Framework to drive debit card adoption

PETALING JAYA: Bank Negara Malaysia will introduce a zero interchange fee scheme for domestic and international debit cards and international prepaid cards, for an interim period of six years to incentivise the acceptance of the cards by the government and its agencies under its payment card reform framework, which will be fully implemented by July 2015.
A cap on interchange fees will be introduced for other transactions and credit cards.
Interchange fees are fees between merchant banks and card issuing banks, which is imputed into the merchant discount rates (MDRs), or fees which merchants pay card issuing banks for enabling them to accept payment cards.
According to a statement issued by the central bank yesterday, the measure will follow a series of other measures to be implemented in phases from Jan 1, 2015, designed to address other distortions in the payment card market in order to promote greater usage and acceptance of cost-effective payments cards.
Domestic and international debit cards and international prepaid cards will have zero interchange fee charged between 2015 and 2020. Post 2020, the interchange fee would be subject to a ceiling determined based on a set of eligible cost components.
Bank Negara said the ceiling on interchange fees, which is reflected in merchant discount rates (MDRs), or fees which the merchants pay the card issuing banks for enabling them to accept payment cards, reduces the likelihood of consumers being surcharged for using payment cards.
Ceiling on interchange fees for credit card has been set at 1.1% from 2015 to 2020 and 0.48% from 2021 onwards.
The ceiling of 1.1% is applicable to payment card network operators who establish a market development fund or 1% for operators who do not do so.
Bank Negara said the ceiling would be lowered based on a pre-determined formula if the yearly industry indicators on the number of point of sale terminals deployed and debit card transactions are not met, in an apparent drive to ensure the increased acceptance of debit cards.
Interchange fee for domestic debit cards have been set for 0.15% or 50 sen + 0.01%, whichever is lower, while international debit and prepaid cards will be charged a maximum 0.21% or 70 sen + 0.01%, whichever is lower.
As a general principle, the interchange fee ceilings for debit card based on its eligible cost components are much lower than that of credit card.
"This principle makes the debit card a more cost-effective payment instrument to facilitate greater card acceptance especially among small merchants," it said.
While the framework looks to curb indiscriminate increase in cardholder fees or the introduction of new card-related fees, Bank Negara did opine that the framework could adversely impact cardholder's rewards.
Commenting on earnings impact on the banks, the central believes it is unlikely to be impacted as the interchange fee revenue after covering the related expenditure to process the transactions, are mainly used to fund cardholder's rewards and loyalty programs anyway.
"As payment card transactions increase, banks, in general, would benefit from cost savings and efficiency gains through a reduction in their cash handling cost," it said.