Kuala Lumpur, 4 June 2018 – IDEAS has today published “Payment Card Reform Framework (PCRF): A Policy Evaluation Study”, written by Dr Teo Wing Leong of Nottingham University. IDEAS hosted a Roundtable Discussion attended by industry players, academics and researchers to discuss the report.

Bank Negara introduced the PCRF to slow the increase in interchange fees and promote wider use of card payments over cash. A key measure of the PCRF is the cap on interchange fees for credit and debit cards.

Presenting his report, Dr Teo Wing Leong noted that although the use of debit cards in Malaysia had grown since the PCRF was introduced, the total number of transactions in 2017 was 83.7 million below the target set by BNM. Dr Teo argued that government intervention to cap fees may not be the best approach and the market should play a more central role: “setting ceilings on interchange fees is a step that in itself creates conflicts and inconsistency within the economics of the electronic payment system and is likely to have a limited impact and chance of success in achieving the objectives.”

Dr Teo went on to recommend that “BNM to reorient their approach to become less interventionist, appreciate the market dynamics and to concentrate on steps that are effective and consistent with the economics of the payment system. Government should introduce policies that more directly encourage the use of e-payments furthering the BNM policy objectives to achieve cashless economy”.

In response to Dr Teo’s paper, BNM have argued that the PCRF has been successful in preventing indiscriminate increases in interchange fees and this has stopped prices going up. They have also argued that the PCRF has promoted greater competition in the payment market.

Attendees at the IDEAS Roundtable agreed that the objectives of PCRF are well intended but there was disagreement about its impact.  The policy recommendations that came out from the roundtable included:

(1) debit and credit cards need to be separated when formulating policy;

(2) The government needs to set a tone in a cashless economy environment by adopting e-payments;

(3) BNM could consider temporary tax incentives for SMEs to encourage the use of e-payments; and

(4) All relevant costs need to be included in the computation of recommended interchange fees and which costs are currently included should be reviewed.

The roundtable involved experts from University of Malaya, University of Nottingham, Payment Network Malaysia (PayNet), Mastercard, American Express, RHB Bank, CIMB Bank, US-ASEAN Business Council, iPay88, and the World Bank.

The IDEAS policy paper, along with a response from BNM, can be found here.

Interchange fees are a fee charged by banks that cover the cost of handling and credit risk inherent in a bank credit or debit card transaction.