Policies, Platforms, and People: BNM Highlights the Key to Malaysia’s Digital Future

Policies, Platforms, and People: BNM Highlights the Key to Malaysia’s Digital Future

by March 9, 2023

Digitalisation has been pegged as a key attribute to spur economic recovery in Malaysia, and is being touted as a major force for continued growth in the latest World Bank Malaysia Economic Monitor report released last month.

Titled ‘Expanding Malaysia’s Digital Frontier’, the study projected the country’s economic growth to expand by 4% this year, amid an expected slowdown in external demand and following a stronger-than-expected recovery of 7.8% in 2022. 

But economic gains in Malaysia can further be realised by seizing upon the advantages of digitalisation, according to Bank Negara Malaysia (BNM) Deputy Governor Datuk Abdul Rasheed Ghaffour, in his address at the launch of the latest Malaysia Economic Monitor published by the World Bank.

Payments, personalisation pushing financial digitalisation in Malaysia

Datuk Abdul Rasheed outlined the possibilities that digitalisation opens up for Malaysia, noting the widespread use of digital tools in daily lives. He singled out digital payments, which have quadrupled in the past decade from 49 digital transactions per capita in 2011 to over 221 transactions per capita in 2021, and is on track to exceed 400 transactions per capita by 2026.

“The World Bank Global Findex data showed that about 5 million Malaysians made their first digital merchant payment after the COVID-19 pandemic began,” said Abdul Rasheed. “This rapid rise of digital finance and mobile payment platforms has made financial service much more accessible and usable almost anywhere, any time. This is invaluable particularly for those in remote and geographically underserved areas.” 

Along with individuals, digital technology also spurred financial institutions and businesses both during and in the aftermath of the pandemic. Along with sharp upticks in digital adoption for things like payment services and mobile apps to make their products more accessible, both the FSI and consumer businesses redoubled efforts on personalised offerings and services, in line with what consumers are increasingly demanding.

Benefits, but also challenges digitalisation present across Malaysia

Many incidents of local merchants, long used to a brick-and-mortar approach to doing business, pivoting to digital solutions and business models emerged in the last couple of years. Relief in the form of programs and financial aid were often offered via digital platforms too, such as those offered by Grab and Boost for their own merchants as well as small businesses.

Even traditionally fast to innovate, but slow to adopt sectors like banking and insurance were taking advantage to offer new digitised products and operational enhancements. Digital lending schemes took off, and innovative models like buy now, pay later became mainstream. 

And these are just the tip of the proverbial iceberg. “If Malaysia can harness the vast possibilities opened up by the digital revolution, we can leverage technology to address many of the major challenges we face as a society,” said the deputy governor, citing managing the cost of living crisis, supplementing labour efficiency with tech, and enhancing social protection for vulnerable groups.

But the rapid onset of digitalisation has also presented challenges of its own, such as the uneven availability of broadband internet in Malaysia, which power access to most online-based financial services. 

Just as industries pivoted to online, so too did criminal syndicates. Nearly RM600 million in losses were recorded in 2022 due to cybercrimes, with online fraud the most reported cyberthreat incidents revealed by Cybersecurity Malaysia at more than four thousand reports.

The rise in evolving cyberthreats has prompted the federal government to make fraud prevention a key focus to be overseen by the National Scam Response Centre, BNM, and even individual banks who are already rolling out ‘kill switches’ that enable account holders to manually cut off their accounts when suspicious activity is detected.

Policies, Platforms, People

BNM’s Abdul Rasheed said that Malaysia needs to maximise on the upsides of digitalisation, and pointed to both the National Digital Economy Blueprint and the central bank’s own Financial Sector Blueprint as paving the way for better digital finance readiness in the country.

The deputy governor spoke of the three P’s: policies, platforms and people. Smart policies are needed to facilitate innovation and entry of new players into the nation’s financial sector. The entrance of digital banks over the next few years will further push competitive digital financial inclusion, and the licensing regime for digital insurers and takaful operators will be finalised by this year, according to Abdul Rasheed.

The country’s Regulatory Sandbox will also be enhanced to “to facilitate testing of more innovative digital financial solutions”, and thereby enable more digital-first financial services and options for Malaysians – empowering greater access and financial inclusivity.

Digital infrastructure, or platforms, would also be value-added advantages for the long-term. Among the advancements BNM is advocating for are a future-proofed open data ecosystem, providing the foundation for seamless data-sharing to boost innovation and “improve real-time decision-making”.

The country will also need robust Digital Identity infrastructure as more and more systems become digitalised. And as more cross-border payment linkages become commonplace regionally and globally, Abdul Rasheed believes that continuous efforts must be made to keep local payment infrastructures up to date, not just relying on existing models such as the QR code-based instant payment systems that are available right now.

Finally, having a future-ready workforce equipped with crucial digital skills will be integral, as digitalisation is expected to add up to 500,000 new jobs in Malaysia by 2025 and contribute towards increased labour productivity. 

BNM will look to contribute to labour market policy reviews that will complement national level initiatives such as MyFutureJobs that aim to reskill workers whose jobs become obsolete or replaced by digitalisation.

While digital financial literacy is on the rise, thanks to strongly-promoted efforts such as the national QR e-payments initiative DuitNow or campaigns endorsing e-angpao and e-duit raya distribution over cash, digital financial fraud is also rising at a comparable level.

 “A vibrant digital economy must be supplemented by consumer awareness and education efforts,” pointed out Abdul Rasheed, adding that raising consumer awareness will be just as critical to tackling scams as multi-agency efforts like the National Scam Response Centre.

“Building a digital future is the work of an entire ecosystem,” the deputy governor concluded. “Just as all parts come together to form a collective whole, we must strive together as a whole-of-nation to formulate solutions for a digital Malaysia.”