Financial Process Exchange, known as FPX, is a Malaysia-based payment method that facilitates online transactions. Launched in 2004, FPX is a real-time payment solution that allows customers to complete purchases online using their bank credentials. This service connects directly with participating Malaysian banks for secure and immediate fund transfers from the buyer's account to the merchant's account.

Managed by Payments Network Malaysia (PayNet), FPX is a gateway that links bank accounts with online service providers or merchants. It's widely used for a variety of online transactions such as e-commerce purchases or bill payments. The total transaction value of digital payments in Southeast Asia was projected to hit $287 billion in 2024, emphasising the demand for payment methods like FPX.

We'll cover what businesses need to know about FPX, including how it works, where it's commonly used and how to set it up as a payment method.

What's in this article?

• How does FPX work?
  
• Where is FPX used?
  
• Who uses FPX?
  
• Benefits of accepting FPX
  
• FPX security measures
  
• Working with FPX
  
• Alternatives to FPX
  

How does FPX work?

FPX is a real-time electronic fund transfer system in Malaysia that provides a streamlined, secure method for online transactions. FPX connects customers' bank accounts with merchants' payment systems within a secure and user-friendly framework.

Here's a step-by-step overview of how payments are processed via FPX:

• Selecting a payment method
  FPX integrates with the payment systems of various businesses' websites, which means that customers can select it as their payment method during the online checkout process. After customers have selected FPX to pay for their goods or services, they're prompted to select their bank from a list of participating banks.

• Logging in to the banking portal
  After customers have selected their bank, FPX securely redirects them to their online banking portal, keeping banking details confidential from the merchant. Customers then log in to their online banking account using their regular credentials. This process varies by bank, but often includes multiple layers of authentication.

• Authorising payment
  Once customers have logged in to their bank account online, they can authorise the FPX payment by reviewing the payment details (such as the amount and payee) and confirming the transaction. Some banks may require a secondary form of verification, such as a one-time password (OTP), to finalise the transaction.

• Confirming payment
  After the payment has been authorised, funds are debited from the customer's account in real time and transferred to the merchant's account. FPX then sends an immediate payment confirmation to both the customer and business, allowing the business to process the purchase and proceed to fulfil the order.

Where is FPX used?

FPX is primarily used in Malaysia, where it is a popular online payment method. FPX's success in Malaysia is closely linked to the country's digital-savvy customer base, supportive regulatory environment and the evolving needs of its e-commerce sector. As Malaysia advances its digital economy, FPX is positioned to remain a key player in online payments.

In Malaysia, there's a growing preference for online banking due to increased internet usage and a tech-savvy population. Consumers prefer the security and ease of direct bank transfers for online purchases. As FPX integrates with existing online banking systems, it's a top choice for Malaysian online shoppers.

The growing e-commerce market in Malaysia, driven by an increasing number of online retailers and marketplaces, has created a strong demand for reliable online payment methods such as FPX. Businesses have swiftly adapted to new digital technologies, and FPX is a reliable way for these businesses to accept payments, reduce reliance on cash and simplify transaction processes. Small and medium enterprises (SMEs) find FPX attractive because of lower transaction costs than traditional credit card payments, and businesses of all sizes appreciate FPX's capacity to efficiently handle high-volume transactions.

Malaysia's supportive regulatory environment has also influenced FPX's popularity by promoting a cashless economy. Initiatives such as the Malaysian Digital Economy Blueprint and Bank Negara Malaysia's efforts enhance digital payment ecosystems, nurturing FPX's growth while ensuring that it complies with industry security standards.

While predominantly used in Malaysia, FPX has the potential to expand into other Southeast Asian markets with similar digital banking infrastructure and consumer behaviours. But this expansion hinges on regulatory agreements and the integration of banking systems across borders.

Who uses FPX?

• E-commerce and retail businesses
  FPX is a popular payment method for online shopping and retail transactions in Malaysia, offering an efficient and secure payment solution that improves the online shopping experience.

• Service providers
  Various service providers, including utilities and subscription-based services, use FPX to process bill payments and subscription payments. This convenient system allows customers to pay their bills directly from their bank accounts, simplifying recurring payments.

• SMEs (small and medium enterprises)
  FPX is an attractive option for SMEs in Malaysia. The low transaction fees and real-time payment processing help SMEs keep up-front costs in check and maintain a healthy cash flow.

• Digital customers
  FPX appeals to a wide range of customers making purchases online. This includes individuals who are tech-savvy and prefer online banking, those who are security-conscious and cautious about sharing credit card information, and those who prefer not to use credit cards at all and consider FPX a suitable payment alternative. FPX supports more than 20 banks across Malaysia, making it a versatile payment option for customers with different banking preferences.

Benefits of accepting FPX

Businesses that integrate with FPX as a payment method may see the following benefits:

• Broader customer base
  Businesses can access key customer segments by offering FPX as a payment method. These segments include customers that prefer or exclusively use FPX for online transactions, customers who do not have or prefer not to use credit cards, and customers across the wide range of banks integrated with FPX.

• Improved cash flow
  FPX transactions are processed in real time, meaning that funds are transferred from the customer's account to the business's account almost instantaneously. This swift movement of funds improves cash flow management for businesses.

