new fintech companies due to accelerating digitalisation trends. To adapt to the new regulations and remain competitive, many banks are taking the following measures:

• Investing in digital infrastructure:: Large banks such as Maybank and CIMB launch their own mobile wallet services (e.g. Maybank Pay).
• Co-operation and M&A: RHB Bank partners with Grab to launch RHB NowPay to expand user base.

Yet stringent capital reserve requirements also increase banks' operating costs.

(2) Impact on third-party payment platforms

Alipay, WeChat Pay, Touch 'n Go eWallet and other international or local companies are subject to stricter anti-money laundering regulations:
✅ Advantage: Expanding market share after obtaining a licence; e.g. BigPay's business grew significantly after it was allowed to offer cross-border remittance services.
❌ Challenges: High compliance costs make it difficult for small start-ups to survive; some foreign firms have adapted their operating models due to data localisation requirements.

In addition, the Personal Data Protection Act 2023 further strengthens standards for managing user privacy!

Case Studies:

TNG Digital Sdn Bhd (Touch 'n Go's parent company) is one of the largest e-wallets in the country due to its compliance with all KYC/AML regulations; on the contrary, certain non-compliant players were forced to exit the market!

(3.) Changes in consumer experience

BNM Improves Security but May Sacrifice Convenience with Mandatory Authentication.

• Real-name authentication leads to a longer registration process.
• Transaction limits are set to protect the security of funds but also limit the flexibility of large transfers.

Nevertheless, the majority of the population still favours a safer system - according to a 2024 survey, 78% respondents believe that "the benefits of strong regulation outweigh the disadvantages".

3 . Projections of future trends

With the rise of CBDC (Central Bank Digital Currency), Blockchain technology , the following changes are expected in the next few years .

(a ) Open APIs to promote interconnectivity

BN M encourages open banking so that data can be shared between different organisations to improve efficiency; for example, the DuitNow QR Unicode is connected to more than 40 service providers.

b) Deepening cross-border co-operation

A real-time settlement network is being set up within ASEAN to reduce reliance on SWIFT - this could benefit e-commerce platforms like Lazada / Shopee !

Lastly, it is worth looking at whether foreign ownership limits are relaxed to attract more investment into the country's FinTech ecosystem ?

# Conclusion

Overall, a clear and transparent legal environment will help foster a healthy and sustainable industry landscape in the long run, despite some short-term burdens. Entrepreneurs and users alike should keep a close eye on policy updates to ensure that their interests are maximised!

4. Balancing innovation and regulation in the payments industry

Bank Negara Malaysia (BNM) is committed to ensuring the stability of the financial system while promoting innovation in the payments industry. This dual-track strategy of "regulation + innovation" has had a profound impact on the development of the industry.

(1) Encouraging innovation in financial technology

BNM, through the establishment of "FinTech Regulatory Sandbox" (FinTech Sandbox), allowing organisations to test new products and services in a controlled environment, for example:

• Blockchain cross-border payments(e.g. Ripple pilot project)
• AI-powered anti-fraud system(Some banks have adopted machine learning to optimise risk control models)

This policy reduces compliance risk for startups and accelerates technology on the ground.

(2) Enhancing Data Security and Consumer Protection

With the popularity of digital payments, BNM has strengthened its measures to protect user data:

• Amendments to the Personal Data Protection Act 2023:: Require businesses to clearly inform users of the use of their data and obtain consent.
• Mandatory two-factor authentication (2FA):: Reduce the risk of unauthorized transactions.

These regulations have raised the bar for the industry, but they have also increased public trust in electronic payments. According to the 2024 survey, 85% of Malaysian consumers prefer to use payment platforms that are strictly regulated!

5. How will BNM policy shape the future competitive landscape?

(1) The game between local enterprises and foreign-funded giants

Some international giants are under pressure to adjust as the BNM requires foreign payment companies to meet localised operational standards (e.g. servers located in the territory):
✅ Advantage: Regional players such as GrabPay and ShopeePay dominate due to their familiarity with the market;
❌ Challenge: Global brands such as PayPal need to invest extra money to meet compliance requirements.

case (law):

Alipay Malaysia succeeded in obtaining a licence by partnering with a local bank; in contrast, some of those who failed to meet the criteria were forced to scale down their operations!

(2.) Progress of the CBDC (Central Bank Digital Currency) trial

From 2023, BN M will begin testing Digital Ringgit, with potential impacts including.

• Reducing the role of traditional bank intermediation.
• Improving government capacity to monitor illicit financial flows .

If officially launched, it could revolutionise the existing retail and wholesale payment system !

6 . Do SMEs benefit or are they limited?

For Micro, Small and Medium Enterprises (MSMEs), the new rules have led to polarisation.

a.) Positive aspects

• Standardised tools such as DuitNow QR allow micro and small merchants to access cashless transactions at low cost.
• A more transparent rate structure reduces the problem of hidden charges.

b.) Negative aspects
Some small merchants are excluded from the formal system due to their inability to meet KYC requirements - this can lead to the perpetuation of the underground economy !

# Final Conclusion

Overall, while short-term pain is inevitable, in the long term BNM's policies are guiding the country's transition to a more efficient and secure digital society. Over the next few years we expect to see.

1️⃣ More M&A consolidation - Smaller operators may be acquired/exited ;)
2️⃣ Cross-border e-wallet connectivity enhanced (especially within ASEAN).
3️⃣CBDC is gradually being piloted to reshape the way money circulates .

Both practitioners and ordinary users should keep an eye on the policy trends in order to grasp the opportunities and avoid the risks !