Chapter 5 – Bank Services, Electronic & Digital Banking

Remittance

• Definition: The transfer of funds by a foreign worker to their home country, or generally, any transfer of funds to settle obligations or send money abroad. It is a vital component of global financial flows, often supporting families and national economies.

• Main methods:

  • Cashier’s Order: A payment instrument issued by a bank on behalf of a customer, payable to an identified beneficiary. It is local, prepaid (funds are debited from the customer's account immediately), and non-negotiable, meaning it can only be paid to the named payee and cannot be endorsed to another party. Often used for large, secure payments where a bank's assurance is required.

  • Demand Draft: Similar to a cheque but issued by a bank. It can be local or foreign, prepaid, and is presented at the drawee bank for payment. Unlike a cheque, a demand draft cannot be dishonored (bounced) because the funds are already with the issuing bank. Commonly used for inter-city or international payments where quick clearance is not the primary concern.

  • Telegraphic Transfer (TT): The fastest method for fund transfers, available for both local and foreign transactions. Funds are transmitted electronically via secure networks like RENTAS (Real Time Electronic Transfer of Funds and Securities) for local interbank transfers in Malaysia, or SWIFT (Society for Worldwide Interbank Financial Telecommunication) for international transfers. It is highly reliable due to real-time processing and direct bank-to-bank communication.

  • Online Transfer: Funds are transferred through an internet banking portal. For interbank transfers, this often utilizes Automated Clearing House (ACH) networks or local real-time payment systems, enabling users to send money from one bank account to another conveniently from their computer or mobile device.

  • Standing Instruction: A recurring payment order given by a customer to their bank, instructing the bank to automatically make fixed payments at regular intervals (e.g., monthly rent, loan repayments). This improves the timeliness and convenience of regular bill payments, reducing the risk of missed deadlines.

  • SWIFT (Society for Worldwide Interbank Financial Telecommunication): A global, secure messaging network that financial institutions use to send and receive information, such as money transfer instructions. SWIFT assigns unique 8- or 11-digit Business Identifier Codes (BICs) to financial institutions. It transmits payment orders, not the actual funds, which are settled through correspondent banking relationships.

Retail Payment Systems

• eSPICK (Electronic Share Payment via Interbank Cheque Clearing System): An image-based cheque clearing system that digitizes the process of cheque collection and settlement. This allows for next-day funds availability for cheques deposited by a certain cut-off time, significantly speeding up the traditional clearing cycle and reducing manual handling.

• Shared ATM Networks (MEPS SAN, HOUSe): Collaborative networks (like MEPS SAN in Malaysia or HOUSe for specific banks) that allow customers of participating banks to access cash and banking services (e.g., balance inquiry, fund transfer) from any ATM within the network, regardless of their own bank. This enhances accessibility and convenience for users.

• Cash Deposit Machine (CDM): A self-service terminal that enables customers to deposit physical cash directly into their bank accounts. These machines provide an instant credit to the account and often offer a receipt, streamlining cash handling for both individuals and businesses.

• POS devices & EFTPOS (Electronic Funds Transfer at Point of Sale): POS devices are terminals used by merchants to process in-store electronic payments. EFTPOS refers to the system facilitating these transactions, enabling immediate transfer of funds from the customer's account to the merchant's. These systems offer lower transaction fees compared to cash handling, provide instant payment confirmation, and ensure transaction security through encryption.

• Interbank GIRO (IBG) & Direct Debit: IBG is a system for bulk and recurring credit transfers (e.g., salary payments, bill payments) between different banks. Direct Debit is a pre-authorized payment method that allows a payee to collect funds directly from a payer's bank account for recurring or variable payments, using models like eMandate (digital authorization) or an agent model (third-party facilitator). Both streamline collections for businesses and individuals.

• Payment Gateway / FPX (Financial Process Exchange): A service that authorizes online payments for e-commerce transactions. It acts as an intermediary between the merchant's website and the acquiring bank, securely transmitting transaction information. It uses SSL encryption for data security and involves a multi-step settlement process from authorization to clearing and final settlement of funds.

• DuitNow: A real-time payment network in Malaysia that enables instant transfers using easy identifiers like mobile numbers, NRIC/passport numbers, or business registration numbers (ID proxy payments). It also supports QR payments (scan-to-pay) and Request payments. DuitNow ensures interoperability between different banks and e-wallet providers, promoting a seamless payment experience.

Retail Payment Instruments

• Debit Card: A plastic payment card linked directly to a customer's checking or savings deposit account. When used for purchases, funds are immediately deducted from the account. It offers no credit and transactions are typically PIN-based for security, requiring the user to enter a Personal Identification Number at the point of sale.

• Credit Card: Offers a revolving line of credit to the cardholder, allowing them to make purchases up to a certain limit and repay the amount later. Interest is charged on outstanding balances, typically at tiered finance rates (e.g., 15–18% p.a.) depending on the card type and applicable regulations. Most credit cards also provide a cash advance option, allowing cardholders to withdraw cash against their credit limit, usually at a higher fee and interest rate.

• Charge Card: Similar to a credit card but requires the full balance to be paid monthly, typically within a short grace period after the statement date. Unlike credit cards, they generally do not carry over balances. Charge cards often come with higher fees but also offer prestige perks and premium benefits, catering to frequent travelers or those seeking exclusive services.

