SINGAPORE (Nov 26): Grab and Go-Jek, the Southeast Asian ride-hailing platforms that were disrupting traditional banking services by offering electronic payments and other financial services, have since formed alliances with banks as part of their aggressive expansion plans. Now, their services are set to be licensed under a new Payment Services Bill that was introduced in Parliament last week.
Currently, money remittance services and stored value facilities, such as EZ-Link and Nets CashCard, are regulated. The new bill proposes that all payment services providers hold a standard payment institution licence for activities that include the issuing of accounts and electronic money; the domestic and cross-border transfer of funds; virtual currency and money exchange services; and the acquisition of merchants onto the payments platforms. Licence holders must also satisfy minimum capital requirements as prescribed by the regulators.
The bill comprises two parallel frameworks. One enables the Monetary Authority of Singapore to designate and regulate systemically important payment services for financial stability and efficiency. The other is a licensing regime that focuses on retail payment services for customers and merchants.
According to Deputy Prime Minister and Minister-in-charge of MAS Tharman Shanmugaratnam, the new bill will provide consumers with better protection of their money, as funds held in e-wallets for paying merchants or each other will be protected. Current legislation covers entities that hold a stored value float of more than $30 million. This threshold will be lowered to $5 million, which brings smaller players under purview.
At the same time, MAS will expand safeguards of consumers’ funds beyond the requirement of a bank guarantee. Under the bill, a guarantee given by a prescribed financial institution, or the segregation of customer monies in a bank account, will be recognised as alternative safeguards.
Significantly, every major payment institution must maintain a security of $100,000 with MAS. There are also restrictions on personal e-wallets: The amount stored in an e-wallet must not exceed $5,000, and the funds transferred within a year must not exceed $30,000. Under the Bill, payment and money transfer providers with average monthly transactions of more than $3 million will have to hold a major payment institution licence.
“The Payment Services Bill will enhance the regulatory framework for payment services in Singapore, strengthen consumer protection and engender confidence in the use of e-payments. The bill also illustrates our shift towards regulation that is modular, activity-based and facilitative of growth and development in the Singapore payments landscape,” says MAS managing director Ravi Menon in a statement. On Oct 10, Menon had cautioned financial technology start-ups against engaging in shadow banking services.
Under the new bill, key risks that MAS would be regulating payment services for are money laundering and terrorism financing; the loss of funds owed to consumers or merchants because of insolvency; fragmentation and limitations to interoperability; and technology and cyber risks.
In the past year, several start-ups have offered the convenience of fund transfers from one e-wallet to another, for instance, as well as payments and other services that bypass traditional banking services.
Just over the past fortnight, Grab and Go-Jek released statements one after another, announcing plans to expand their financial services across the region. Grab announced a tie-up with United Overseas Bank that could see them launch co-branded credit cards, while UOB’s services would be available via Grab’s platform. Grab has also launched a remittance service allowing users to send money to e-wallets across its six Southeast Asian markets. Meanwhile, Go-Jek is partnering with DBS Group Holdings to launch regional payment services.
In the case of Grab, the erstwhile disruptor appears to have become bedfellows with traditional financial services players. It has also secured an investment of US$50 million ($68.6 million) from Kasikornbank, and the deal will see the platform roll out its GrabPay services in Thailand. In October, Grab announced a partnership with MasterCard to launch virtual and physical prepaid cards.
Fintech remittance company TransferWise welcomes the bill and its aims, but argues that some regulations may be uncalled for. “The proposed cap on wallet balances is not necessary, because all customer funds must be safeguarded so they are not at risk,” says Lukas May, TransferWise’s head of banking. “The cap is just an extra inconvenience for customers and discourages innovation and competition. Other countries with similar regulations such as the UK do not have such a cap.” May says this concern was brought up with MAS during the bill’s industry consultation period.
The bill is expected to be tabled for a second reading in January, and companies will have six to 12 months to comply with its requirements after it is passed.
