(Sept 4): When Eric Chan first applied to get a credit card terminal for his business, he found himself faced with questions he could not answer.

“For instance: What is the average transaction size? What is the amount [of sales] per month? How would we know that in our first month of operation?” says the co-founder of patisserie and restaurant Mad about Sucre.

As Chan was not able to answer their questions, the banks could not figure out what to charge him and how much they would earn.

So they refused to give him a terminal. Mad about Sucre only managed to get a credit card terminal after five months of operations, when it had made the news as one of the top patisseries in Singapore.

Chan’s troubles illustrate how difficult it can be for merchants to go cashless in Singapore.

And while the government appears to be getting serious about helping merchants like him move into a cashless future, industry players say there are some major challenges to overcome.

Talk of a cashless nation has intensified since Prime Minister Lee Hsien Loong highlighted in his National Day Rally how China has pulled ahead on e-payments compared with Singapore; six in 10 transactions in Singapore are still via cash or cheque. While e-payment systems are available here, there are too many of them and they are not compatible with each other. That makes them inconvenient for both customers and businesses.

“We must simplify and integrate our systems,” Lee had said in his speech.

The job of doing so has fallen on the Monetary Authority of Singapore (MAS) and its payments council, a newly formed body comprising business leaders from banks to trade associations.

Following its inaugural meeting on Aug 11, the council has set up a taskforce to develop a common quick response code (QR code) platform for e-payments.

Dubbed SGQR, the taskforce includes government agencies such as HDB, the National Environment Agency and SPRING Singapore; major industry players such as Alipay Singapore and American Express; and even small payment companies such as EZi Technology and Liquid Group.

It will be co-led by MAS and the Infocomm Media Development Authority of Singapore.

“The council is off to a good start. This is the kind of idea exchange and collaboration that we need within the ecosystem to realise our shared vision of an e-payments society. Our goal is to make the payments experience efficient for businesses and delightful for everyone, including the young and elderly,” says Ravi Menon, chairman of the payments council and managing director of MAS, in a statement.

Squeezed by fees
In theory, Singapore has the necessary elements to build a cashless society. It is one of the most banked countries in Southeast Asia.

The number of credit cards issued had been rising from 1989 to 2014, when it hit a peak of 8.1 million. As at end-2016, 7.8 million cards had been issued.

The country has also been “a hotbed of innovation when it comes to electronic payments”, says Rachel Hunt, marketing director for Asia-Pacific and Japan at payment systems company ACI Worldwide.

Many financial technology start-ups have introduced innovative solutions here, Hunt says. “[And the banks have shown] a willingness to experiment with features that improve customer experiences.”

Yet, cash in circulation has been rising for the last 10 years: from $18.4 million in 2007 to $42.5 million in 2016. A recent PayPal survey shows 90% of people living here still use cash, with 43% citing it as the most frequently used form of payment.

Why the preference for cash? Jan Bellens, who leads EY’s Banking & Capital Markets practice for global emerging markets, says one element that may have pushed merchants in China towards cashless payments is the new cap on fees associated with cashless payments.

“The previous cap on fees that merchants had to pay to card-issuing banks varied, with banks charging restaurants, hotels, jewellery and auto shops a maximum 0.9% of the transaction amount. Following new regulations last year, banks cannot charge merchants above 0.35% of the transaction amount for debit cards, and 0.45% for credit card transactions,” says Bellens.

In any case, stiff competition had kept rates below the old ceiling rate for some time.

“In contrast, the card transaction fees in Singapore are still a multiple of the Chinese ceiling: a fee of 1.5% to 3% of the transaction value is typically imposed on merchants for accepting credit card payments, with similar fees applicable for payments via mobile wallets that are layered on top of the existing card infrastructure,” says Bellens.

The more important drivers of cashless payments, however, have been the mobile platforms created by Alipay and WeChat. “These mobile payment platforms have grown from online payments, originally, to now being accepted at physical merchants via QR codes,” says Bellens.

Both Alipay and WeChat have also offered users cashback incentives to use their systems.

Chia Tek Yew, head of financial services advisory at KPMG Singapore, says Singapore should learn from China’s experience of what works. The next step, he says, “would be for PayNow to be extended to merchant payments”.

PayNow is a funds transfer service available to customers of seven banks. It allows bank accounts to be linked to mobile numbers so that funds can be transferred to a mobile number instead of a bank account number.

Guiding the cashless journey
Rohan Mahadevan, senior vice-president for Asia-Pacific at payment service provider PayPal and a member of the payments council, says he is focused on three elements in the journey towards a cashless society: better communication about cashless systems, simplifying the onboarding process and dis-incentivising the use of cash.

“We have to better communicate what the value of these [digital] wallets is, why it is important to digitise, and communicate it in a single voice,” he says. The use of passwords for security and authorisation also needs to be addressed.

“People don’t want to remember another password. Security has to be inbuilt within the system, making it easier for people to use these services,” Rohan adds.

Then, there is the question of incentives versus penalties. Users can be offered coupons and rebates to use digital payment methods. They can also be charged more for the use of cash and cheques. “The question is: Where do you provide incentives and disincentives? This has to be discussed from a policy perspective to drive faster change.”

Ooi Huey Tyng, Visa country manager for Singapore and Brunei and fellow payments council member, concurs with Rohan about incentives and disincentives to encourage the adoption of cashless payments.

“While we continue to make electronic payments affordable and ubiquitous, we should also consider educating consumers that cash is not free. Costs should be implemented for cash handling and we also need to remove additional barriers for the acceptance of electronic payments,” says Ooi.

Interoperability is what Ooi would be pushing for as part of the payments council, drawing on the payment provider’s experience working with issuers and financial technology start-ups.

“At Visa, we also want to share the importance of interoperability and inclusive growth for new payment methods in Singapore to ensure that consumers have a consistent and seamless experience using these solutions and a successful adoption,” says Ooi.

Engaging merchants will not be easy
Engaging consumers is only half the battle though — and it may be the easier half. Chan of Mad about Sucre says that credit card transactions continue to give him pain two years after his company began accepting them.

The banks and other payment service providers take a hefty cut of more than 3% of each transaction. And taking credit card payments does not always make things easier for Chan.

“When it comes to transactional queries and disputes, [a lot of time is] spent on correspondence, proving or disproving the amount. Truth of the matter is, we are craftsmen. If we have one hour a day to document these things, we would rather put that one hour into improving our products,” he says.

Cash is also important for paying off suppliers, most of whom require cash on delivery for new customers.

Asked if he is keen on the government’s push for cashless transactions, Chan is unsure.

“We can’t afford to keep adopting new technologies, because at our scale of operation, the economies of scale don’t do as much good,” says Chan, while pointing out that cashless systems are not likely to help increase transaction volumes. “SMEs (small and medium-sized enterprises) are the backbone of the [Singapore] economy, so how does it benefit the everyday SME [owners], who are trying their best to provide for their families?”

Chan says that if the government is keen for SMEs like his to adopt cashless payments, he would like to see it take an even heavier hand.

“If it is to be a national goal, put a hand in it: limit the [fees], provide machines and training, make it mandatory by law. Then, streamline transactions and accounting, as it needs to work for hawkers,” says Chan. “Ultimately, how will it benefit the livelihoods of those at the extreme end of the cashless system?”