03 Apr 2017
Sherman Tan, PMP, CSRS
Holy Grail of “Cashless”
For those involved in payment systems in Singapore, last month has been an interesting one. In short, each week did not pass without hearing or reading about “CAS” under the umbrella of Smart Nation topics.
For the layperson, the cryptic “CAS” or Central Addressing Scheme is a payment project backed by the Association of Banks in Singapore that allow funds transfer to one’s mobile number. By “mapping” our mobile number to a designate bank’s account number, we will be able to receive funds from others in real-time. More importantly, without the need to remember or disclose our bank’s account number to the senders.
Real-time funds transfer is not new in Singapore, “FAST” was launched three years ago in Mar 2014 but has not gained popularity for several reasons – one was the necessity to provide the bank account number. With CAS, an individual can map mobile number and national identification number to one’s bank account. Hence, the latest “hoo-hah” proclaiming “CAS” as the catalyst to reduce cash transactions in Singapore.
Since I got involved in banking in 1986, “cashless” was the ultimate goal for banks and economies in the world. But the reality is that other than a few countries: Belgium, France, Canada, UK, Sweden, others including Japan has high percentage of cash transactions. According to a Bloomberg article in Nov 2016 (1), cash accounted for over 80% of transactions by value in 2014 in Japan. In Singapore, about 60% of the 2.37 billion payment transactions in 2015(2) are in cash.
To put matters in perspective, paper-based transactions come with a social cost and in Singapore, usage of cash and cheques accounted for 0.52% of GDP or about S$2 billion each year. As a comparison, the Ministry of Culture, Community and Youth is allocated S$2.2 billion for its 2017 budget.
Singapore is not short of electronic payment options. In fact, many innovative payment products and services were offered over the years; for instance, FAST (bank-centric scheme), the first in the region was launched in 2014. And between Apr and Jun last year, Apple Pay, Samsung Pay and Google Pay (bank-neutral scheme) made their inroads into Singapore capitalising on the 150% mobile penetration rate in the country.
With Near Field Communication (NFC) supported by many smart phones, M1, Starhub and Singtel (telco-centric scheme) the 3 local telco also joined the electronic payment bandwagon by offering NFC-enabled SIM cards.
On top of these, there are 45 million of cards with top-up, credit and debit capabilities supported by over 150,000 Point-of-Sale (POS) terminals. Transportation cards; EzLink for example accounted for the largest market share (38%). Excluding “in-house” or “closed-loop” cards such as those issued by food court chains, all these cards with store-value-facilities (SVF) are supposed to promote cashless transactions.
In addition, consumers and businesses in Singapore are also avail to GIRO and electronic funds transfer services offered by banks. These transactions formed about 17% of total payment transactions in 2015.
So why is cash transaction still the preferred payment option? To answer this question, let’s look at three areas.
Choices and Compatibilities
There are just too many electronic payment options to start with. For mobile payment alone, besides the 3 popular “bank-neutral” schemes; e.g. Apple Pay, banks’ offering include PayLah (DBS), Mobile Money (May Bank), Pay Anyone (OCBC), Mighty (UOB) and from the telco, there is Dash (Singtel).
Payment cards (debit, credit and SVF) are plentiful to choose from. Other than banks, the two largest card issuers are EzLink and NETS. While EzLink cards are primarily used for transportation; these cards can also be used for non-transport purposes that compete with NETS’s CashCard and FlashPay. Making things complicated, some POS terminals do not accept both EzLink and NETS issued cards resulting in consumers having to carry both types of cards.
While the myriad of payment options benefits most consumers, these options add to the complexities of supporting various types of electronic payment systems: system and application incompatibilities, staff training, account reconciliation, system support/upgrading, investment and operating cost (see below).
There is no such thing as a free lunch so the cost of providing a service has to be borne by someone: the consumers, businesses/merchants or the service providers. As an illustration, top up of NFC SIM cards offered by telcos attract a “convenient” fee of 25 to 90 cents. Merchants pay a discount fee of between 1 to 3% to accept credit/debit cards. In addition, there are also other costs such as monthly terminal rental fee, rental cost of data line, etc.
