Singapore’s cashless march continues despite bank outages

WEANING Singaporeans off cash has taken decades, and the process continues.

As early as the 1980s, there were already campaigns to minimise cash transactions. These included moving to cashless paydays, encouraging the payment of bills through Giro, and implementing electronic payments at points of sale, with a goal to make cashless transactions “a way of life”.

On the face of it, the dream of a cashless society appears to be close to reality. Today, nearly four in five transactions at points of sale in Singapore are carried out digitally.

But one weekend in mid-October – when digital banking services from DBS and Citibank went offline – cash was once again king.

Some 2.5 million payments and ATM transactions were disrupted over nearly 14 hours. Consumers had to scramble for their piggy banks or seek alternative backups just to go about their day.

Frequent disruptions to banking services in recent months have cast the spotlight on the growth and resiliency of cashless payments in Singapore.

While digital channels certainly bring benefits, the growing reliance on such systems means that the impact of any outage is far-reaching.

Even though consumers have been advised to carry some cash as a backup, experts say the momentum for cashless payments in Singapore remains intact.

But they also believe that more attention should be placed on alternative channels, as well as greater inclusion amid the unrelenting push towards a cashless society.

Growing proportion

The minimisation of cash transactions comes with obvious advantages. These range from greater transparency and faster transactions, to the sheer convenience of not having to carry physical currency around.

“We should always be pushing for more, because we fundamentally believe that digital payments can make a difference to both the merchant and the consumer,” says Nets group chief executive officer Lawrence Chan.

The momentum has accelerated in recent years, driven by both policy and technological advances.

Cash accounted for around 60 per cent of non-stored-value facility transactions in 2015 alone, with its use most widespread in hawker centres, according to a 2016 KPMG report.

But the proportion of cash at point-of-sale transactions fell to 19 per cent in 2022, the Global Payments Report 2023 published by FIS showed. This proportion is forecast to slip further to 13 per cent by 2026.

Anton Ruddenklau, partner and head of financial services at KPMG in Singapore, notes that there aren’t any fully cashless societies in the world just yet. But Singapore remains one of the foremost countries in the world on this front.

Other countries in Asean, such as Thailand, Indonesia and Malaysia, had cash use ranging from 34 to 56 per cent in 2022, going by FIS’ report.

“When you look across Asia, obviously this is a very good performance for Singapore,” says Ramanathan Sivabalan, head of financial crime compliance and payments for Asia-Pacific at LexisNexis Risk Solutions.

But compared with other developed economies, Singapore’s cashless adoption still has room to grow. “(In) Sweden, the percentage has gone down to the single digits, and it’s falling,” Sivabalan says. “It’s now almost like 8 per cent, so that means that there is potential for Singapore to increase its spot on cashless adoption.”

Expanding options

The move away from cash in Singapore still lags other Asia-Pacific markets, such as South Korea, Hong Kong, China and Australia, according to the global payments report.

Experts note that the cashless mechanisms available to consumers are broad, and approaches between countries vary. China, for example, is recognised as one of the leaders in the cashless push, but the model there is very different from Singapore.

Large tech players such as Tencent and Alibaba dominate digital and payment applications, covering around 90 per cent of the market. Singapore, however, does not have a monopoly or duopoly in the market.

Local consumers largely rely on credit and debit cards, which make up around 57 per cent of electronic payments.

“This is not necessarily keeping up with the times,” Sivabalan says. “That really should not count towards cashless or digital payments, because it is using an intermediary. And especially when you speak about resilience, you are dependent on the card clearing members infrastructure.”

A drawback of cards are the transaction costs involved, which are a disincentive for some segments of the population.

“That’s one of the main reasons why you see in hawker centres, we still have a preponderance of cash. So Singapore’s cash adoption has basically stopped at 19 per cent due to this mix that we have right now,” Sivabalan adds.

Even though some countries are ahead in the digital payments journey, Chan from Nets believes that Singapore consumers are not slow to adapt.

“We have very good infrastructure where both the buyers’ and sellers’ needs are met,” he says. “To make that change, the articulation of (its value) has to be very clear.”

When digital payments first became available, merchants were willing to provide such channels despite incurring fees, Chan notes. “They go digital because they get more business. When people pay by card… it is easier to spend more.”

But the same proposition is less appreciated by smaller merchants. Citing the example of a soya bean milk seller who sells an inventory of 200 cups a day, he says: “I really don’t need to sell another 10 more cups because I only have so much to sell.”

Nevertheless, there has been progress in digital adoption among hawkers, with over 70 per cent of cooked food stallholders accepting e-payments in 2023.

“Will it reach 90 to 100 per cent? I would say yes. But just like cheques, it will take time,” Chan says.

To push the idea of digital payments to smaller merchants, the proposition has to be convenience.

“Digital payments will work when really the whole ecosystem of the merchant – whether it’s selling to the consumer or buying from a supplier – can use digital payments,” Chan says.

This is now becoming a reality, with channels such as PayNow helping to ensure greater access. The value transacted over PayNow has grown, to some S$46 billion in 2021 from S$3.1 billion in 2018.

Chan adds that one positive aspect arising out of Covid-19 was that people became more used to scanning quick response (QR) codes as part of entering buildings; this has increased the normalisation of QR payments. The SGQR payments solution has increased from around 42,000 merchant acceptance points in 2019 to over 260,000 by 2021.