• Biometrics: Authentication methods that use unique biological characteristics of individuals for verification. Examples include fingerprint recognition, face recognition, iris scans, and voice recognition. Biometrics offer stronger security (as they are difficult to forge) and faster log-in experiences compared to traditional passwords or PINs.

• Digital Signature (PKI - Public Key Infrastructure): A cryptographic technique used to verify the authenticity and integrity of digital documents or messages. It works by taking a hash of the document (a unique digital fingerprint) and then encrypting it with the sender's private key. The recipient can use the sender's public key to decrypt the hash and compare it with a newly generated hash of the received document. If the hashes match, the document is original and unaltered; otherwise, it is invalid if altered.

• Electronic Money (e-money) / Digital Tokens: Digital representations of value stored electronically or on a device, accepted as a means of payment by parties other than the issuer. Digital Tokens can be blockchain-based value units, encompassing various forms like cryptocurrency tokens (e.g., Bitcoin, Ethereum) which are decentralized, or Non-Fungible Tokens (NFTs), which are unique digital assets representing ownership or proof of authenticity of a specific item or content.

Retail Payment Channels

• Digital Banking: An overarching term encompassing all electronic channels through which banking services are delivered. It serves as an umbrella for online, mobile, and other electronic channels, offering customers various ways to interact with their bank digitally.

• Payment Gateway (FPX): An online payment channel that facilitates secure electronic transactions between customers and merchants, as described previously.

• Mobile Banking apps: Dedicated software applications for smartphones or tablets that allow users to perform banking transactions and manage accounts on the go.

• Mobile Payments / e-Wallets: Systems that enable payments via mobile devices, often through e-wallets which securely store payment information and allow for quick, often contactless, transactions at physical points of sale or online.

• Online Banking: Web-based portals accessed via a browser that provide a comprehensive suite of banking services from a desktop or laptop computer.

• ATM / CDM: Physical terminals (Automated Teller Machines and Cash Deposit Machines) that serve as self-service channels for various cash and non-cash banking transactions.

• Point of Sale terminals: Physical devices located at merchant locations where customers can swipe, insert, or tap their cards to make electronic payments.

Digital Banking Essentials

• Digitizes end-to-end branch services: Digital banking transforms traditional branch operations into online accessible services, offering full banking functionalities, from account opening to loan applications, accessible 24/7.

• Online Banking: Refers specifically to banking services accessed via a web browser. It allows users to perform various transactions such as deposits, fund transfers, bill payments, and even product applications (e.g., applying for loans, credit cards) through a secure web portal.

• Mobile Banking: Refers to banking transactions via phone or tablet. This can be done through SMS/USSD (Unstructured Supplementary Service Data) based services for basic transactions or more commonly through dedicated mobile banking apps. The key advantage is anywhere use and convenience, while disadvantages include risks associated with device loss (potential unauthorized access if not secured) and susceptibility to scams (e.g., phishing attacks via malicious apps or links).

• Mobile Payment vs. Mobile Banking: While both involve mobile devices, Mobile Payment primarily focuses on monetary transactions using an e-wallet or payment app to facilitate purchases. Mobile Banking, on the other hand, offers a full range of banking services beyond just payments, including account management, balance inquiries, statement viewing, loan applications, and investment management.

FinTech Overview

• Meaning: FinTech is an abbreviation for financial technology, referring to technology-driven financial services innovation. It encompasses new technologies that aim to improve and automate the delivery and use of financial services.

• Key verticals: The major sectors within FinTech include:

  • Payments: Innovations in how money is exchanged (e.g., mobile payments, real-time payments).

  • Lending/BNPL (Buy Now, Pay Later): New models for providing credit, including short-term installment plans.

  • E-Wallets: Digital platforms for storing, managing, and transferring funds.

  • InsureTech: Technological innovations designed to improve the efficiency of the insurance industry.

  • WealthTech: Technology applied to investment and wealth management, including robo-advisors.

  • Blockchain/Crypto: Distributed ledger technologies and cryptocurrencies.

  • Remittance: Improving cross-border money transfers.

  • Islamic FinTech: FinTech solutions designed to comply with Sharia principles.

  • RegTech: Technology aimed at streamlining regulatory compliance.

  • Digital Banking: Fully digital banking operations without physical branches.

  • AI/Data: Use of artificial intelligence and data analytics for financial decision-making and services.

• Trends:

  • Mobile banking transaction values now exceed internet banking in SEA (Southeast Asia): This trend highlights the increasing preference for mobile devices for financial transactions due to convenience and widespread smartphone adoption, making mobile the primary channel for digital banking.

  • BNM (Bank Negara Malaysia) regulating BNPL under forthcoming Consumer Credit Act: This indicates a move towards formalizing and safeguarding the rapidly growing Buy Now, Pay Later sector, ensuring consumer protection and responsible lending practices.

  • \text{5} new digital banking licences granted; focus on inclusion (e.g., Boost–RHB consortium): The issuance of new licenses reflects a push for greater financial inclusion, aiming to serve underserved segments of the population. Consortia like Boost–RHB leverage the strengths of both technology companies (e-wallet provider) and traditional banks.

  • Malaysia targets global leadership in Islamic FinTech; large Islamic capital market and active P2P (Peer-to-Peer) financing, payment, BNPL, investment platforms: Malaysia is strategically positioning itself as a hub for Sharia-compliant financial technology, leveraging its established robust Islamic financial ecosystem. This includes the development of innovative P2P lending platforms, payment solutions