For the consumers, the use of cash attracts zero fees as the costs of handling, transportation, storage, insurance, destruction of soiled notes and printing of new notes are borne by the businesses (sales of goods and services), banks (via ATMs and branch counters) and the government (central bank and currency board).So from a cost perspective, it makes sense for the consumers and small businesses to prefer cash as the primarily mode of payment as the handling costs is not apparent to these groups.
Habit & Needs
In every country, there are often entrenched habits that could take a couple of generations before changes could become apparent. In Singapore, the use of plastic bags is one such example notwithstanding the numerous educational programmes and incentive schemes available. “Chope” seats at hawker centres and food court with packs of tissue papers is a recent uniquely Singaporean’s habit.
For the financial services industry, banks around the world struggled to replace the savings passbook, paper cheques and cash with electronic alternatives for the longest time.
For a small minority, the use of electronic payment extends beyond overcoming the fear of technology and security concerns. For this group, it tantamount to cessation of financial control; i.e. psychological comfort of being in possession of a savings passbook, financial statuses to issue and receive cheques.
So what can be done? Below, I have some suggestions to offer.
Common Infrastructure and
Launched in 1997, Hong Kong Octopus card is often cited as a successful common multi-purpose card model. The UK Oyster card (2003) is another example. With a small population of 5.6 million, Singapore could probably benefit more if EzLink, CashCard and FlashPay could be consolidated rather than work in the existing model of “collaboration within competition”.
Secondly, for cost efficiency, productivity and customer accessibility, there should be one common ATM network. DBS exited from the shared ATM network after its merger with POSB in 1997 because its projections showed that ATM servicing costs of the merged entity would increase significantly due to the “Us-on-Them” cost structures in place back then. It is probably an opportune time now to review the Shared ATM cost sharing framework that benefit the concerned parties and their customers.
Another area is to leverage on common infrastructure such as FAST instead of banks separately investing to develop different types of electronic payment services; e.g. PayLah, Pay Anyone, Mobile Money, etc. This is similar to banks using the MAS Electronic Payment System (MEPS) since 1998 for high value SGD inter-bank payment and transfer.
For over 30 years, merchants and retailers have to install new POS terminals at their check-out counters each time they offer a new payment instrument, bonus/loyalty programme or joined a new payment scheme. Not only do these added terminals take up much counter space, there are also rental cost of the terminals and data lines, costs for upgrading and replacement of obsoleted equipment, daily reconciliation nightmares across multiple terminals, etc.
The unified POS terminal idea was initiated more than 15 years ago but only in recent years that banks and NETS are taking actions to consolidate their terminals. However, there will be limited success at the national level as these parties are consolidating only terminals that they owned (branding and customer mind-share concerns).
Banks and payment service providers should compete on branding their cards or payment application instead of terminal ownership.
If a Payment NewCO can be formed to manage and operate a common multi-purpose card, a shared ATM system, common e-payment infrastructures and all the POS terminals, then the vision of a digital payment economy is likely to be materialised over a shorter time frame.
As the transition from cash to electronic payments could take several years if left on its natural courses, lessons could be gleaned from the offering of cash rebates to promote credit/debit card adoption to offer rebates when customers opt not to use cash.
So who is going to fund these additional costs of cash rebates and other incentives, investments in research, training, development, procurement and implementation of common infrastructure, systems and equipment to achieve standardisation and inter-operability?
To be truly committed to improve the electronic payment systems as part of our Smart Nation drive, financial institutions with stakes in Singapore and the government should take the lead as it is the collective interest of these parties to reduce the $2 billion social costs per year arising from cash and paper cheques usage.
The reality is that none of what I have outlined above are new insights – these are issues that have surfaced time and again for many years but remained unresolved.
