Why is the Malaysian payments industry exploding?

The Malaysian payments industry has seen explosive growth in recent years, thanks to several key factors:

1. Government policies and strategies for the development of the digital economy

  • National Blueprint for Electronic Payments (e-Payment): Bank Negara Malaysia (BNM) promotes fintech policies such as the Grand Blueprint for the Financial Sector 2022-2025, which explicitly encourages a cashless society and e-payment penetration.
  • Digital banking licences issued: 5 digital banking licences approved in 2022 (including Grab-Singtel, Shopee, etc.), accelerating financial inclusion and digital service coverage.

2. High penetration of mobile internet and smartphones

  • Malaysia has a smartphone penetration rate of over 80% and internet users account for more than 90% of the total population (We Are Social data), providing infrastructure support for mobile payments (e.g. Touch 'n Go eWallet, GrabPay).

3. Competition between local and international firms drives innovation

  • Layout of local giants: Local wallets such as Touch 'n Go (in which Ant Group has a stake) and Boost (owned by Axiata) are gaining customers quickly through subsidies and scenario integration.
  • International Player Entry: ShopeePay, GrabFinancal and other Southeast Asian mega-apps embedded with payment functions to stimulate market competition and service upgrades.

4. Consumer behaviour change

  • COVID-19 Epidemic Accelerates Cashless Habituation, E-Wallet Transaction Volume Grows by 1,441 TP3T YoY in 2021 (BNM Data)
  • Generation Z and younger users are more inclined to swipe payments and small, high-frequency transactions.

5. Facilitation of cross-border payments

Under the ASEAN regional co-operation framework, Malaysia promotes QR code interconnection (e.g. DuitNow-Thailand PromptPay) with Singapore and Thailand to facilitate cross-border business flows.

6. Technology-driven scenario expansion

Expanding from retail to transport (metro code scanning), public services (tax payment), and social transfers (DuitNow transfers only require a mobile phone number) to cover the long tail of needs.

Future challenges include regulatory compliance, user data security and how to further sink into the rural market. But overall, with policy dividends overlaid with ecological improvements, Malaysia's digital payment share is expected to exceed 501 TP3T by 2025 (currently around 401 TP3T).

The explosive growth of the Malaysian payments industry continues to deepen, with the following trends and challenges ahead:

1. Further expansion of technology-driven payment scenarios

  • Embedded Finance (EF)::
    Payment services are being integrated into more non-financial scenarios, for example:

    • social e-commerce: TikTok Shop, Lazada Live and other live streaming shopping to promote "pay-as-you-watch".
    • Buy Now Pay Later (BNPL): Platforms such as Atome and Split are growing rapidly in Malaysia, covering high unit price items such as fashion electronics.
    • Internet of Things (IoT) Payments: Emerging use cases such as automated bill payment for smart cars and smart home subscription services.
  • Biometric Payments: Some banks have piloted fingerprint/face recognition verification (e.g. Maybank's FacePay) to enhance convenience.

2. Regulatory upgrading and Open Banking

  • API Economic Acceleration::
    The Open Banking framework promoted by Bank Negara Malaysia requires financial institutions to share data (under user authorisation) and third-party developers can develop aggregated payment applications based on APIs.
  • Anti-Money Laundering (AML) Compliance Tightens Up::
    E-wallet KYC process enhancement may affect some user experience but benefit the industry's health in the long run.

3. Incremental opportunities in rural and cross-border markets

  • Sinking Financial Inclusion::
    Digital banking licence holders need to commit to covering rural areas (e.g. Boost Bank plans to serve remote users in East Malaysia through agent outlets).
  • ASEAN Integrated Payment Network::
    DuitNow has been tested with Indonesia and the Philippines, and in the future it will be possible to realise "one QR code for all of ASEAN".

4. Profit model shifting from subsidies to eco-cash

Early e-wallets that relied on burning money to gain customers are beginning to explore sustainable paths:

  • Value-added services draw (e.g. insurance, wealth management).
    –Merchant SaaS ToolsIntegrate billing + inventory management functionality.
    For example, Touch 'n Go eWallet has added an ad delivery platform to help merchants with precision marketing.

Key challenges

  • Fragmentation issues : 20+ e-wallets coexist resulting in merchants needing to support multiple systems.
  • cash inertia : Small vendors and elderly groups still rely on cash (about 351 TP3T transactions).
  • pressure on profits : Most wallets have yet to break even (except for headline players like GrabPay).

[Future prospects]

possible by 2026:
✅ industrial consolidation (Small and medium-sized wallets are acquired or exited);
✅ *Central Bank Digital Currency (CBDC)* Pilot Advance;
✅ Super App Dominance , Grab/Shopee etc. monopolise the entrance through consumer ecology.

Attention needs to be paid to whether policy continues to encourage innovation versus whether companies can find a differentiated niche.