SINGAPORE (Dec 1): UOB Kay Hian is maintaining Singapore’s banking sector on “overweight” as the recent boom in mobile payments is paving the way for Singapore to become a cashless society.

The research house’s top “buy” local banks are DBS Group Holdings and Oversea-Chinese Banking Corp with target prices of $26.10 and $12.56 respectively.

Singapore conducts huge volume of international payments due to its stature as a global financial centre, a major trade finance hub and a gateway for investments into Asia.

Hence, having a resilient and efficient payment system is of paramount importance to Singapore’s competitiveness as a global financial centre.

Currently, most Singaporeans are still reliant on cash, accounting for about 60% of retail payments.

In a Wednesday report, UOB analyst Jonathan Koh says that this was mainly due to the ease of access to ATMs and the acceptance of cash at the many food stalls at food courts and hawker centres that are frequented by locals.

However, the usage of mobile payments in Singapore have increased to 40% this year compared to 26% in 2016.

See: Mobile payments in Singapore on the rise despite security concerns

Following the Prime Minister Lee Hsien Loong’s speech during the National Rally 2017 regarding the confusion and inconvenience caused by the disparate range of payments systems, much progress has been made.

On Nov 20, the Monetary Authority of Singapore announced that the Payments Council will be rolling out a common Singapore Quick Response Code (SG QR) that can accept electronic payments by domestic and international payment schemes, e-wallets and banks.

See: Singapore to roll out unified SG QR for electronic payments by 2018

The Payment Council will also introduce new payments legislations and make the diverse range of e-payment solutions in Singapore more inter-operable and better integrated.

In addition, cashless payments have recently become fuss-free and easy to use with instantaneous fund transfer services.

One such service is the fast and secure transfer (FAST) which was rolled by Singapore banks earlier in March. It enables almost instantaneous fund transfers of up to $50,000 between 20 participating banks.

PayNow is another service that is built on FAST. It is a peer-to-peer fund transfer service that requires just the recipients’ mobile number or NRIC number.

At the same time, Singapore is working towards a cashless transport system by 2020.

LTA along with TransitLink piloted account-based ticketing with MasterCard, allowing commuters to pay for their rides by tapping their contactless credit or debit cards at local public transport fare readers, without the need for topups.

Cash top-up services will gradually be removed from September, as commuters will be able to reload their cards using Apple Pay and Android Pay.

Dairy Farm has also tied up with UOB and NETS to roll out 2,000 unified point-of-sale (POS) terminals across 650 stores, including Cold Storage and Giant supermarket chains, Guardian pharmacies and 7-Eleven convenience stores, by end-2017.

The new terminals will be able to accept ATM, credit and contactless cards, facilitating the shift towards self-service checkout.

As at 11.23am, shares in DBS and OCBC are trading at $24.68 and $12.42 respectively.