For a start, incumbents; especially those with the larger market shares will not welcome a level playing field. This is understandable as these organisations have invested significantly in building up to where they are today.
Let’s look at a couple of examples: for the common Shared ATM system to work, besides the willingness of the shareholders, this would require the “co-operation” of the monopolistic armed security services in the island that determine the cost of managing the ATM cash operations. Next, what incentives are there for banks that have invested resources and time in building up the relationship with merchants acquired over the years to support a national “unified” POS system?
Theoretically, a common infrastructure will reduce costs, spur innovations and improve customer satisfaction but how successful have these models shown. Since 2013, Singapore’s Next Generation Nationwide Broadband Network (3) (Next Gen NBN) worked on a model that have three distinct industry layers: Network Company (NetCo), Operating Company (OpCo) and Retail Service Provider (RSP). Are there lessons to be learned from this approach?
Another area worth highlighting is that when everything is put into one basket there will be concerns about a single-point-of-failure (what’s the backup plan?), higher risks of attracting hacking (centralised database) and whether a single NewCo operative will eventually lead to complacency and lesser reasons to be competitive?
However, the road ahead is not as bumpy as there are new inputs to the equation.
Next month, from 1 May, a new ministerial planning group, the Smart Nation and Digital Government Group (4) (SNDGG) will operate from within the Prime Minister Office (PMO). Its main charter is to co-ordinate the nation’s digital technology strategies and responses. Led by two heavy-weight, Deputy Prime Minister, Teo Chee Hean and the Minister for Communications and Information, Yaacob Ibrahim; all eyes will be on the new group on how it will take Singapore into realising its Smart Nation’s vision with electronic payments as part of the key pieces that will shape Singapore’s digital economy!
(1) Cash is still King in Japan… https://www.bloomberg.com/news/articles/2016-11-08/cash-is-still-king-in-japan-and-that-could-be-a-problem-for-the-boj
(2) KPMG, Singapore Payments Roadmap – Enabling the future of payments 2020 and beyond, Aug 2016: https://assets.kpmg.com/content/dam/kpmg/sg/pdf/2016/09/sg-singapore-payments-roadmap-enabling-the-future-of-payments.pdf
(3) Singapore Next Generation Nationwide Broadband Network: https://www.imda.gov.sg/~/media/imda/files/community/consumer%20education/fibre%20broadband/nextgennbnfactsheet.pdf?la=en
(4) Smart Nation and Digital Government Group Office to be formed under PMO: https://www.gov.sg/news/content/smart-nation-and-digital-government-group-office-to-be-formed-under-pmo
The writer is the Principal Consultant & Owner of Innovar Pte Ltd and a Director at EcoInvest (S) Pte Ltd
24 Feb 2017
Sherman Tan, PMP, CSRS
The Committee for Future Economy (CFE) recently published 7 sign-posts to guide Singapore into the future while Budget 2017 provided some insights into how some of these strategies could be supported through national budgetary prioritisation.
A veteran in the financial industry succinctly summarised some related CFE strategies into two core themes:-connectivity and inclusiveness:
· 1) Build up both hardware (infrastructure) and software (talent) capabilities to seize mover-advantages in connectivity as the world transforms into digital economies.
· 2) Minimise social economic gaps between the digital and analogue population by ensuring that critical public services in education and health care are affordable and easily accessible to the less privileged.
So how does these recent priorities and strategies dove-tail into Singapore’s vision as a “Smart Nation” announced in Nov 2014 by the Prime Minister before Singapore celebrated its 50th anniversary since independence? And how is the new digital economy being developed as part of this grand master plan?
From my limited research, I see “Smart Nation” as the blueprint pulling together the disparate and very often siloed initiatives being formulated by different government agencies, ministries and the private sectors. The CFE on the other hand provides the medium term strategies to reach the goal while Budget 2017 avail the financial muscles for the next 1 to 3 years. The digital economy with its corresponding benefits (enhanced liveability, workability and sustainability) is the outcome of a successfully executed plan.
