It's divide and conquer in cashless payment market

Parting with money is a pretty low-tech business in Singapore, despite its tech-savvy reputation.

The latest systems that let people wave their cards or mobile phones over a contactless reader to pay for goods are not gaining much acceptance among shops here.

Over the last five years, the number of retail outlets accepting these high-tech cards and smartphones has varied from 12,000 to 48,000 depending on the technology.

The Network for Electronic Transfers Singapore's (Nets) FlashPay stored-value card is the most widely accepted contactless card - by 48,000 retail points, including Koufu foodcourts and ComfortDelGro taxis.

By contrast, Visa's PayWave contactless credit and debit cards are accepted by only 12,000 retail points.

These cards tout convenience; consumers do not need to fish for notes and jiggle coins for the exact change.

By going cashless, retailers can save on physical trips to banks to deposit cash. Cashiers do not need to give change.

Payment service providers like MasterCard and Visa benefit from the transaction fees that banks pay them to handle the payments.

Banks in turn sign up merchants and benefit from processing fees paid by merchants.

The Government benefits from cashless payments, which reduce the demand for physical dollars and coins, so it doesn't need to print, process, store and take care of as many physical dollar notes and coins.

Despite these benefits, many merchants, like Ya Kun Kaya Toast and Toast Box eateries, have "cash only" signs prominently displayed in every outlet.

Even among outlets that offer cashless payment, the most advanced setup is often a three-decade-old system by Nets that lets consumers swipe their ATM cards for direct deductions from their bank accounts. Some storekeepers also accept traditional credit cards, but for purchases of above $20 or $30.

So after almost 30 years, Nets is still the most extensive cashless payment system here.

It is installed at more than 80,000 retail outlets, or more than 70 per cent of all merchants.

A look into the circumstances under which Nets was formed may help explain why Singapore is no closer to becoming a cashless society today than a decade ago.

The story of Nets

NETS had several advantages when it was launched in January 1986.

First, it was neutral in that any bank could use it. It was formed by seven local banks to take advantage of their extensive ATM networks in an unexploited space - debit payment.

With bank mergers, Nets is now run by DBS Bank, OCBC Bank and United Overseas Bank.

Second, it had no competition. Nets was the only cashless option available to both the rich and poor. The only other option was the credit card - typically available only to those who earned more than $30,000 yearly.

Third, and perhaps most importantly, it had strong government backing. The egalitarian infrastructure was to support an electronic legal tender system, slated for launch by 2008.

With this system, goods and service providers would be legally obliged to accept e-money - as they accept currency bills and coins - as payment.

The bold vision, which made headlines around the world, was announced in 2000 by the then Board of Commissioners of Currency Singapore, now the Monetary Authority of Singapore.

The board was talking to Nets to bring its network to "every level and every strata of society".

A failed vision

But banking liberalisation in 2002 and the introduction of foreign competition soon scuttled the national infrastructure.

Overnight, with foreign banks included in the mix, Nets didn't look so neutral since foreign banks couldn't use the Nets infrastructure.

When foreign banks started to offer their own debit cards that could be used overseas, the plain old Nets ATM card lost some of its lustre. The electronic legal tender system also quietly faded into history.

New payment options

Then, new e-payment options burst onto the local scene.

In 2007, Visa launched PayWave. This was a wireless feature on Visa credit or debit cards that allowed consumers to tap on contactless readers to pay for transactions below $100.

MasterCard's version - PayPass - was launched much later, in 2011.

In 2008, the Land Transport Authority-owned EZ-Link rolled out the ez-link stored-value card. This allowed the public to tap contactless readers to pay for bus and train rides as well as retail purchases. A year later, Nets launched its ez-link equivalent called Nets FlashPay.

These new high-tech cards offered consumers more choices. But they did little to unite consumers because the different platforms often did not work with one another.

Take Nets FlashPay and ez-link, which have the highest circulation here at 3.2 million cards and 15 million cards, respectively.

They can be used interchangeably for public transport. But in shops, ez-link can be used only at merchants which have tied up with EZ-Link, while Nets FlashPay has a separate pool of retail tie-ups.

If this is confusing for consumers, imagine what merchants have to deal with. There are separate box-like terminals for traditional credit and debit cards and Nets ATM cards, and readers for the various contactless cards.

Many contactless card readers cannot be used interchangeably because they are rolled out by companies with different commercial interests. For instance, Nets FlashPay cards cannot be read on Visa PayWave and MasterCard PayPass readers, and vice versa.

No wonder merchants are not flocking to modern cashless payment systems.

Dealing with multiple boxes and readers is one thing. Retailers also have to pay transaction fees that range from under 1 per cent to about 3 per cent to middlemen like Nets and banks that issue Visa and MasterCard cards. Shoppers' payments are credited to merchants at the earliest only on the next working day. Cash payment is free - and instant.

Many shops are near ATMs where cash can be withdrawn. Mr Lin Yih, director of Singapore-based smart-card systems developer Digital Applied Research and Technology, told The Straits Times: "The success of Singapore's extensive ATM network killed the incentive for cashless payment."

New solution attempted

WHILE the different payment card warlords are carving out their turf, a new mobile payment system using Near Field Communication (NFC) wireless technology entered the fray last August.

A government-backed consortium - comprising SingTel, StarHub, M1, Citibank Singapore, DBS Bank, EZ-Link and smart card chip maker Gemalto - is running the system, which lets consumers pay for goods and services by tapping their mobile phones.

It's touted as the missing, neutral link to mobile payments. But the reality today is not much better than the past. An even more complex tangle of diverging interests emerges when telcos are thrown into an already competitive mix.

The three local telcos lease out "storage space" in special SIM cards to service providers like banks for, say, credit card apps. These payment apps have to be activated before users can make transactions by tapping their phones on readers.

While the telcos present a united front, they are also rolling out apps that can only be used by their subscribers. StarHub has an NFC movie-ticketing service with Shaw Theatres for its subscribers.

The EZ-Link and DBS One.Tap virtual credit card apps are the only common services offered by the three telcos.

If there is one lesson to be gleaned from history, it is that commercial and national interests do not often go hand in hand. Companies divide and conquer, sometimes at the expense of consumers.

Competition and more choice did little to bring Singapore closer to a cashless future. If the Government wants e-money to be ubiquitous, it has to standardise on one platform - and this cannot be left to commercial forces.

The success of the Octopus contactless stored value smart card in Hong Kong did not come about because of more choices. In fact, there was no other choice for transit payment when the Octopus card was launched in 1997.

The world's second contactless smart-card system after South Korea's Upass is also now widely used in retail and carpark payment, having received strong support from the Hong Kong government.

Nets was Singapore's chance to showcase to the world what a cashless future would look like. It has set the bar in terms of reach and ease of use. Beating this remains a tall order.

itham@sph.com.sg