Chapter 1
Introduction
1.0 INTRODUCTION
This chapter will discuss the background of study which will define several challenges faced by consumers in moving towards cashless society. This chapter will also cover the research problems/issues, research objectives, research questions, contribution and the organization of the whole research of this study.
1.1 BACKGROUND OF STUDY
Throughout the course of time, different methods of payment systems have been introduced. Initially, barter system was used where services and goods are exchanged for other services and goods in return. New era is arising. The world are approaching towards a cashless society. According to Radha Gupta (2017), a cashless society could be defined as one characterized by few notes and coins in circulation issued by a Central bank of the country. Being cashless means using credit cards, debit cards, internet banking and e-wallets. As Claudia and Grauwe (2001) define it, cashless society is a regime in which currency issued by the central bank has ceased to exist. All the money is private money issued by banks in the form of deposits or some fancier e-money issued by institutions that are not necessarily banks. Also, a cashless transaction refers to an economic setting whereby goods and services are transacted without cash (Paul and Friday 2012), either through electronic transfer or cheque payment.
In order to move toward cashless society, some challenges are involved. According to the research done by Radha Gupta (2017), he managed to identify some challenges in implementing cashless economy which are hacking, illiteracy and network connectivity. Apart from that, by referring to the research performed by Chijioke Jonathan Olelewe and NwalaUgwunna E. (2014), they discovered that the insecurity of personal data such as names, address, pins, passwords and account balance is one of the challenges in the cashless economy.
1.2 RESEARCH PROBLEM/ISSUE
In Malaysia, the forms of payment system is still dominated by cash payment system. This means when payment is needed to be made, consumers will have to carry cash. The reason this occurs is due to cash giving instant purchasing power to people thus making them rely on the use of cash as means of payment. It is stated by Syahrunizam Samsudin, Touch 'n Go Sdn Bhd's chief executive officer, that 51% of those who use the train in KL, purchase their tokens using cash. This is despite Touch n' Go special offers which are 20% discount on all trips and half-price tickets for those who take the train before 7am. Eighty percent of all payment transactions in Malaysia are still in cash, with 10% on credit cards and 10% online.
Some of the cashless payment options available in Malaysia are credit card, debit card, prepaid cards and contactless payment (Visa payWave). Although these payment options are made available to Malaysians, there are a some of constraints that need to addressed before the country can truly go cashless. Currently, the availability of cashless option as a payment method is very limited. For instance, when purchasing food and beverages at the cafeteria, the only payment method is cash. Putting aside these small-scale operators, it is notable that even certain fast-food joints, convenience stores and health clinics are still only accepting cash. In fact, the cashless options usage appears to be focussed in city areas and within larger retail establishments. Thus, even if Malaysian consumers are equipped with cashless payment services, vendors and merchants will need to adopt the system before the society go fully cashless.
It may appear that majority of Malaysian consumers are adopting cashless systems yet there is a possibility that usage is confined mostly to those who are living in the capital, major cities and towns. Residents of rural areas and outskirts of the county are still very much dependent on cash. Even when the availability of cashless payment options are innumerable, adjusting mind sets and addressing trust issues relating with cashless systems is going to take time.
1.3 RESEARCH QUESTIONS
The research question is:-
1) What are the challenges faced by consumers in moving towards cashless society?
This question will discuss the challenges that will be faced by consumers in
moving towards cashless society.
1.4 RESEARCH OBJECTIVES
Given all the research problems above, the objective of this study is to identify the challenges faced by consumers in moving towards cashless society and to investigate the reasons behind those challenges.
1.5 CONTRIBUTION OF STUDY
The rapid movement of technologies advancement brings a massive improvement in Internet technologies. Cashless payment transaction will be a trend where marketers are required to provide more effort in promoting so that it appeals customers which will then leads to cashless payment becoming a daily method of payment transaction. Yet, there will be some obstacles before the society could go fully cashless.