Whether we like it or not, a “Smart Nation” has to be supported by “smarter” technologies that inter-connect people, things and devices.
Connectivity will re-emerged as one of the more popular words amongst Big Data Visualisation, Machine Learning, Artificial Intelligence, etc. While being constantly connected is embraced largely by the millennial generation, there are already concerns over greater loss of privacy, higher frequency of digital frauds and real fear of those encapsulated in the analogue world that are being left behind.
In response to the impact of high-tech, Yuval Harari (1), an Israeli historian, author of the international bestseller “Sapiens: A Brief History of Humankind” was quoted as saying, “The most crucial choices about the future are made not by bureaucrats or lobbyists but by engineers, entrepreneurs and scientists who are hardly aware of the implications of their decisions, and who certainly don't represent anyone".
So how the digital economy should be developed around people and for the people?
Since I’m not a social scientist, I can’t offer solutions supported by research-based findings but I can share a personal experience on why the digital transformed community has to promote core values of empathy, care and sharing as part of inclusiveness.
Recently, I participated in a mini-project with a relevant project statement “How can the elderly living alone be better taken care of using smart technologies?”
Considering this is a “wicked” problem, the project team adopted Design Thinking framework and used tools such as “AEIOU”, “POETS”, etc to help understand the environment, identify the target users, assessed their needs, and developed insights of the appropriate persona. Throughout the process, empathy was emphasized as the pre-requisite mindset to be adopted.
Since there are numerous challenges faced by the elderly living alone, the project team decided to focus on one specific need: providing “meal of choice” to the elderly living alone.
While there are over 10 voluntarily welfare organisations (VWOs) currently involved in the “meals-on-wheel” programme catering to the frail and home-bound elderly (2) by providing more nutritious and healthier meals; the insights garnered showed that further improvements could be made to cater to elderly with difficulties chewing their food (use of dentures or weak gums), inability to consume standard food portion (wastage) and lack of food choices (personal preference).
Given the short project duration, only a conceptual prototype was developed to leverage on the power of connectivity supported by “smart” technologies that match demand and supply patterns.
Basically, 24x7 kiosks designed for elderly who could still move about on wheelchairs are located at senior citizen corners, outside Residents Committee and Social Welfare offices. For those home-bound, large screen tablets with basic functions would have to be provided at appropriate location within the household.
The “meal of choice” software on the kiosk or tablet would have to be designed to cater to elderly with eye-sight challenge, limitation in language literacy and technology unfamiliarity. With the app, these elderly could “compose” their desired meals and portion after using one or several biometric attributes for identification. Overtime, the system recommends their preferred choices to further simplify the ordering process.
At the back-end, the system assigns the various “individualised” orders to respective VWOs and other supporting organisations based on a host of parameters such as availability of food supply, quantities, proximity of locations, timing required, resource availability, delivery logistic, etc.
As part of social responsibilities, restaurants, food caterers, bakery shops, Uber, Grab, etc and individuals are encouraged to participate on ad-hoc or regular basis to meet specific needs on special occasions or to make “last-mile” fulfilment responsibilities e.g. Uber/Grab cab nearby but not on hire.
The desired outcome is a sharing and caring community that uses technology to match “individualised” demands by “aggregating” supplies and resources from multiple sources founded on empathy, inclusiveness and connectivity.
Digital transformation leading to our journey as a Smart Nation will have profound impact on economic, social, legal and political dimensions across all levels in our society. It is understandable that there will be concerns and confusion of varying intensity.
But, as a nation, we must always remember the underlying core values that guide Singapore successfully over the past 50 years. Digital or not, core values should remain.
His latest book “Homo Deus: A
Brief History of Tomorrow” was published
in Hebrew in 2015. An English
translation was published in the UK in
(2) In 2015, there were over 41,000 elderly over 65 years living alone. The number of elderly over 65 years is projected to increase from 440,000 in 2015 to 900,000 by 2030 (13 years from now)