On Dec 23, Bank Negara released the Payment Card Reform framework on its website. Among the many measures, some salient points stood out.

> Card terminals will need to be increased from 220,000 to 800,000 by 2020. A portion of them will need to be wireless and contactless.

> Contactless terminals will make up some 30% of all terminals.

> All debit cards have to be contactless enabled. Thus, all debit cards have to be recarded by 2017

> Debit card transactions to increase 10-fold by 2020. Consumers can expect great debit card offers as merchants encourage its use.

> Debit card interchange fee will immediately drop to 0.15% for domestic transaction and 0.21% for international transactions versus the average 1%.

> The interchange fee for credit card will be capped at an interim ceiling of 1.1% from an average 1.2% currently up to 2020. It will be brought down to 0.48% by 2021 (if the cost structure remains unchanged).

> All card transactions will move from signature base to PIN based by 2017.

Drop in cardholder rewards and loyalty programmes?

Tan said that Bank Negara had conducted a cost study on the banks’ excess interchange fee revenue. After accounting for the transaction related costs, this excess revenue is used mainly to fund cardholder rewards and loyalty programmes.

“Thus, the revision of the interchange fee rates after the framework, will not impact the banks’ profitability.

“Consumers are also better off as any reduction in the cardholder rewards and loyalty programmes would make payment card acceptance more affordable and lessen the pressure on merchants to pass on the cost by raising the price of goods and services,” he said.

Cardholder rewards and loyalty programmes are funded through the interchange fees, which constitute the main component of the MDR paid by the merchants.

Merchants are likely to recover such cost through higher prices of goods and services.

Consequently, consumers who do not use payment cards may end up subsidising the cardholder rewards and loyalty programmes enjoyed mostly by premium cardholders.