It is crucial for this study to be conducted as it is going to provide better understanding on the challenges faced by consumers in moving towards cashless society. The findings shall act as supportive data to identify significant challenges and so that effective strategies can be implemented in order to support marketers or financial institutions in promoting cashless payment transaction.
1.6 ORGANIZATION OF STUDY
This research paper is organized into five chapters which is Chapter 1: Introduction, Chapter 2: Literature Review, Chapter 3: Methodology, Chapter 4: Data Analysis and FIndings, and Chapter 5: Discussions, Conclusion and Recommendation.
In Chapter 1 a brief introduction regarding the research topic will be stated which consist of general background on cashless society and several challenges and benefits in moving towards cashless society. The problem statement, research objectives, research questions and significance of study shall be discussed in this chapter.
As for Chapter 2, it will emphasize on literature review that is interrelated to the research topic and framework. On top of that, the testing of the hypotheses developed and discuss all the variables in this research will be included in this chapter.
Chapter 3 consists of the data collection procedures, research sample, measurement scales and approaches of analysing data that emphasize on the methodology of the study. The research setting of information and the approach of executing the research are discussed in this chapter.
Chapter 4 contains the results collected and gained from the survey. Statistical Package for Social Science (SPSS) software will be used to examine all these valuable data. The results will be presented in a table form for better understanding.
Lastly, the discussion and summarisation of the study results will be included in Chapter 5. The implications, recommendations, implications for future reference and research shall be mentioned and concluded in this chapter . Also, this chapter will include and discuss on the limitations and brief summarised theses.
1.7 CONCLUSION
As a conclusion, this chapter provides a summary of this study on challenges faced by consumers in moving towards cashless society. I will first examine the research background and problem statement which will then followed by the research objective and questions. Apart from that, the contribution of the research is also included in this chapter. Chapter 2, which is the next chapter will provide further evaluation on the information provided in this chapter.
Chapter 2
Literature review
2.0 INTRODUCTION
This chapter provide a literature review of challenges faced by consumers in moving towards cashless society. This chapter includes the argument of observed literature review for the research that define the characteristics and term that related to the topic respectively.
2.1 MONEY
Money acts as a channel for financial transactions to be performed. The evolution of money is noticeable beginning from natural money, coin money, paper money and to the current symbolic-system money. Money is any asset that is widely accepted as a means of making payments or settling debts.
Classical economists proclaimed money as a neutral medium of exchange serving as a universal payment instrument, a source of stored value and means of accounting, says Nina Bandelj et al (2017). According to Adam Zwass (2018), money has always been an instrument of accounting, of commerce between individuals and enterprises, the commodity of commodities, the tertium comparationis— and, as such, the universal equivalent in the world of commodities.
Money is essential to the workings of a modern economy, but its nature has varied substantially over time as stated by Michael McLeay et al (2014). Currently, there are various kinds of money that are used in financial transactions. For instance, coins, paper currency, cheques, money orders and others.
In Malaysia, it is the central bank, Bank Negara Malaysia that is responsible to circulate money in the economy while other commercial banks act in the retail payment system. The central bank’s role is very crucial to develop various payment systems, especially the cashless payment systems which include electronic payments contactless payment system and mobile payment system.
2.2 DEFINITION OF CASHLESS SOCIETY
According to Ravi Parmar (2018), the cashless society describes an economic situation in which financial transactions are not made by money in physical notes or coins, but through the transfer of digital information (usually the electronic representation of money) among the transaction parties is done.
Bharat Khurana (2017), stated that cashless society is the concept where transactions involving money take place through digital mode and where there is no or very little use of hard cash. People have began to give cashless transactions a try due to the flexibility it provides in making transactions.
2.3 CHALLENGES OF CASHLESS PAYMENT SYSTEM
There are many hurdles that still need to be overcome to move the cashless system into the mainstream. Although mobile payments are still at a nascent stage of growth in Malaysia, it is expected to gather momentum moving forward, says Bank Negara (2018).
