ibsview e-wallets in malaysia banktechasia ’17, … e-wallets in malaysia banktechasia ’17,...

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IBS Intelligence, a division of Cedar Management Consulting International LLC Confidential Document

IBSViewE-Wallets in Malaysia

BankTechAsia ’17, Kuala LumpurJuly 2017


E-commerce payments dominated by cards (debit and credit); digital wallets catching up

2,372

3,518

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

2016 2020 (F)

$ B

n

Global E-Commerce | Turnover value

2

E-Commerce Market | Global trend

Source: Worldpay Global Payment Report 2016

30%

24%

17%

10%

7%

10%

e-Wallet Credit Card Debit Card

Bank Transfers Cash on Delivery Others

Payments split by mode of payment (2015)

▪ E-commerce payments growing at a rapid pace and is expected to overtake traditional payments

▪ Cards dominate e-commerce payments especially in developed markets


China dominates e-wallets market in Asia; low uptake in western markets

Source: Worldpay Global Payment Report 2016

71%

19% 26%

73%59% 57%

3%

60%

8%

9%20% 22%

20% 6%

23%

7% 6% 4%

3%7%

26%

6%4% 9%

3% 8% 17%5% 11% 8%

0%10%20%30%40%50%60%70%80%90%

100%

Malaysia China India Singapore USA UK

% s

har

e o

f p

aym

ent

mo

des

Cards E Wallets Bank transfer Cash on Delivery Others

Bank Penetration

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E-Commerce markets| Asia

Asian peers Developed economies

▪ Slower acceptance of wallets in markets with high bank penetration

▪ China is an exception due to strong influence of ecommerce giants, Alibaba and Tencent

▪ E-wallets based payments growing in volume due to large up-take in China

81% 79% 53% 96% 94% 98%


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Definition

Secured online account where an individual can load money, and use it online or transfer money to other person or to a merchant

e-Wallet | Overview

Sign into merchant website using email address

Select e-wallet option during payment stage

Complete payment using balance in e-

wallet account

Transfer money to e-wallet account using

online transfer or debit/credit card from

Bank

In case of shortage in e-wallet account balance,

traditional payment options can be used to pay shortfall

Network

Payment Request

Payment Receipt

Request for confirmation

Verification

Confirmation

Processing- Debit PA

Pay

ee

Paye

r

E-w

alle

t Secured online account for person to person payment or merchant payments

Setu

p Downloade-wallet mobile

application

Sign up using following details:

email address, mobile no. & National ID

Me

rch

ant

Pay

me

nts

1 3

2

4

5

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Bank Services

▪ Link M-Wallet to bank accounts and transfer funds between them

▪ Easy access to bank statements and transaction history

▪ Ability to register for M-Wallet account via ATM, Internet & M-Banking and IVR

▪ Ability to Top-up & Cash out funds via M-Banking , Internet, ATM & IVR01

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▪ Fast customer on-boarding to M-Wallet online account

▪ Ability to link Debit/Credit and Online billers to the M-Wallet

▪ Ability to view account details , online offers from retailers & merchandizers

Account Management

Payment Services

▪ Ability to make payments via P2P, NFC enabled POS terminals and Payment Gateways

▪ Ability to make scheduled and on demand utility payments

▪ Extend payment services to support loan, tax & other payments.

▪ Allow Users to make Domestic and International Remittances

e-Wallet | Services

User & Transaction

Management

▪ Improved Digital security via remote wipe, passcodes and auto lockout

▪ Customizable Alerts and preferences

▪ Convenient viewing of transaction history and filing of transactional requests

Source: IBS Research

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03

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Service Features designed for ubiquitous payment and transaction


UbiquitousBanking Access

▪ Mobile solution for ubiquitous banking access

▪ Ease of on-boarding

▪ Digital authentication and no-paper

Paper-lessAnytime

Anywhere

▪ Mobile solution paper-less anytime, anywhere cash-less

▪ Online merchant ecosystem

▪ Offline merchant acceptance

▪ Lower cost of merchant on-boarding and transaction

Mobile Solution for

Micro-payments

e-Wallet | Solution Requirement

▪ Interoperability

▪ Single national merchant authentication form factor

▪ Appropriate legislation and policy from Central Bank


Requirements for the success of a single mobile payment solution offering

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Infrastructure

▪ Leverage existing national payment infrastructure

▪ Open API to build additional services

▪ Standard XML interface for Banking integration

▪ Dedicated people infrasture to build services

Customer & Merchant

▪ Ease of sign up and no paper work

▪ Leverage existing bank account and KYC

▪ Offline merchant ecosystem to driver usage

▪ Lower cost of merchant on-boarding and transaction

Regulation

e-Wallet | Key Success Factors

▪ Interoperability regulation

▪ Single national merchant authentication factor

▪ Pragmatic regulatory, policy planning & operations

▪ National payment scheme; less dependency on cardassociation


Cost effective operating model with pragmatic policy planning and regulations

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Benefits | Banks, Merchants and End Users

Benefits to Banks Benefits to Merchants Benefits to End Users

▪ Privacy – Share only Virtual Address and no other info

▪ Multiple Utility – Cash on delivery, split bill, merchant payments etc.