LexisNexis’ Sivabalan notes that an ideal payment model should be fair and equitable. Initiatives such as PayNow and SGQR to integrate various payment services have been helpful, he adds, as small merchants can still conveniently use digital payments, even without a terminal.

“Singapore is gradually changing that mix, and it’s coming to its own unique answer to the cashless ecosystem.”

Reliability and security

While more are relying on digital channels for their payments, the downside is that any outage would also become immediately noticeable and disruptive.

KPMG’s Ruddenklau notes that banks may have faced problems in their IT systems in the past, but no one would have been aware as markets weren’t as fully digital. “We have much higher expectations of our financial sector than probably any time in living memory. And so when these things are highlighted, they do become more well-known.”

Others also emphasise that outages in financial services are not unique to Singapore.

“It happens elsewhere as well,” Sivabalan says. “Indian banks have gone down, Chinese banks have gone down...the reason this is happening is because of the explosion in digital transactions.”

He adds that LexisNexis has worked closely with various banks, and there has been a 30 to 40 per cent increase in transaction volumes, especially after the pandemic.

“As banks try to adapt to this new changing normalcy, these kinds of outages unfortunately will be on top of the mind,” he says. He adds that regulatory actions and greater focus could drive improvements over time.

Wong Nai Seng, regulatory strategy leader at Deloitte Southeast Asia, notes there are regulatory requirements for payment service providers to maintain robust systems and processes, to ensure ongoing availability of services.

However, he adds, service disruptions may still occur from time to time due to technical glitches, cyberattacks or other incidents. “Consumers and businesses should consider having alternative payment providers or using cash as a contingency. This will help minimise inconvenience in the event of any service disruption.”

Similarly, the Monetary Authority of Singapore has said the public could benefit from having alternative providers, and carrying some cash as a contingency.

Ruddenklau, however, notes that this opens up the risk of physical crime.

“The reality is cash is very, very unsafe,” he says. “Where I think the system needs to develop is probably having digital fallback mechanisms, not necessarily encouraging people to hold cash in their pockets again.”

Retailers also believe that the reliance on digital channels will continue despite the occasional inconvenience, but they hope that protection mechanisms can be beefed up.

“No one in our sector is questioning whether we should move forward or not, it is only a question of how we can avoid or at least really minimise future disruptions,” says Terence Yow, managing director of fashion retailer Enviably Me, and chairperson of Singapore Tenants United for Fairness (SGTUFF).

He notes that accidental and unintentional disruptions are not as big a concern as more malicious attacks. “How do they really minimise malicious disruptions which could take shape or form in so many ways, and what are the liabilities and what are the risks to small businesses?”

While such malicious disruptions have not materialised so far, it is important to prepare for such “black swan” events before they happen, he adds.

“S$10,000 might not be a very big sum for banks, but if a small business gets S$10,000 taken out due to malicious hacking – they need the money to pay for supplies and salaries – then that becomes a real issue,” he says.

“If anything, I think maybe a bit more consideration could go into some sort of framework… to ensure that small businesses are not unfairly or unduly disrupted, or in some cases put out of business due to no fault of theirs.”

Amid greater security concerns, banks have also been stepping up their efforts in consumer protection in the online sphere.

Last month, the three local banks announced a feature to allow customers to lock their funds from being used or moved digitally. Physical verification will be required to unlock these funds.

Syed Ismail, head of customer advisory for Singapore at analytics software company SAS, notes that analytics can be used to understand patterns and ensure that systems are more resilient.

He says that, as the adoption of digital transactions increases, current systems will need to be bolstered. “The only way for you to be able to cope with (the scale of digital transactions) is to have artificial intelligence and machine learning to accompany those processes to ensure they are able to detect (issues) beforehand.”

But he adds that protection must be balanced with convenience, and this will need to continuously be adjusted.

Cashless is inevitable

While the government has said that it does not aspire towards a cashless society, experts believe it is simply a matter of time before the inevitable happens.

“It’s a little bit like cheques,” Ruddenklau says. “Right now, your cheques have become extremely expensive to process.”

He adds: “It’s an economic decision, and I think it’ll go the same way with cash, where it’ll just become uneconomical.”

While the topic of phasing out cash isn’t being debated right now, he expects serious conversations on such a scenario to materialise within the next five years.

“It will be by consumer demand, rather than by design by the financial services sector,” he adds.

There are already signs of slowing demand for physical banknotes globally.

Currency solutions provider De La Rue’s revenue from its currency division fell 9.4 per cent year on year in FY2023, mostly due to lower banknote volumes.

It noted in its annual report that demand for banknotes has recently been down, with its order book as at March 2023 at its lowest level in five years.

Chan from Nets also expects the transition to a more cashless society to become more likely in the next 5 to 10 years, even though he believes consumers should still have the benefit of choice.

“But I also think this will not naturally happen by itself,” he says. “(Just as) it takes a village to raise a child, it does take a village to raise digital payments. It does take a while for the whole ecosystem to buy into it.”

He adds that aspiring for zero cash or full digital payments may not be a necessary end.

“The most important thing is not (going) digital for digital’s sake,” he says. “We have to be aware of the social impact and I think we do need to give people choice, both merchant and consumer.”

While governments are unlikely to ban the use of cash, market watchers believe physical currency may simply become a relic in the longer term.

LexisNexis’ Sivabalan likens the road ahead for cash to philately – the collection and study of postage stamps. “There will be coin collectors and note collectors – that’s what’s going to happen to cash in the future.”