Why is Malaysia handing out e-money to almost half its citizens?

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Up to 15m Malaysians will receive a one-time handout of RM30 ($7.30) under a new scheme designed to accelerate consumer and merchant adoption of digital payments.

Announced in the 2020 budget, the first payments were disbursed in mid-January through three selected e-wallets: GrabPay, Touch n’ Go, and Boost. Every Malaysian above the age of 18 who earns an annual salary of no more than RM100,000 ($24,300) is eligible to receive the handout through one of the designated e-wallets.

Officially named the e-Tunai Raykat (People’s e-Cash) initiative, beneficiaries must spend their RM30 ($7.30) before March 15.

Malaysia’s e-money market has developed rapidly over recent years, with 44 licensed e-wallets in operation as of mid-2018, only five of which were offered by traditional banks. According to data from the country’s central bank, Bank Negara Malaysia (BNM), RM2.8bn ($681.2m) was transacted in e-money in the first 10 months of 2019.

Despite this significant progress, e-wallets were only the fourth-most-used payment option for e-commerce transactions in Malaysia, according to a 2019 report by JP Morgan Chase. However, the investment bank projected that e-wallets would be the fastest-growing payment option over the next few years, expanding at a compound annual growth rate of 53% to occupy 16% of the Malaysian payment market by 2021.

The handout scheme is expected to accelerate adoption as Malaysia enters the final year of the BNM’s Financial Sector Blueprint 2011-20, which included a number of targets aimed at creating a cashless society.

Digital transformation agenda

The headline-grabbing e-Tunai Raykat initiative forms part of broader policy measures aimed at the digital transformation of Malaysia. The BNM estimated in 2017 that digital transformation could boost GDP by up to RM561bn ($136.5bn) by 2025.

In an effort to capitalise on this potential, the government included major proposals to boost the digital economy in the 2020 budget.

Notable new initiatives include an investment-promotion package to attract Fortune 500 companies and so-called unicorns – start-ups valued at over $1bn – from around the world. To qualify for tax incentives, foreign-owned companies must invest $1.2bn in Malaysia. The government also allocated RM550m ($133.8m) to grants for 1000 manufacturing and 1000 services companies to automate their business processes.

Malaysia already scores relatively highly on international indicators related to the digital economy, ranking as the second-highest ASEAN member (behind Singapore) in the 2019 editions of both the IMD World Digital Competitiveness Ranking and the World Economic Forum Global Competitiveness Index 4.0.

The former metric assesses the readiness of 63 economies to use digital technologies to drive economic transformation, while the latter evaluates the capacity of 141 markets to adapt to the opportunities and challenges of the Fourth Industrial Revolution.

Economic outlook

Malaysia’s e-money stimulus comes amid warnings that the country may face a year of slowing economic expansion and private consumption as it contends with uncertain external demand, elevated public debt and sluggish wage growth.

In December 2019 the World Bank downgraded Malaysia’s 2020 GDP growth outlook from 4.6% to 4.5% on the back of weak exports and public investment in the third quarter of 2019. Meanwhile, HSBC has predicted a sharp deceleration in the private consumption growth rate, forecasting it will slow from 7.4% in 2019 to 6.4% in 2020, and pointing to six consecutive quarters of declining wage growth as a key factor.

While the ruling coalition has been forced to make hard fiscal choices to address the shortfall in public finances inherited from the previous government, concerns about the cost of living were cited as a reason it lost a by-election by a wider-than-anticipated margin in 2019.

By injecting funds directly into the e-wallets of consumers and demonstrating its commitment to fostering convenient, cashless transactions, the authorities are hopeful that consumers might be tempted to indulge in more discretionary spending.

Shared Prosperity Vision 2030

In an effort to address structural problems and promote sustainable and inclusive economic growth over the longer term, the government unveiled its overarching Shared Prosperity Vision 2030 (SPV2030) late last year. The SPV2030 is a 10-year development roadmap that aims to ensure all Malaysians benefit from the country’s wealth and economic advancement.

“As long as economic disparities exist in the country, some people will feel unhappy and may even reject the government,” Prime Minister Mahathir bin Mohamad told OBG. “We are doing our best to reduce inequality, particularly between urban and rural populations, and between people of different races. It is important for us to address these issues in order to reduce the disparity between wealth and opportunity.”

Lim Guan Eng, the minister of finance, told local media that the e-Tunai Rayjat initiative supports the SPV2030 by reducing barriers to digitalisation and driving financial inclusivity.

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