▪ One Click functionality – Authorize Transactions by entering only the PIN

▪ Works across Various Interfaces

▪ Available 24x7x365, customer does the transaction on his own device

▪ Seamless fund collection from customers – single identifiers

▪ No risk of storing customer’s virtual address like in cards

▪ Tap customers not having credit or debit cards

▪ Suitable for E-Com and M-Com

▪ Single click Facility

▪ In App Payments

▪ Universal App for Transactions

▪ Leverage existing infrastructure

▪ Secure

▪ Payments Basis Single / Unique Identifier

▪ Tap C2B Segment & E-Com / M-Com Transaction



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e-Wallet | Revenue Stream

Bank & teleco partnership products and revenue streams


Service Type Product Revenue Stream

Mobile Money

Mobile Insurance

Mobile Savings

Mobile Credit

▪ Domestic Remittance▪ International Remittance▪ Merchant payments▪ Bill Payments

▪ Health Insurance▪ Vehicle Insurance▪ Life Insurance▪ Agri Insurance

▪ Savings deposit▪ Daily committed savings

programs (recurring deposit)

▪ Handset funding▪ Payday loan▪ Short-term microfinance loan▪ Umrah loan

▪ Transfer fees▪ Interchange fees▪ Bill collection fees

▪ Reseller premium

▪ Net interest income (Liability)

▪ Net interest income (Asset)


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Digital profile| Malaysia

76% | Urban

144%

68%

67.7%

80%

Population (Urban vs Rural) 24% Rural

Mobile penetration

Internet Penetration

Social Network penetration

Banking penetration

Government and bank initiatives have led to significant growth in e-commerce market


20142000 2007 2012 2013

BNM allows banks to offer online banking, Maybank unveils 1st online portal

1

Mobile wallet M-moneylaunched

2

Value of Internet banking transactions reach RM 8.2 trillion

3

Celcom AirCashlaunched

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5

Online payments evolution | Malaysia

2015

6 Launch of JOMPayandePIF fund

Maybank introduces first mobile wallet

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BNM charges for chequeusage, reduces cost of Internet banking

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Source: Cedar Research

20172016

Alipay enters the market


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Digital bankingPayment System

operators Gateway Providers

E- money Issuers -Banks

E-money Issuers-Non-Banks

Digital Payments | Key Players

E-wallets


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Touch N Go

▪ Pilot testing stage in March 2017

▪ To be launched in Q3 after getting BNM’s approval

▪ CIMB Bank is a key stakeholder

▪ Alipay can now be used in all 2,100 7-Eleven stores

▪ Service to be extended to other Berjaya Group merchants in the coming months

▪ Resorts World Genting is the first hospitality merchant to introduce Alipay in Malaysia

AliPay MasterCard

▪ Tie-up with Cyberview & Malaysian Global Innovation & Creativity Centre (MaGIC)

▪ Pilot programs to test smart city applications by Q3 2017

▪ Committed to transformCyberjaya- technology hub with focus on cashless initiatives

▪ Existing collaboration with Maybank and major payment networks Mastercard and Visa

▪ CIMB, Citibank and Standard Chartered have joined as partners

▪ Hong Leong Bank coming on board soon.

Samsung Pay

E-wallets | Key Partnerships


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Overall Prerequisites

▪ BNM’s approval pursuant to the Payment Systems Act 2003

▪ Comply with the Anti Money Laundering and Anti-Terrorism Financing Act 2001.

▪ Issuers with both e-money & remittance license can offer international e- wallet remittances

Compliance Measures

▪ Submit monthly statistical data to Payment Systems Policy Dept of the Bank

▪ Prudent management of funds, to ensure safety, reliability

▪ Sufficient liquidity for their daily operations.

▪ Separate records & accounts for e-money activities from other activities

▪ Risk management infrastructure and processes for e-money operations.

Central Bank Regulations

Regulations by Bank Negara Malaysia for e-money issuers


Consumer Adoption I Digital Payment

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Low

High

Low High

Transition(Limited Acceptance)

▪ Progression along acceptance development cycle

▪ Electronic payments not yet used for everyday payment

Electronic

▪ Electronic payments are “top of spend”

▪ Specific niches of cash payment remain

Cash-centric

▪ Heavily dependent upon cash payments

▪ Early stage of economic payments ecosystem

Transition(Limited Consumer Adoption)

▪ Consumers resistant to electronic payments

▪ Need to demonstrate utility of electronic payments

Acceptance Penetration

Co

nsu

me

r A

do

pti

on

Market readiness can be classified according to levels of

▪ Acceptance Penetration

Number of accepting merchants

Number of acceptance points (per population)

▪ Consumer Adoption

Access to electronic payment methods

Frequency of usage

Malaysia payments assessment

Merchant eco-system creation and use case critical to drive usage of wallet


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# Cash Centric Economy Transforming Economy Banked EconomyBusiness

ModeTeleco centric Bank Centric Licensed Disruptive Payment Players, Banks

Service Domestic Remittance,, Top Up, Bill PaymentPayments, Offline Merchant Payment, P2P

Transactions, Int. Remittances (Inwards)P2P Transactions, Online Merchants, Int.

