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Cash trap

Pauline Wong
Pauline Wong • 14 min read
Cash trap
Singapore is going full steam ahead in its move to promote e-payments. But unless small and medium-sized enterprises, which make up 99% of all businesses, adopt e-payment systems, cash will still be king.
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Singapore is going full steam ahead in its move to promote e-payments. But unless small and medium-sized enterprises, which make up 99% of all businesses, adopt e-payment systems, cash will still be king.

SINGAPORE (Oct 7): Although Singapore has a digitally savvy population and the right ingredients to be a cashless society, Prime Minister Lee Hsien Loong said in 2017 the city state still lagged behind in e-payments. This was largely due to having too many different schemes and payment systems that did not interact, making it inconvenient for consumers and costly for businesses. Speaking at that year’s National Day Rally, Lee said efforts were underway to change that, citing the example of China’s being a leader in e-payments.

In his speech, he highlighted how technology had changed the retail industry entirely as the rest of the world was changing. “Unless we change with it, we will fall behind. Singapore must always stay with the leaders to attract talent and business, to live up to our own expectations of what we ought to be and can be.”

Yet, the push towards a cashless society still seems to be held back, to some extent, by what seems to be reluctance on the part of Singapore’s economic drivers — the small and medium-sized enterprises (SMEs).

SMEs are the backbone of the economy. Last year, they formed 99% of all businesses in the country, employed 65% of the workforce and added $212 billion in nominal value to the economy. There is no question that, without the full participation of SMEs, the goal of becoming a cashless society will be difficult to attain.

Hawkers are an integral part of Singapore’s culture and economy, manning more than 14,000 stalls (as at 2014) in hawker centres and government markets nationwide. In a survey by the National Environment Agency, 83% of the more than 1,000 respondents say they eat at hawker centres at least once a week. The 2019 Household Expenditure Survey found that the average household spends $1,199 on food every month. Of that, nearly 40% ($437) is spent on meals at hawker centres and food courts.

Hawker centres are at the forefront of Singapore’s drive to become a cashless society. Recently, in a Parliamentary reply to a question on the adoption rate of e-payments by Jurong GRC Member of Parliament Ang Wei Neng, Education Minister Ong Ye Kung said Enterprise Singapore (ESG) had collaborated with NETS to deploy a unified e-payment solution at small food businesses since December 2018.

“To date, SGQR labels and unified pointof-sale terminals have been deployed at over 500 stalls spread across 10 hawker centres, 22 coffeeshops and 12 industrial canteens. E-payment usage at these stalls is gradually increasing and four out of five e-payment transactions are via SGQR,” Ong replied on behalf of minister in charge of the Monetary Authority of Singapore Tharman Shanmugaratnam.

In total, Ong said, more than 32,000 SGQR unified QR codes had been deployed across a range of merchants, including hawker centres, retail stores, F&B outlets, supermarkets and healthcare outlets, since the launch of SGQR in September 2018. This represented a penetration rate of about 20% of all retail acceptance points nationwide.

“While the volume of e-payments is still low compared with cash, we expect it to grow. E-payments are convenient to use at hawker stalls, and payment operators are looking into ways to make them even more convenient for hawkers,” Ong says.

But two years after the launch of real-time payments systems such as PayNow and PayNow Corporate, and one year after the launch of the SGQR codes for payments, anecdotal evidence and interviews with experts in the industry indicate that Singapore still has a considerable way to go in its push towards cashless transactions, particularly among small businesses.

A check by The Edge Singapore at a large hawker centre in Telok Ayer saw only a handful of hawkers using GrabPay, FavePay or NETS. Most accept only cash, and one hawker declined to accept NETS when asked, even though a NETS sticker could be seen on the wall. One hardly sees patrons making payments via card, NETS or mobile. Meanwhile, a 2019 report from S&P Global Ratings shows that cheques and cash still account for 40% of transactions in Singapore. In June 2018, Ong had said the city state aimed to eliminate cheques by 2025.

Lack of trust

The adoption of e-payments seems to be held back by several long-standing problems. To begin with, there is a disconnect between mobile-savvy consumers and business owners on how each party wants to trade.

About two years ago, global payments company PayPal Holdings conducted a study that found that 90% of Singaporeans surveyed still preferred to use cash as their primary mode of payment. Only 3% said they used electronic or mobile wallets regularly.