• Lower transaction costs
  FPX typically charges lower transaction fees compared with traditional credit card transactions. This can be particularly beneficial for SMEs operating with tighter margins.

• Strong transaction security
  FPX's secure framework can reduce the risk of payment fraud and unauthorised transactions. This security is important for building customer trust. When customers feel secure in their transactions, they are more likely to return, increasing customer loyalty.

• Simplified payment process
  Businesses that integrate with FPX may experience a simplified online payment process that improves customer experience and reduces the administrative burden associated with managing payments. This allows businesses to focus more on core activities.

• Easy setup
  FPX is easily integrated into online payment platforms and has low maintenance requirements. Businesses can add FPX to their online payment options without incurring additional up-front costs or overhauling their technical setup.

• Access to customer insights
  FPX's transaction data can provide businesses with valuable customer insights, such as payment patterns, peak transaction times and buyer preferences. These insights can inform business strategies and decision-making.

• Reduced payment declines
  Since FPX transactions are authenticated and directly debited from the customer's bank account, payments are less likely to be declined for reasons like credit card limits. This increases transaction success rates.

FPX security measures

FPX employs the following sophisticated security measures to ensure the safety and integrity of its transactions:

• Advanced authentication
  FPX uses a highly secure standard of authentication and certification for each transaction, reducing the risk of unauthorised access and fraud. The authentication process relies on online banking portal's security protocols by requiring customers to log in to their online banking accounts before transactions are approved.

• Encryption
  FPX employs advanced encryption to protect financial data during transactions. This encryption safeguards personal banking details during the transaction process, making it extremely difficult for unauthorised parties to intercept or decode the information during transmission. FPX does not store any banking credentials and instead facilitates direct bank-to-bank transactions.

• Unique transaction IDs
  Every FPX transaction is assigned a unique transaction ID that helps both customers and businesses easily trace a specific transaction in cases of discrepancies or disputes. These unique IDs add transparency and accountability.

• Message signature generation
  FPX uses an asymmetric (private key) cryptography mechanism for signing transactions, which means that messages are signed based on key fields rather than the whole message. The generated signature is then included in the message header, adding another layer of security. This method, particularly the use of the RSA-SHA1 Public Key Signature Algorithm, ensures the data has not been tampered with and comes from a legitimate source.

• Continuous security updates
  Certain banks have implemented additional security measures for FPX transactions. For example, as of March 2023, CIMB requires SecureTAC approval for all FPX transactions above 100 Malaysian ringgit (MYR). CIMB has also introduced a "kill switch" feature that allows users to immediately freeze their accounts in case of suspected fraudulent activity.

Working with FPX

To start accepting FPX payments, businesses need to have their own website or mobile app that is registered with FPX or integrate with a gateway that connects to FPX. They also need to have a business bank account for crediting payments made by customers. Once businesses have met these requirements, they need to complete the steps below to set up FPX as a payment method:

• Select an acquirer: Choose a preferred acquirer from FPX's list of participating acquirers. These acquirers facilitate the integration process with FPX.

• Complete a Merchant Registration Form (MRF): Complete the FPX MRF, which you can obtain from the appointed seller bank or acquirer.

• Submit MRF for approval: Submit the completed MRF to the seller bank or acquirer for verification and approval. Once approved, you will be provided with a unique Exchange and Seller ID for the test environment. You'll also receive a link to access the FPX Exchange merchant portal and download the integration kit or documents.

• Complete system integration: Using the guidelines provided, start the integration process and perform System Integration Testing (SIT) and User Acceptance Testing (UAT). After completing SIT and UAT, the seller bank or acquirer sends a UAT sign-off to MyClear to issue the Production Exchange and Seller ID.

• Configure for deployment: Configure the Production Exchange and Seller ID for deploying FPX and to go live.

• Integrate with chosen payment gateway: For businesses using payment gateways, enable FPX in gateway settings and integrate it into the website or app. Businesses using Stripe as a payment gateway will then need to accept the FPX terms of service, which requires an activated Stripe account. More detailed instructions on integrating FPX with Stripe are available here.

• Review transaction parameters: FPX transactions have parameters that businesses should review. For example, the maximum transaction limit is typically 30,000 MYR per transaction for individual banking accounts, though this might be subject to the customer's individual internet banking limit with the bank.

For more detailed information and guidance on the registration process and setup, businesses can refer to the resources provided by FPX on their official website or seek assistance from financial institutions like OCBC Bank.

Alternatives to FPX

Businesses in Malaysia have multiple payment gateway options to choose from. Some of these payment gateways integrate with FPX as a payment method, and some act as an alternative payment solution.

When choosing a payment gateway, businesses operating in Malaysia should consider their target market, industry-specific concerns, transaction-fee preferences and integration capabilities. Each payment gateway has different features, fee structures and integrations, catering to different business needs. Larger, more established businesses in Malaysia might opt for comprehensive solutions with robust support, while startups and SMEs might prefer other platforms for their affordability and ease of use.

Stripe is a global payment solution that supports FPX, credit and debit card payments in Malaysia. Stripe integrates with various e-commerce platforms and is a developer-friendly solution suited for businesses that need a customisable payment flow. To find out more about Stripe's suite of payment solutions, start here.