DIGITAL finance refers to the use of digital technologies to deliver financial services such as mobile banking, electronic payment systems and online platforms. The three biggest areas in the finance industry that have experienced the biggest digitalisation are the payment industry system, the lending system and the e-wallet systems, which make up more than half of the fintech companies in Malaysia.

Malaysians are also rapidly moving away from cash to the use of credit and debit cards. Malaysia is moving rapidly towards a cashless society. In 2024, credit and debit cards expenditure reached RM387 billion.  Although cash remains prevalent, it is gradually losing ground to electronic payments. Consumers are increasingly turning to cashless payments, a trend accelerated in the wake of the Covid-19 pandemic.

According to Bank Negara Malaysia, 68.9% of transactions at physical premises were contactless in 2022, up from 64.6% in 2021. According to Globaldata, a UK data and analytics company, the rise in cashless payments were due to consumer awareness, banks offering contactless debit cards and the expansion of the country’s point-of-sale (POS) network.

Globaldata says debit and credit card spending among Malaysian is projected to rise to RM422.5 billion in 2025, RM459.2 billion in 2026, RM496 billion in 2027, and RM533.1 billion in 2028.

Electronic payments also continued to increase. E-payment adoption among Malaysians grow from 9.3 billion transactions in 2022 to 11.5 billion transactions in 2023, an increase of over 23.7%.

It cannot be denied that digital financial services have many positive outcomes. These include convenience, efficiency and speed, cost-effectiveness, accessibility, and even expanded opportunities for greater financial inclusion.

There are also increased risks. These include a worsening digital divide with vulnerable groups becoming even more isolated from the digital economy. According to the World Bank, 88% of Malaysians were considered the banked population in 2021, which indicates their accessibility to conventional and digital financial services. Twelve per cent of the population, or about four million Malaysians, mostly in rural areas could not access financial services. 

Secondly, there are security concerns. Businesses and consumers face constant threat of cyberattacks including phishing, scams, hacking, and data breaches. In light of the continuous scams and cyberattacks, public confidence in digital banking is generally low. 

Thirdly, digital systems involve the collection and storage of vast amounts of personal and financial data. Business and consumer data are increasingly exposed to the risk of the manipulation of personal data for profits. 

In this age of rapid growth of digital finance, consumers have a right to transparent information and the ability to make informed decisions that supports their wellbeing. The poor practices of financial institutions could have a serious negative impact on consumer wellbeing.

In a global survey by Consumers International in 2023, 57% of consumer bodies cited “lack of transparency” in fees and charges as a significant factor causing lack of trust in digital financial services. 

Unclear or hidden costs could cause consumers taking out loans being unable to understand interest rates, late payment charges or the actual cost of their loans after they have entered into a contract. This could potentially cause serious harm to consumers in the form of unaffordable repayments, financial loss, and over-indebtedness. 

Complex terms and conditions could impact on consumers as they may not understand how their money is protected, their rights and who is responsible if things go wrong. This could harm consumers through financial exclusion, financial loss and the inability to seek redress when things go wrong. 

Unfair and unethical practices could cause barriers to access that is people denied services they can afford, or it could cause over-indebtedness that is when people are given access to services they cannot afford. Unfair and unethical practices can also result in discrimination, exploitation of vulnerability, loss of privacy and security, increased risk of fraud and financial abuse and financial loss. 

Further, service providers with inefficient or unclear complaints or redress mechanisms result in unfairness and injustice to consumers leaving them with financial loss and unable to solve their problems. 

According to Bank Negara, low awareness and trust and low digital financial literacy remain as barriers for some segments in society to adopt and reap the benefits of digital financial services. It adds that enhanced financial literacy, including digital financial literacy ultimately empowers consumers to better take advantage of digital financial services. 

Global consumer movement, Consumers International is advocating for a vision for better transparency in digital finance. The vision is for all consumers to be empowered to make informed decisions about digital finance. Fomca calls on all stakeholders in the digital finance ecosystem to end poor practice and ensure consumer information is transparent, timely and inclusive.

To promote better consumer understanding, information must be transparent, accurate, complete, easy to find and understand, and useful. it must be provided at the most suitable time to support informed decisions. 

Awareness and educational campaigns should be conducted to raise awareness among vulnerable groups – especially low-income communities and the aged population – about the benefits and potential risk associated with digital financial services. The provision of user-friendly information on the use of digital tools,  especially security measures, empowers users to navigate the digital financial landscape more effectively.

Digital literacy programmes should also be offered to equip vulnerable groups with the skills to navigate digital financial platforms.

Robust privacy and data protection measures are essential to safeguard personal and financial information. Consumer education on data security and privacy rights is crucial to enhancing awareness and trust in the digital financial services.

Finally, service providers need to establish effective, timely and robust redressal systems to ensure consumer have access to justice and fairness when they feel that the services provided are unfair or inadequate. That is consumer redress mechanism need to be accessible and provide speedy redress to aggrieved consumers.

To increase trust and confidence in the digital financial system, greater consumer education and empowerment coupled with rigorous measures to mitigate risks must be implemented. – April 22, 2024.

* Paul Selva Raj is Fomca deputy president.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.