In contrast, of those surveyed by PayPal in China, only 25% said they used cash regularly in 2017, while 48% said they used e-wallets regularly. Currently, usage of cash in transactions is practically non-existent in China. According to reports, usage of China’s mobile payment services has skyrocketed over the past five years, with total transactions reaching RMB277.39 trillion ($53.7 trillion) in 2018 — a more than 27- fold increase from five years ago, according to China’s central bank. It is forecast that annual online transactions will reach RMB116.7 trillion this year.

In Singapore, cash in circulation still represents around 10% of the city state’s GDP, compared with about 2% in Sweden, the global cashless leader. Merchants cite the fees charged, cost of adoption and lack of understanding as barriers to entry for them. And, especially for small enterprises and hawkers, a new problem has emerged as well: a lack of trust. According to e-payment industry players who spoke to The Edge Singapore, some merchants lamented about “lost” transactions because of misuse or a mistake on the part of either party when trying to complete an e-payment transaction. And once they have been “burnt”, they no longer trust e-payments.

Zack Yang, co-founder of FOMO Pay, a digital payment enabler platform, explains that, as early as a year ago — with the proliferation of QR codes and payment methods — a lack of knowledge on the merchant’s part, or even a simple mistake, sometimes resulted in a transaction’s not being completed correctly.

“Let’s say the merchant or customer did not make the e-payment correctly, resulting in the payment’s not being processed correctly. The merchant has no way of knowing the transaction has been completed except from the customer’s showing their phone. It’s not until later that the merchant realises they did not receive the payment. And once it happens, they don’t trust it anymore,” Yang says.

It may not even be necessary for the merchant or customer to have encountered a problem personally. “Bad news spreads very quickly,” Yang adds.

FOMO Pay is a one-stop mobile payment aggregator that helps merchants accept payments from several different mobile wallets and credit cards. Currently, FOMO Pay is a part of the SGQR taskforce, which was formed to implement a unified QR code payment system nationwide.

“The key challenge is really down to how the merchant experiences the whole e-payment system,” Yang says. Clearly, if merchants are able to receive e-payments and be notified of a successful transaction immediately, they will see the benefits of not having to rustle up some change. They can instead focus on the other aspects of their business, such as cooking and serving, and not worry about balancing the till at the end of the day, Yang adds.

Another barrier is the cost of setting up the system to accept e-payments. Services such as Visa or Mastercard can cost ISSUES merchants up to $500 for a deposit on the payment terminal, in addition to a monthly maintenance fee of between $30 and $50 and the merchant discount rate (MDR) of 2% to 3% for each transaction. While many medium-sized and large companies can, and usually do, bear this cost, mom-and-pop shops and hawkers are not likely to put up with these extra costs on top of already-tight margins.

And this is a fundamental issue that SMEs face. Shailesh Naik, founder and CEO of MatchMove, an enterprise payment solutions provider, points out that SMEs are lean operations and therefore they lack the capacity to adapt to technology as quickly as larger organisations. “One of the biggest issues they face is the lack of depth and breadth of people. They are either family- or personally owned, and they occupy very specific niches in a supply chain or value chain. And, for them, service and economics is critical. Unlike large organisations, where you have a large bench strength, with lots of people who can respond to changes or new opportunities, SMEs are always short of capital and time,” he says.

As a result, adopting technology, such as e-payment systems, can be an uphill battle for an SME. “[The] root cause is that they don’t have the people or the skill sets to identify [technology] changes, pick the right technology and adopt it. So, specifically for payments, the same problem applies. They themselves may use credit cards or QR codes but to actually implement [e-payments] in their own organisation, it’s back to square one: not enough skills, not enough time, not enough people,” says Shailesh.

In the same vein, some businesses would simply stick with what they are familiar with. Gary Wong, head of GrabPay Singapore, says traditional businesses may be more hesitant about adopting e-payments, as they are accustomed to dealing only with cash. “This is especially apparent in the hawker industry. In hawker centres, where customers and stall owners are used to dealing with cash, stall owners tend to fall back on the usual mode of cash transactions, instead of e-payment solutions. Other barriers include worries about the cost of adopting e-payments and ease of use,” he adds.

For PayPal country manager of Singapore and Malaysia, Rakesh Krishnamuti, it boils down to what is really in it for the merchant. “Merchants are probably less receptive to digital payments [compared with consumers] because for them, by and large, they are looking at the same consumer and the same money is being paid, regardless of digital or physical. The question for the merchant is, will he be getting incrementality? The jury is still out on that, which is why you see apprehension.”

