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Cashless Payments: All Good and No Bad?

Soon enough, you will not need to take your wallet with you when you step out of the house as Singapore moves towards a cashless society and economy. All you will need is an accessory like a smartphone or watch to make payments, or better yet, use biometric identification like an iris or thumbprint scan. Maybe even voice recognition.


Cashless payments are being pushed for mass adoption as part of the government’s Smart Nation initiative. In his National Day Rally speech this year, Prime Minister Lee Hsien Loong called for Singapore to make a greater push towards cashless payments, noting that Singapore lags behind in this area on the international front.


China leads the way in this global trend. Almost everyone in major Chinese cities uses QR (quick response) codes and digital wallet services like WeChat Pay and Alipay. Such digital wallets, linked to an individual’s bank accounts, are even accepted at roadside stalls and in taxis. In India, the government has laid the groundwork for a cashless society by pushing a national digital funds transfer system, called Bharat Interface for Money, and a biometric identification system, dubbed Aadhaar, to secure transactions. The goal is to ensure that all Indians, even the rural poor, have access to digital banking services.


Even as there are upsides to cashless payments, is its adoption a silver bullet that is only going to transform society and the economy for the better? Or is it a double-edged sword that requires care when handling? What are the downsides to be wary of?


The Upsides


Image: Azcamsmedia


The biggest upside to cashless payments is the unparalleled convenience it offers. Transactions can be made in a fraction of the time it takes to handle physical currency. No need to hunt for the ATM if cash is short, or even count your cash carefully before handing it over. The exact amount needed is seamlessly transferred with a scan of the QR code or a few taps in an app. If you happen to be in an Amazon Go grocery store, you can just grab an item and walk out; checkout and payment is done automatically with the help of sensors and sophisticated machine learning technology.


There is no shortage of organisations and people preaching the benefits of going cashless. Governments benefit from cashless payments as they lower the demand for and resources spent on issuing and maintaining physical dollars and coins. According to a study by consultancy KPMG, the cost of processing cash and cheques in Singapore was about SGD$2 billion, or 0.5% of gross domestic product (GDP) last year. The cost includes storage, transportation, security and incineration of physical legal tender.


Cashless transactions also make it easier to collect taxes as individuals and businesses cannot avoid reporting cash income or secretly stow money away in an offshore bank account. This is one of the intentions behind the cashless push in India where tax evasion is known to be rampant.


The Downsides


Added Costs


Good things aside, the added speed and ease of cashless payments comes at a cost, literally. The biggest pain point as highlighted by businesses, consumers and industry observers – hefty transaction fees. This applies in multiple sectors such as transport, retail and entertainment. Commuters for instance, pay for taxi rides with a 10% surcharge for credit cards. If one wants to automatically reload the value for an EZ-link stored value card, there is a 25-cent “convenience fee” for every transaction except for customers who use certain credit cards for the auto top-up scheme. Movie operator Golden Village and ticketing agent Sistic similarly charge at least $1.50 more for the convenience of online ticket purchases.


Image: Aspidistra


Businesses are not spared as well. Most retailers, especially smaller ones, choose cash transactions to avoid paying added charges imposed by credit card companies and banks such as a 3% transaction fee. Similar fees apply to mobile wallets such as Apple Pay, Android Pay and Samsung Pay, most of which are tied to existing credit card infrastructure. There is also a problem with delayed payment settlements that lead to cash flow concerns for some businesses. Singapore’s most widely-used cashless payment network, Nets, takes at least a day to settle payments, while credit card transactions take up to two days to settle.


Ironically, cash transactions are the category that is supposed to be more costly to process, with digital payments being cheaper due to greater efficiency for businesses and banks. But until this potential advantage of cashless payments becomes reality, cash will still be king. In such a landscape, there is a need for regulatory intervention that entails cashless payment service providers accepting a lower profit margin. A recent new ruling In Australia banned all local businesses from making consumers pay excessive surcharges for using EFTPOS – the equivalent of NETS in Singapore – and credit cards. Going one step further, from January next year in the European Union, all surcharges for purchases made by cards would be banned across the region.


Privacy and Security


Image: Cisco


If cashless payments are to take off in Singapore, a robust system of identity authentication and secure transactions is crucial to protect the privacy of consumers. As customers make more purchases digitally and reveal more of their personal information and transaction data, they become vulnerable to fraud and identity theft. A recent spate of scams in China involving QR codes brought attention to the issue of security in mobile payments and led to calls for the authorities to do more to protect consumers. According to media reports, about US$18.2 million (90 million yuan) has reportedly been stolen via QR code scams In Guangdong province, while over 23% of trojans and viruses are currently transmitted via QR codes.


Such developments in China offer lessons for Singapore, where the government is working with technology companies to develop a digital identity – like a digital NRIC – for citizens that will ensure the secure identification of every user for use in areas like banking and healthcare. In addition to protecting against fraud and theft, such a secure system would allow users to do away with multiple e-banking tokens and the need to maintain various passwords.


Image: South China Morning Post


Lack of Unified System


Singapore’s payment landscape has long been fractured as providers of cashless payment services operate on the basis of ‘divide and conquer’. This means the problem of businesses accepting one payment option and not another, confusing and inconveniencing consumers as a result.


Until this year, banking apps that facilitated fund transfers such as DBS PayLah, UOB Mighty and OCBC Pay Anyone were not inter-operable. A much-awaited breakthrough only occurred in June this year with the launch of PayNow, a central addressing system that now lets users send money to a mobile or NRIC number regardless of which bank is involved. However, there is still some way to go in this area. The two most widely-used cards in Singapore – EZ-link and Cashcard – are still not fully inter-operable in carparks and public transport.

Image: Smartcard


Social Effects


From a financial management perspective, cashless payments, like credit cards, mean a lack of purchasing friction that encourages people to spend beyond their means. While there may be more of a sense of loss handing over physical currencies, it is easier to get carried away when the money is not visible to the eye. As we are wired to weigh the present more heavily than the future, that may mean burdening our future selves with the debt of today’s expenses.


Experts have noted how some segments of society might be marginalised by the sweeping changes that cashless payments bring. Low-income individuals or households might not even have bank accounts which are necessary to make cashless transactions, while there are elderly people who are not technology literate and rely on cash as their sole mode of payment. The needs of those with special needs such as visual impairment must also be considered. Acknowledging such concerns, Minister-in-charge of the Government Technology Agency Janil Puthucheary said the government will work to assess the barriers present and address them in a way that is socially inclusive and sensitive.


As Singapore forges ahead with making cashless payments a way of life for society and the economy, its actual and potential downsides must be recognised and prudently managed to ensure it is an overall success. Being a Smart Nation is not only about embracing new technologies and innovations, but successfully negotiating real-world obstacles.


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