#paymentsbrief: A Brief Primer on MyClear and MEPS

Hi all,

There have been exciting developments in Malaysia's payments landscape in recent months. Here are three.

1. Bank Negara Malaysia's (BNM) Governor, Datuk Muhammad Ibrahim, announced the merging of MyClear and MEPS to a new entity called Payments Network Malaysia Sdn Bhd (PayNet) to ensure that "Malaysia's payment systems are future-proofed and always at the cutting edge of payment efficiency, innovation and competition."

2. If you're a Malaysian resident, since 1 July 2017, you would have had to use your PIN for payment card transactions, instead of signature. This is a joint national effort (with lots of publicity!) by BNM and the financial industry to ensure higher security for payment card transactions. Advertisements about the PIN and Pay system were even played at cinemas to ensure all of us got the message!

3. Looks like WeChat has applied for a license to offer WeChat Pay in Malaysia. This is quite a significant development!

All of these are interesting and we would be able to dive into some of these topics in upcoming posts. But before that, it would be useful to nail down some of the key players and functions of the payments systems in Malaysia to get clarity on things.

At risk of many disclaimers, information here is not fully comprehensive (obviously!), just based on public information and my own thoughts on things. Please feel free to research / Google more where interested and leave constructive comments for discussion below :)

Lets start off by having a look at the two main payment system operators in Malaysia, MyClear and MEPS.

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Malaysian Electronic Clearing Corporation (MyClear), is a wholly owned subsidiary of Bank Negara Malaysia (BNM) that was established in 2008 to build and operate key payments systems in Malaysia.

Some of MyClear's key operations include the following:

I) Real Time Electronic Transfer of Funds and Securities (RENTAS):

Malaysia's large value payments system that allows real-time gross settlement of wholesale funds and securities. This is a key piece of infrastructure that keeps the nation's economy going. According to BNM's Financial Stability and Payment Systems Report 2016 (FSPSR 2016), RENTAS settled 4.4 million transactions valued at a whopping RM51.5 trillion in 2016. That's 42x Malaysia's GDP.

Apart from large value interbank payments, RENTAS is used by banks to adjust their statutory reserve requirements in line with BNM's monetary policy stance, to settle money market transactions and to transfer scripless securities (e.g. government debt papers).

RENTAS is considered a Systemically Important Payment System (SIPS) as defined by the Bank of International Settlements. A SIPS is defined as "a payment system which has the potential to trigger or transmit systemic disruptions." Basically, the economy is screwed if these systems go bust, even for a short while.

In 2016, BNM reported that RENTAS maintained a high system availability of 99.9%. Steady.

II) National Electronic Cheque Information Clearing System (eSPICK):

Malaysia's national cheque clearing house. The purpose of the system is to clear and settle payments by cheque. Introduced in 2008, the eSPICK system removes the need for physical movement of cheques by using an electronic system for clearing and payment. This means that less urbanised areas such as small towns in East Malaysia or North Peninsular Malaysia would be able to clear their cheques faster. The system usually takes about T+1 days to clear and settle.

III) Interbank Giro (IBG)

If you're a Malaysian resident, you are likely to have used IBG to transfer funds between banks. The system allows electronic payments between banks for a small fee (MYR0.10, or about US$0.025). Clearing and settlement occurs throughout the day in batches, depending on what time the payment instruction is made. IBG (and electronic funds transfers in general) serve an important function in BNM's efforts to reduce cash and increase electronic payments. More on that in a future post, perhaps.

IV) MyDebit

MyDebit is Malaysia's domestic debit card scheme. Most of us are very familiar with the international card schemes, that is, Visa, MasterCard and American Express. MyClear runs the MyDebit scheme as an alternative to these international card schemes. Some other countries have their own domestic debit card schemes (e.g. Singapore (NETS), India (RuPay), Japan (JCB), China (China UnionPay). In Malaysia, all ATM cards issued by banks are able to be used at point-of-sale terminals for payment via the MyDebit scheme.

Check out the MyDebit logo in the new CIMB-issued debit card above. The MyDebit logo is visible with either the Visa or MasterCard logo, indicating that transactions made are able to be processed by the MyDebit scheme.

Lets turn to Malaysian Electronic Payment System (MEPS).

MEPS has been around since 1996, and has supported the development of the payment systems landscape in Malaysia. MEPS is a consortium that is owned equally by 12 local banks. They currently provide the following key operations:

I) Shared ATM Network (SAN)

The SAN is MEPS' ATM switch that enables users like us to access our funds at any participating banks' ATMs. The SAN allows other facilities such as interbank funds transfers, credit card and loan repayment and more.

Of course, the SAN underpins the basic functions such as balance enquiry and cash withdrawal between banks.

II) Interbank Funds Transfer / Instant Transfer (IBFT)

IBFT is an interbank funds transfer system (similar to IBG), but in real-time, using the SAN switch. A payer who sends a payment instruction to a payee will have his funds debited immediately, while the payee would simultaneously see his account being credited in real-time.

The cost for such a convenience is MYR0.53 (US$0.12), including GST. Additional features include account verification to ensure that the payer has the assurance of sending to the correct recipient.

IBFT adoption has increased rapidly in recent years, in line with BNM's efforts to increase e-payments. According to the FSPSR 2016, IBFT transactions over the past four years grew at an average annual rate of 90.4% in value and 71.9% in volume.

III) Credit Card and Loan Repayment

If you have a loan or a credit card account with Maybank, and you wish to pay your monthly installments from your CIMB account, you can do that via IBFT or the ATM network. These services ensure convenient and seamless e-payment experience for the customer.

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This is currently the status quo. However, expect changes in the future to some of the features of the services listed here as the payments technologies evolve in accordance with consumer needs and as BNM continues its efforts to increase the adoption of e-payments.

As mentioned at the beginning of the post, MyClear and MEPS have been merged to form PayNet. It's a logical move to streamline the two main payment operators in the country to one entity. However, it's too early to gauge how this will play out in the landscape here, but worthwhile to follow nonetheless.

Till then and thanks for sticking around!

Source:

About MyClear
http://www.myclear.org.my/about-myclear.html

About MEPS
http://www.meps.com.my/meps/about-meps/corporate-profile-2

Bank Negara Malaysia Financial Stability and Payment Systems Report 2016
http://www.bnm.gov.my/files/publication/fsps/en/2016/cp06.pdf

Bank of International Settlements - Glossary of Terms Used in Payments Systems
http://www.bis.org/dcms/glossary/glossary.pdf?scope=CPMI&base=term

Governor's Keynote Address: "Dawn of a New Era in Malaysia's Payment Systems"
http://www.bnm.gov.my/index.php?ch=en_speech&pg=en_speech&ac=734&lang=en

Press Release on PayNet Sdn Bhd
http://www.myclear.org.my/news-coverage/2017/BNMs-PayNet-to-replace-payment-infrastructure-operated-by-MEPS-and-MyClear.html