MALAYSIA: With online payments surging during the pandemic, the Malaysian regulator is taking measures to regulate e-money, including within an Islamic finance context.
Malaysians have taken to digital channels for payments in 2020 as social distancing rules and national movement restriction measures took effect last year triggered by the global coronavirus pandemic. Bank Negara Malaysia (BNM) data shows that e-wallet transactions surged 131% year-on-year to RM600 million (US$145.95 million) from RM300 million (US$72.98 million) in 2019. In fact, e-money accounts for 33% of total e-payments in Malaysia, with e-money liabilities more than double from RM500 million (US$121.63 million) to RM1.6 billion (US$389.2 million) over the last five years. While the pandemic did catalyze the growth of cashless transactions, the use of e-money has been steadily growing over the last five years regardless, recording a double-digit growth over the period. A significant trend is the evolution of e-money progressing from the traditional stored value cards to network-based solutions such as e-wallets or online accounts.
“Therefore, given the growing prominence of e-money in the e-payments landscape, enhancements to the e-money regulatory framework are needed to ensure e-money continues to be a safe and reliable payment instrument amid the increase in functionalities and evolvement in the enabling technology. It is important to ensure the safety of the e-money funds/float and the soundness of the EMIs [issuers of e-money] in order to mitigate potential risk of loss to customers, as well as to foster public confidence in the use of e-money,” BNM explained in its exposure draft for e-money as viewed by IFN.
The proposed guidance, which is open for market feedback until the 31st July 2021, is designed to ensure the safety and reliability of e-money issued by EMIs as well as to preserve customers’ and merchants’ confidence in e-money transactions. Areas covered include governance, operational and risk management requirements, information technology requirements as well as applicable regulatory processes.
Given Malaysia’s robust Islamic regulatory architecture, the proposed guidelines also accommodate Shariah compliant transactions. BNM outlines Shariah compliant e-money as an Islamic payment instrument structured based on appropriate Shariah contracts, whether tangible or intangible that stores funds electronically in exchange of funds paid to the issuer; and is able to be used as a means of making payment to any person other than the issuer. Islamic EMIs are required to appoint a qualified Shariah advisor as well as run Shariah audits.