Costlier cheques, e-payment fee waiver to further wean SMEs off cheques

Singapore

SINGAPORE firms are switching from cheques to e-payments, but the pace is just not fast enough.

To give them a further push, local banks OCBC and DBS are raising cheque fees and, at the same time, offering promotional rates for electronic transactions.

Small and medium-sized enterprises (SMEs), which make up the bulk of Singapore firms, told The Business Times that the financial incentives will motivate them to make the switch, but that time is needed for the entire ecosystem to change, because not all the vendors and suppliers they work with can do so rightaway.

As it is, companies in Singapore use a mix of cheques and digital payments in the daily course of business.

Lam Keng Yew, managing director of local SME Onn Wah Precision Engineering, said: "The simplest way to promote e-payment is for banks to lower the fees and speed up the processing time."

He said the relatively high digital-payment fees banks charge are the only reason his manufacturing firm still uses cheques at all. He thus welcomes the news that banks are lowering the cost of digital payments to cater to the needs of SMEs, even if it means that the cost of processing cheques is going up.

OCBC is the latest local lender to make its move. It will charge S$0.75 a cheque from Oct 1. For now, companies enjoy free cheque processing for the first 30 cheques each month, with the S$0.75 fee kicking in only after that.

To encourage SMEs to move to digital payments, the bank is offering to waive fees for their first 30 FAST transactions and PayNow transactions via FAST each month from Oct 1 until Dec 31. The fee will be S$0.50 for each transaction after that.

FAST, short for Fast and Secure Transfers, is the real-time payment-settlement network in Singapore. Each outgoing transaction now costs S$0.50.

PayNow Corporate, launched last year, enables instant payments between businesses and the government through the use of the company's unique entity number. It is provided free to retail customers.

This move by OCBC mirrors that of rival DBS, the first local bank to raise fees for cheques this month. It now charges S$0.75 per cheque, when previously, it was free for the first 30.

DBS' promotional rate for digital payments has given companies a waiver for the first 30 PayNow or FAST transactions a month since August; this offer lasts until January, after which each transaction will cost S$0.50; it was previously S$0.50 a transaction.

SMEs - defined by DBS as companies with annual revenue of S$200 million and under - get an even sweeter deal. They enjoy full fee waiver for all PayNow transactions until December 2021.

The remaining local bank that has held out on raising its prices for cheques is UOB, which still offers customers 30 free cheques a month. However, it is offering rebates of S$0.50 per transaction for up to 80 outgoing single FAST transactions or PayNow transactions via FAST each month. It now charges S$0.50 per transaction.

The uptake of digital payments by SMEs has been growing steadily over the past year, but there is still some way to go before Singapore can become a cheque-free nation by 2025.

Jasmin Ng, group head of cash product management at DBS Bank, said that the bank "bit the bullet" to raise cheque fees to lead the charge to change mindsets.

More SMEs are recognising the benefits of real-time payments for their business, especially from companies hailing from the retail, insurance, education and government sectors, she noted.

Based on OCBC's data on its SME customers, cheques as a percentage of total transaction volume fell from 71 per cent in 2015 to 57 per cent in 2018. Over this same period, these SMEs recorded a 51 per cent increase in e-transaction volume.

Melvyn Low, head of global transaction banking at OCBC Bank, said SMEs have "steadily reduced" their reliance on cheques, but "more needs to be done".

To be clear, banks also stand to gain from urging businesses to transact digitally, because of the high cost of processing cheques. For illustration, the cost of processing cash and cheques in 2015 amounted to some S$2 billion.

But even as banks are trying to entice SMEs to make the switch, obstacles still lie in the way of a truly cheque-free future.

Shirish Jain, payments director at PwC's strategy consulting arm Strategy&, said: "Changing payment methods from traditional to electronic payments is not as simple as adopting the technology - it also requires changes in business practice, redefining workflows, processes and upskilling staff."

He added that in some situations, cheques still have a unique proposition, which includes their being used as guarantees.

More companies may be open to e-payments if the price is right, but they are also cautious about fraud; they may also be held back by their business partners, who are not on board - an issue commonly raised by SMEs.

Damien Tan, chief operating officer of lifestyle brand Benjamin Barker, said the company will "definitely switch" if there are financial incentives, as its payment system is already equipped to do so.

However, cyber-security looms large for him. He said: "Fraud and unauthorised transactions are a rising concern and I would suggest requiring checks for transactions above a certain amount, say S$500."

Currently, the company - which uses a mix of digital payments and cheques - still needs to use cheques as some of its vendors and suppliers do not accept e-payments.

Even startups are not exempt from this practice.

Alvin Ea, co-founder and chief executive of container haulage startup Haulio, said: "As a tech company, we started off processing payments online, but the industry has traditionally been dealing with cheques, which led to us making an adjustment to raise cheques for our vendors."

The increase in cheque fees will hit his business, but this is a price he is willing to pay for local businesses to move towards digital payments, which will eventually benefit all stakeholders.

"Most importantly, I don't have to sign cheques anymore," he quipped.