Remittances (Outward)

Regulatory Environment

Basic KYC, AMC, low account penetration, Agent Banking

E-Money regulations being formulated,Digital laws enacted, medium account penetration

E-KYC, E- money & e-contracts legislation ,HIgh account penetration

NeedSecurity of cash,

transfersLow cost merchant payment system,

elimination of cashConvenience, banks to defend the turf from

challenger payment companies

IssuesLimited Interoperability, high cost of

transactionsEvolving Interoperability Framework ,

Evolving payment InfrastructureMonopolistic restrictive practices,

AML/FACTA

Nigeria Sri Lanka

Kenya

Brazil

India

USA

Singapore

Payment Driven Ecosystem

Financial Inclusion Driven Ecosystem

Developing Economies Developed Economies

Maturity Matrix I e-Wallet

Philippines

South Korea

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UAE

Malaysia


Singapore

▪ Promoted by National Switch owned by all Banks .

▪ Wallet , POS and NFC based

▪ 7.3 Mn NFC card issued

▪ Unified POS terminals

India

▪ National Payment switch with Online Instant transferand payment application

▪ Payment interface 10 Mn downloads

▪ Instant transfer transaction volume of ~26 Mn/ month

UK

Summary | International Case Study

▪ Promoted by Vocalink

▪ Focused on P2P payments

▪ Secured digital token architecture

▪ 4 UK high street banks potential 18 Mn customers

Source: Cedar Research

Cost effective operating model with pragmatic policy planning and regulations

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KEY OFFERINGS

▪ The Pay by Bank app lets consumers make real time payments direct from their tablet or smartphone

▪ The app uses the bank’s own security methods to verify the user.

▪ Payments work through secure digital tokens hence customers’ financial details are safe

▪ Customers will be able to see their account balances before they pay

IMPACTS

▪ Retailers and businesses will benefit from the Pay by Bank app simplicity which deliver better conversion at a significantly lower cost

▪ 60% of the UK merchant base including Asda, Thomas Cook, Clarks etc.

▪ Reduce frauds and lower the cost of cash to the economy

▪ Backed by four UK high street banks : potential 18 million customers

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Vocalink UK| Case Study


Beam

▪ Founded in 2010 under parent company One97 communications in New Delhi

▪ Key partners include Ant Financial (AliPay), SAIF Partners, Mediatek, Sapphire Venture & Silicon Valley Bank

India’s largest mobile payments and commerce platform

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Paytm | Case Study

Who Did It

▪ Diversified offerings – Paytm currently provides the most offerings in terms of bill payments shopping, travel offerings etc. in the entire Indian e-Wallet market with close to zero transaction costs.

▪ Entry into Canada- In 2017 Paytm began its global expansion by offering utilities and tax payment services in Canada

Offerings

Source: Company Website, Cedar Research

▪ Fastest growing e-Wallet app in India with over 200 Mn users over 1.5 years

▪ License received from the Reserve Bank of India to start India’s first payments bank.

Impact


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E-wallets| Bank-backed vs 3rd party


Bank backed wallets

Third party retail wallets

The e-wallets competition is expected to intensify with banks entering the competition

Brand recognition

▪ Relatively unknown due to latemarket entry

Security infrastructure

Omnichannel

▪ Strong brand recall due to early mover advantage popularity of cash backs

▪ Perceived as relatively more secure due to banks’ security infrastructure

▪ Perceived as less secure due to being viewed as a startup and not associated with large institutions

▪ Offers 360 degree view of all theaccounts and financial instrumentsheld by customer through a single

▪ User can only view wallet related transaction data


Partner led strategy

▪ Important to identify the right partner to maximize the reach and adoption of the digital wallet

▪ Critical to choose the right card association which has a wider reach such as Visa or Master card and the right digital wallet enabler who has the most robust platform01

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▪ Banks have an edge over third party e-wallets due to existing relationship with customers in the form of savings accounts, etc.

▪ Banks must leverage this by offering an integrated app that enable customer to managing all subscribed products including wallet transactions

Integrated offering

Own branded wallets

▪ Own branded wallets have a higher sustainable success potential than replying on third party branded wallets

▪ Better control and ability to customize application

E-wallets strategy | Key imperatives for banks

Technology▪ E-wallets are popular due to the speed and convenience of using the technology

▪ Banks must be mindful of this and ensure to use the latest technology platforms that is easy to scale up and upgrade in the future


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Independent Perspective on Financial Technology

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