Htet Tayza comments on a recent announcement made by Ravi Menon, the Managing Director of the Monetary Authority of Singapore (MAS) the city state’s central bank. Menon revealed that Singapore is planning to create a cashless economy, by incentivising banks to take digital payments.
Regional fintech hub
Singapore is becoming an increasingly prominent regional financial hub. The city state was named the largest financial centre in Asia in think tank Z/Yen Group’s most recent Global Financial Centres Index. Singapore is a triple A-rated economy, provides investors to Asia’s four-billion strong population and is home to over 200 banks, a rising number of which are basing their regional headquarters there.
Furthermore, Singapore is currently developing a thriving fintech scene. Its recently announced fintech policy creates an environment where innovative start-ups can thrive. Singapore’s central bank has said that it will invest US$167 million in fintech projects over the next five years. Also, IBM is planning to create its first fintech research and development centre in Singapore, creating a range of technology pilots which could enhance the city-state’s trade and finance industries going forward.
Basically, Singapore holds the financial and technological infrastructure to go cashless. Expanding on this point at a recently-held fintech conference, Menon noted that “for consumers, the use of cash for daily payments is high,” while “for businesses, the use of cheques is relatively high too.”
Menon supplemented his case by comparing Singapore to Sweden, which is currently leading the race to become Europe’s first cashless society. Cash circulation rates in Singapore, currently equal 8.8% of gross domestic product (GDP), in contrast with just over 2% for Sweden. In 2014, there were practically no cheques written in Sweden, but there was average of 12.7 cheques written per person in Singapore, so the city-state has some way to go before becoming cashless.
Menon noted that its costs Singapore around US$1.5bn per year to store and process cash and cheques, an amount he labelled “non-trivial.” He suggested that Singapore’s bank pass on the expenses involved in providing paper-intensive services to consumers completely going forward, to incentivise them to switch to digital payments. Over the next year, Menon added, the MAS wishes to see the number of digital transactions executed via phone, national ID and other secure numbers rise.
News site Bloomberg notes that Citigroup Inc. published a report in June 2016 which sheds more light on this matter. It noted that based on high bank and mobile phone usage, Singapore, the UK, Sweden, the US and Finland are the countries which are most prepared for digital payments. Furthermore, Singapore is already starting to develop its cashless infrastructure. Companies such as Apple and Samsung have now made mobile payment services such as Apple Pay available in the city-state.
Driving society forwards
An editorial on Finextra argues that “a mobile cashless society will be revolutionary, safer than cash, convenient, quicker to operate and unstoppable.” It will eliminate paper money-related costs for banks and businesses and end cash-related crime, although it could make financial cybercrime a bigger issue. Furthermore, cashless is more convenient for consumers and could even help tackle global warming, as paper money production is a major contributor to greenhouse gas emission.
Within this context, it is easy to see why Singapore’s central bank wishes to create a cashless society. The city-state is already making some progress, but it has a long way to go. As financial authorities in nearby-Myanmar are currently seeing, it can be hard to persuade consumers to change their habits and switch to digital payments. However if Singapore’s banks follow the MAS’ advice, consumers may switch to digital payments to save money, powering the creation of a cashless Singapore.