And then, there is the fear — perhaps born out of a lack of knowledge or confusion about the rapid-fire wave of change in technology — that by the time they implement whatever new technology that is available, it will be outdated or obsolete.

MatchMove’s Shailesh says some business owners told him they tried using e-payment solutions, but found that the system became obsolete after a time. “I spoke to an SME guy, and he said, ‘Well, you know, I did try [e-payments]. My son went overseas, did information technology. He joined the business and we did it for a while. But then, the technology changed and everything became obsolete,’” says Shailesh. “There’s also a bit of fear that if they jump in, [the technology] may get overtaken again. And there is a hope that a more lasting solution can be found instead of — what seems to them — an ongoing churn of an endless wave of new technology, and their thinking, if I get this done, will it get overtaken?”

Carrot-and-stick approach

The best way forward, reckons Shailesh, is for every stakeholder to realise that if e-payments are to be the norm, the system needs to be, quite literally, “handed to them [the SMEs] on a plate”.

This is not to say SMEs are incapable of, or unwilling to, change. It is just that they simply have to prioritise the business over spending time in training sessions or meetings on how to use e-payment systems.

“Digitisation needs to be as simple as downloading an app from an app store; it needs to be as simple as walking into a store and picking the solution, walking out and using it straightaway,” Shailesh says. “In our view, SMEs are not adopting digital payments because there are too many [options] and just not enough people to digest how to do it.”

PayPal’s Rakesh says it will take a while before Singapore gets to be a totally cashless society. He says the SGQR, an easily accessible system, is a “step in the right direction”.

Another way to continue to push for cashless transactions is to adopt a carrot-and-stick approach with both merchants and consumers. “For instance, banks in some markets charge a fee for processing cheques. So, on the one hand, a unified payment system, and on the other, making it a little less convenient [to bank a cheque] or longer to process a payment,” he adds.

Florian Hoppe, partner and leader of Asia-Pacific digital practice at Bain & Co, points out that the critical hurdle to cross to increase inclusion in the e-payment ecosystem is instilling trust. “Trust in the platforms [is key]. In particular, when it comes to e-wallets, you have to have faith that the platform is going to be around in five years,” he says.

Moreover, it is about making it as easy as cash. “Cash is very very widely used here. You need to make it easy, have a ‘oneclick’ version of cash,” he notes. “Even with the prevalence of digital payments [in Singapore], it’s not an easy shift to drive.”

Progress, but is it enough?

Still, credit must be given where it is due. Two years ago, when PayNow was launched, there were about 150,000 transactions totalling about $24 million in the first month of operation. In July this year, there were more than five million transactions, with total values above $1 billion each month.

As FOMO Pay’s Yang puts it: “One year ago, SGQR was 0% adoption and, now, it’s 20%. So, it’s good progress.” He feels that “cashless” is not the objective — it is the outcome of an entire change in the financial services landscape. To him, changing how one makes payments is simply an entry point to changing how society operates, in the way people spend, send and lend money.

GrabPay’s Wong says with the wider push for SMEs to go digital to stay competitive, more business owners, especially the younger ones, are starting to understand the importance of integrating e-payment methods into their business.

“Most business owners whom we have met chose to adopt e-payments, as it is able to efficiently solve a business or operations challenge for them — for example, to reduce payment queues or attract more millennials and Gen Z customers,” he says. “These tech-savvy business owners are constantly looking for ways to create new touchpoints, reach out to a wider customer base and generate more revenue by leveraging the rising digital economy.”

Government agency Enterprise Singapore (ESG) says SMEs face different challenges as they digitalise, depending on their stage of growth and the sector they are in. “Broadly speaking, SMEs are more resource-strapped and hence have more considerations when adopting tech,” says Lee Yee Fung, its director for ICM and digitalisation.

Lee notes that compatibility issues with legacy systems are another challenge for SMEs, and new technology solutions often require re-engineering of workflow processes and staff training.

“This means added cost, and some may face employee resistance. It is with this in mind that the government and industry partners have put in place resources to support companies and workers at different stages of growth and digital maturity. For example, to get SMEs to go digital earlier, the Start Digital programme by ESG and the Infocomm Media Development Authority provides foundational digital tools in five core functions: HR, accounting, digital payments, digital marketing and cybersecurity. These have been curated for the SMEs, making the process easier for them,” he says.

Indeed, unless the problems faced by SMEs in adopting e-payments are dealt with, cash will still be king.

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