Going cashless: a case of keeping up with the Jiangs?

The title of the post is an alteration of the phrase “keeping up with the Joneses”, converted to a Chinese surname (江).

My brother commented over breakfast one day that the “Smart Nation” campaign for cashless payments seemed to be motivated more by “China is ahead of us!” than trying to improve the daily lives of people.

There are many reasons to promote cashless payments. It is good for hygiene, since cash is quite dirty, so it makes sense to have food sellers not handle cash. Reducing the use of cash would reduce the risk of lost and stolen money. There would be savings in transportation and security costs of moving cash to top up ATMs and to deposit in banks. It would also reduce the time spent counting cash, saving manpower.

Instead of mentioning all these legitimate reasons, we get “we’re so backward compared to China”.

There are reasons why cashless payments might be more popular in other countries. The merchant fees could be much lower than in Singapore. ATMs might not be as widely available or not operate 24 hours. In some places, ATMs can only be found at bank branches and are not available at night. The crime rate could be higher, leading people to carry less cash.

If the “Smart Nation” campaign is motivated by the desire to outdo China or profit-seeking by banks, I think that the end result will be inconvenience for consumers and additional charges borne by consumers.

Example 1: EZ-Link and NETS Flashpay

When the EZ-Link card was introduced as a replacement for the previously-used magnetic farecards, a $5 NON-REFUNDABLE card cost was also introduced. The magnetic farecards were free, with a refundable $3 deposit.

The payment system essentially went from being free of charge to requiring that consumers pay to participate. The magnetic farecard required the user to pay upfront, but the deposit was fully refundable, meaning no loss to the consumer.

Now, both EZ-Link and NETS Flashpay have the $5 card cost. I am very sure that each card does not cost $5 to produce. The so-called “card cost” is a way of getting the profit from each user first, even before they start using the cashless payment system.

Since our public transport system is aiming to go completely cash-free in 3 years, this will be a double penalty for new users. Their option to use cash is taken away, and they must pay $5 upfront to join the payment system.

Are the card balances not enough to cover operating costs? At a very conservative estimate of 3 million users, each with only 1 card, and an average of $10 in each card, it works out to $30 million in stored value. Each company has about $15 million stored value, and this amount is most likely an underestimate.

Will this be the “Smart Nation” way of working? Charge the end-users to recover the system set-up costs, then continue charging new users to earn a bigger profit?

Example 2: Credit cards (Taxi versus budget airlines)

During a previous dispute, Visa stated that taxis were not allowed to add administrative charges for credit card payments.

However, in a blatant example for double standards, nothing was ever said about budget airlines’ practice of adding $10 PER TICKET for credit card payments. If you book 2 people on return flights and make a single payment, the charge is $10 x 4 = $40.

Also, the budget airlines have recently extended this practice to eNETS and AXS payments. The surcharge used to be $5 per payment. Now it is $5 per TICKET. So you no longer save on payment surcharges by making multi-person or return flight bookings.

Example 3: Paypal

Paypal is a system that actually offers benefits to infrequent and small-volume users like myself. I have already mentioned using Paypal for Groupon purchases.

Their fees for cross-border payments are very reasonable compared to what banks charge (about 4% + $0.50, compared to at least $20 for bank telegraphic transfer). Remittance agents probably charge less, but they only operate in a few selected countries.

I am not eager to hop on the Alipay bandwagon because Taobao suddenly stopped accepting eNETS payments some time ago, and also terminated the usage of “Alipay balance” (similar to Paypal balance, not the same as the Alipay Taobao prepaid purchase card) for users without a China local bank account. I think that this sudden termination of services or functions is possible in the future.

Current system

At present, using cash incurs no surcharges for the average consumer. Banks do not charge for opening accounts as long as you maintain a minimum balance. If you close the account, you get all your money back, as long as you don’t close it too early (less than 1 year after opening). The following are all free of charge: obtaining an ATM card, withdrawing money, depositing cash (in notes of denominations $10 and above).

Most mobile phone payment systems will require installing an app as well as a mobile data connection. What happens to the lower-income group and the elderly who cannot afford newer, higher-end smartphones compatible with the app, or mobile data subscriptions?

Cash is a very robust system. Your cash will still be usable and acceptable even if there is a blackout in the shop, if the mobile phone network is down, or if your phone battery is flat. Mobile network outages have happened before. Poor reception is also a possibility.

Most importantly, the tiny market in Singapore consists of only 5 to 6 million potential users, less than a single large Chinese city. This small user population is further fragmented by the abundance of non-compatible apps and payment systems: Apple / Samsung / Android Pay, NETS, PayNow, etc.

What are the chances that the small user base and fragmented market will result in lower merchant and usage fees? It is more likely to result in profit-seeking by banks and payment companies (previous link is worth repeating here). Topping up EZ-Link on AXS stations used to be free, now there is a $0.20 fee. Auto top-up of NETS Flashpay on OCBC FRANK credit cards used to be free, now there is a $0.25 fee.

There haven’t been many complaints about having to use cash, so why not focus on other more important problems that need solving?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.