Cyber Security. The current cashless payment method has been target of risk and theft abuse. The recent example is during October, 2016 where 3.2 million debit card details belonging to multiple Indian banks were hacked, Dr. Hanuman Sahai Kumawat et al (2018). It has become increasingly difficult to curb cyber-attacks and the focus needs to also be on drafting a strong legislation to guarantee digital privacy and data security Digital infrastructure is highly vulnerable to cyber-attacks, cyber frauds, phishing and identity theft.
High Merchant Costs. In order for merchants to accept cashless payment, they will require a working Internet connection. Apart from that, they will have to bear with the cost of monthly rental payment for a machine, or a Smartphone that has an application to accept payments. According to Dr Mahesh. U. Daru (2016), on Credit cards, merchants are charged a merchant discount rate (MDR), an inter-bank exchange fee, of 2.5-1.7% per transaction while on debit cards, they need to pay 0.75% per transaction below Rs 2000 and 1%for transactions above Rs 2,000. Bank Negara (2018) also stated that lower-tier merchants who are more cost-sensitive, may continue to prefer to accept cash, which is often perceived to be cost-free despite the hidden economic costs.
Long Setting Up Procedure. Before consumers can use cashless payment system, they are required to set up an account first. This might be considered inconvenient to some as they are required to provide a lot of information before making a payment. After all they can just use cash which requires less time.
Lack of Eligibility. Not everyone with money and intention to pay can make use of cashless payment method. In the present, most of the e-commerce merchants are adopting credit card and debit card as their online payment method. However, in reality, not all potential customers can own credit cards and debit card due to credit history limitations, low income or other reasons. For example, credit cards come with minimum age and credit score requirements, which poses a problem for young and those with poor credit, says Maxime Rieman (2018). For such consumers, this leaves cash as the first and often only option in paying bills, purchasing meals and going to the store. Thus, this will hinder on the development of e-commerce.
Cash use remains remarkably persistent throughout Asia, particularly for low-value transactions. Although cash may no longer be king, it is far from irrelevant. This idea is supported by other recent studies. The Federal Reserve's annual Survey of Consumer Payment Choice which is conducted in 2017 has discovered that cash was still the most popular method of payment in the purchase of retail goods, services and person-to-person transactions. Various factors delay progress towards a cashless society, ranging from access barriers over the role of the informal sector to security concerns and the loss of anonymity. Physical money might be increasingly obsolete for payments due to the digital ecosystem, yet cash is unlikely to disappear in the foreseeable future, says Jonas David et al (2018).
2.4 PAYMENT SYSTEMS IN MALAYSIA
It is obvious that there is a continuous transformation from paper-based payments to cashless form as there is rising trend in the number of cashless payment transactions recorded in 2018. This upward trend is motivated by the demand of consumers for fast, convenient and secure transaction.
Figure 2: Payment System in Malaysia
Source: Bank Negara Malaysia
Based on the figure above,there are two methods of payment systems in Malaysia: RENTAS and Retail Payment Systems. This study will focus on retail payments systems in networks as instruments. ATMs, internet banking and mobile banking are transaction methods that are cashless.
2.4.1 TYPES OF RETAIL PAYMENT INSTRUMENT
Cheques. A cheque is a paper based payment tool. It is a form of written order directing a bank to pay money to the beneficiary. Generally, Based on the market practices in Malaysia, the validity of a cheque is for six months after the date of issuance. The usage of cheques has traditionally dominated Malaysian cashless payments. Regardless of the evolution of other payment instruments, cheques remain an important form of cashless payment.
