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Can Singapore catch up in race to go cashless?

In high-tech Singapore, where cashless payment options abound, consumers prefer to fish for physical notes and jiggle coins to pay for goods and services.

Last year, six out of 10 consumer transactions were made in cash here - a huge spanner in the works for Singapore's Smart Nation drive.

In his National Day Rally speech on Sunday, Prime Minister Lee Hsien Loong contrasted Singaporeans' highly connected lifestyle and digital literacy with their unwillingness to go digital when it comes to payment. As such, Singapore lags behind other cities on this front.

Recognising that Singapore has too many different payment schemes and systems that act as impediments, confusing people, he made a call to the industry to "simplify and integrate".

Singapore has to play catch-up with places like China, where everyone in major Chinese cities is scanning a QR code and paying with digital wallets WeChat Pay and Alipay. These digital wallets, linked to the Chinese people's bank accounts, are even accepted at roadside stalls and in taxis. Waiters at restaurants can be tipped in the same cashless way.

Cash may be considered king, but there is a cost to handling it - from the time taken to count it, to storing it securely, and then banking it. Think of the hawker who has to ensure he has cash for change, and needs to take time to count out change for each customer, holding up customers waiting for their food.

Over in India, the government has laid the groundwork for a cashless society following its announcement late last year to demonetise the nation's high-value currency notes. It pushed a national digital funds transfer system, called Bharat Interface for Money, and a biometric identification system, dubbed Aadhaar, to secure transactions. Its goal is to ensure that all Indians, even the rural poor, have access to financial services through digital banking.

 
 

WHY SO SLOW?

In many ways, Singapore is a victim of its own success.

Major banks here - DBS Bank, POSB, OCBC Bank and United Overseas Bank - combined have about 2,000 ATMs islandwide. This means an ATM is within a 500m radius from most people's homes, making cash easily available.

Singapore also lacks the push factors present in China and India.

Indian Prime Minister Narendra Modi's drive to promote a cashless society stems from a political will to eliminate the flow of undeclared "black money" and fake currencies. Electronic money transfers are more traceable and taxable.

Concerns over counterfeit money and the fear of being robbed - not a problem with digital payment systems - drove China's cashless revolution.

In contrast, people in Singapore feel safer with their cash. Also, some had a bad experience with wrong electronic transfer charges and vowed to stay away - at least from its use in certain apps.

Said account manager Kelly Kin, 29, after once having been wrongfully charged by a local ride-hailing app: "I have gone back to using cash in the app ever since."

CONVENIENCE FEES

The biggest incentive for cash use today comes from it being free.

With cash, customers do not have to pay a "convenience fee" - unlike when they use their credit cards. For instance, taxi rides paid with a credit card attract a 10 per cent surcharge.

Even with the Land Transport Authority-owned EZ-Link - which issues the ez-link stored-value cards - its supposedly fuss-free scheme that automatically reloads the value of the ez-link cards comes with a 25-cent "convenience fee" for every transaction. The convenience fee, however, is waived for people who link a DBS/POSB or Citibank credit card to the auto top-up scheme.

Golden Village and Sistic too charge customers at least $1.50 extra for the convenience of buying a show ticket online with e-payment schemes.

ST ILLUSTRATION : MIEL

MERCHANTS' COST

Consumers are not the only ones paying a price for going cashless.

A 3 per cent transaction fee is imposed on merchants for accepting Visa and Mastercard payments. The same fee applies when they accept mobile wallets such as Apple Pay, Android Pay, and Samsung Pay - which are layered on the existing credit card infrastructure.

Other online payment options like PayPal and Stripe charge an even higher transaction fee of 3.9 per cent and 3.4 per cent, respectively.

Business owner Lim Jialiang, 27, said: "You will want people to make payment in cash when a 3 per cent transaction fee hurts your margins."

Arguing for more regulatory intervention to cap such fees, Mr Lim, who sells chocolates at the National Design Centre and at pop- up stores, added: "Cash will be king until banks, Visa and Mastercard accept a lower profit margin."

In the European Union, for instance, a rule introduced in December 2015 allows merchants to be charged no more than 0.3 per cent and 0.2 per cent for accepting credit and debit card payments, respectively. And all consumer- facing credit and debit fees, which can be as high as 20 per cent, will be outlawed from next year in the EU.

In Singapore, merchants typically pay about 3 per cent in credit card fees. Even at a large retail chain like Courts Singapore, the cost of accepting cashless payments at its 14 outlets is now about three times higher than the cost of accepting cash, its Singapore chief executive, Mr Ben Tan, told The Straits Times.

SETTLEMENT DELAYS

The high cost of going cashless is not the only reason why merchants drag their feet over e-payments.

Delay in payment settlements has been a perennial issue for merchants with cash flow concerns.

Singapore's most extensive cashless payment network, dubbed Nets, takes at least a day to settle payments. The 30-year-old system lets consumers insert their ATM cards for direct deductions from their bank accounts.

Interbank Giro, another initiative for direct payment debits from consumers' bank accounts, is also not real-time - requiring at least a day for payments to reach merchants. Credit card transactions too take up to two days to settle.

Fast, a two-year-old online interbank funds transfer system, is the only instant settlement method. But it is "grossly under-utilised", Monetary Authority of Singapore (MAS) managing director Ravi Menon has repeatedly said on several occasions.

Following what The Straits Times understands to be pressure from the MAS, a new instant mobile payment scheme that rides on Fast was launched on July 10. Dubbed PayNow, users need not enter bank account numbers to initiate a transfer on their mobile phone to any bank user.

By year end, a QR code function will also be added to PayNow to allow merchants to accept payments without having to ask customers for their mobile or NRIC number. Customers just need to scan the merchant's QR code to make payments. In his Rally speech, PM Lee said he is looking forward to buying a meal with PayNow at a hawker centre soon.

REGULATORY OVERSIGHT

PayNow with QR code has the potential to be ubiquitous, even among merchants and hawkers, and become the catch-all solution to take Singapore forward.

Its success hinges on the roll-out of a common QR code in Singapore - a work in progress by MAS to unify every payment scheme.

The launch of a common QR code, which PayNow can ride on, is slated for the year-end. Its end goal is for merchants to display just one QR code, which can be scanned by any bank app - DBS PayLah, UOB Mighty and OCBC Pay Anyone - for fuss-free, instant fund transfers.

This initiative could put Singapore ahead of China, where merchants that accept Alipay and WeChat Pay have to display two different QR codes as the two systems do not interoperate.

Regulatory oversight is important for a common QR code in Singapore so that banks, payment networks and e-wallet providers - with conflicting business interests - do not create close-loop systems that can only work with their own apps.

Singapore's payment landscape has suffered from commercial entities dividing and conquering for decades. This gave rise to the problem of merchants accepting one payment option and not another, confusing consumers as a result.

And consider the two most widely used cards, ez-link and CashCard: The former does not work at some carpark gantries, though it is accepted for public transport payments, so motorists still need their CashCards.

Singapore missed the opportunity to go cashless much earlier by standardising the ez-link card as the universal payment card, as Hong Kong did with the Octopus card.

Going forward, Singapore should not let legacy systems and policies hinder its Smart Nation progress.

A version of this article appeared in the print edition of The Straits Times on August 24, 2017, with the headline 'Can Singapore catch up in race to go cashless?'. Print Edition | Subscribe