Credit Cards. A credit credit card allows the owner to purchase goods and services with a credit line given by credit card issuer and the amount will be settled at a later date. Cardholders will be billed on a monthly basis and they would have to bear finance charges or known as interest on the outstanding amount if payment is overdue. For a hefty fee, a credit card can also be used for cash advances at Automated Teller Machines (ATMs) and at respective credit card issuers' counters. Examples of credit card brands are Visa and MasterCard. In July 2008, a tiered pricing structure for credit cards was introduced. The objectives are to promote prudent financial management and instil good financial discipline amongst credit card users. The tiers are as follows:
Tier 1 – Maximum of 15% per annum (those who promptly settle their minimum payment due for 12 consecutive months);
Tier 2 – Maximum of 17% per annum (those who promptly settle their minimum payment amount due for at least 10 months in a 12-month cycle); and
Tier 3 – Maximum of 18% per annum. The Bank had in 2011 introduced new credit card guidelines to inculcate sound financial and debt management among credit card users. The new measures covers eligibility criteria, prudential requirements for non-bank issuers, risk management requirements, pricing and consumer protection.
Charge Cards. The function of a charge card is not that different to a credit card. The difference is that, the outstanding amount must be settled by the charge card holders in full by the due date every month. Charge cards are often associated with prestige thus, the fees are generally higher than credit cards. This is compensated by the differences in terms of benefits as charge cards generally offering more privileges. Its popularity has dropped in Malaysia.
Debit Cards. A debit card can be defined as a payment card where the transaction amount is deducted directly from the cardholder's bank account upon authorisation. In this case, cardholders able to manage their finances in a more effective way and have no worries about late payment penalties, finance charges, and snowballing card debts. On top of that, there is no income requirement to qualify for one. In Malaysia, any individuals who owns a bank account with a domestic bank and has an ATM card can make payments using the card at any merchants displaying the Bankcard logo, as it doubles as a debit card. Also, there are international brand debit cards under the VISA and MasterCard brands as well as cards with both international debit and domestic PIN-based ATM applications.
E-money. Asa payment instrument, e-money contains monetary value that has been paid in advance by the user. This E-money can be used by consumers to purchase goods and services from merchants. When users made a payment using e-money, the amount will be automatically deducted from their e-money balance. There are different forms of e-money which can be broadly categorised as card-based and network-based and are currently accessible via the internet and mobile phones.
2.4.2 TYPES OF RETAIL PAYMENT CHANNEL
Internet Banking. Internet banking provides a swift and convenient process of performing common banking transactions, such as transferring funds from the customers' savings account to their current account, or even to a third party's account. By using Internet banking, customers could also repay their loan and card outstanding amount, make payments to relevant parties, such as utility bills, assessment tax, and others. Consumers only need to have a computer with Internet access, a web browser and a registered account for Internet banking service from their banking institution. Then, they will be able to perform banking and payments from the comforts of their home, office, or virtually anywhere else in the world.
All internet banking transactions are secured to make sure that users' information are safe. Nevertheless, users still have to practice precaution, which include keeping their Login ID, password or PIN confidential; checking that they have logged into the right website; logging-off at the end of each session and clearing the memory cache and history after logging out from the website; and protecting their personal computer from viruses and malicious programmes by installing an up-to-date hackers firewall and a reputable anti-virus program.
Mobile Banking. When it comes to mobile banking, it is almost similar to Internet banking as it provides a fast and convenient way of performing common banking transactions. For the consumers to enjoy the benefits of mobile banking, all they need is a mobile phone that is equipped with the features required by their bank that provides this service. Once they obtained a registered account for mobile banking from their banking institution, they will be able to do your banking transactions from anywhere that has your mobile telecommunication network coverage.
In the beginning of the year 2012, three major banks collaborated with two major mobile network operators had offered a new mobile banking and payment services, MyMobile. With MyMobile, registered users can perform various banking transactions such as fund transfer, bill payments, mobile prepaid reload and credit card repayment at any time and from any location. The advantages of MyMobile are among other, its ability to support fund transfers using the mobile phone numbers of beneficiaries instead of bank account numbers, and it is accessible through all types of phones.
Mobile Payment. Mobile payment allows its user to make payments to selected merchants by using mobile phones. Bill payments and purchase of goods and services are among the cashless transactions that can be made. If consumers want to enjoy the benefits of mobile payments, they have to register and open an account with mobile payment service providers. Non-bank mobile payment services are provided using an e-money account.