TL;DR – It needs to solve real problems.
At his NDR speech this year, PM Lee said that Minister Lim Swee Say was a suaku in China because he didn’t know about WeChat pay. PM Lee used this as an example of how Singapore is quite behind China in becoming a cashless society.
But PM Lee didn’t get to the crux of the issue – WeChat pay and AliPay are so pervasive in China because they solve real problems and bring real benefits to consumers and businesses.
Why aren’t we cashless yet?
That is not the case here in Singapore. Two posts on Facebook explained why.
The first post is by Lim Jialiang, a Singaporean who runs an online business selling chocolates. He made three points.
Firstly, Lim highlighted that the costs of going cashless in Singapore is high compared to those in China. A transaction in China would incur a 0.35 per cent charge for a debit card and 0.45 per cent for a credit card. In contrast, it costs 2.5% to 4% in Singapore. The costs are mainly set by banks. Secondly, it’s costly to set up cashless payment terminals. Lastly, users need to click numerous times before they can use cashless payments.
The second post is by Mr Brown, Singapore’s “blogfather”. He also pointed to the additional costs of going cashless. This time, the costs are borne by the consumers. If we take a taxi now and want to pay by NETS, you’ve got to pay 30 cents more.
And then there’s the need to juggle so many different cards – credit cards, ATM cards, EZ Link cards, cash cards. That means having to juggle PIN for ATM cards, and go through the trouble of topping up EZ Link and cash cards. Those are some reasons why going cashless in Singapore now isn’t convenient enough to get mass adoption in Singapore.
What characteristics does the system need to have?
These two posts actually give us a very good idea of the characteristics of the system that would help us become cashless. Here are three that we can think of.
First, it needs to be cheap for both businesses and consumers. That’s why businesses in China weren’t resistant to adopting WeChat Pay and AliPay. Adopting those two cashless payment methods didn’t eat into their margins much. And certainly, any costs should not be transferred to consumers.
Second, the system needs to be simple to use. Businesses shouldn’t have to install bulky machines. Consumers shouldn’t need to keep clicking buttons to transfer funds here and there just to use the system. Best if consumers, after the initial setup, just need to use their fingerprint (or click one button) to make payments.
Third, the system should not adversely impact the cashflow of businesses. Cashflow is to businesses what oxygen is to human beings. This is especially true of small businesses like hawkers. If businesses need to wait a few days before they get their money from the system, then they may not have enough money to pay their suppliers. That can break a business.
What benefits are there of going cashless?
If there the system can have the above characteristics, then going cashless might be really be beneficial. What benefits?
Beyond the often cited convenience of consumers not having to queue to withdraw cash, the other big benefit is the increase productivity for businesses. It takes a lot of time for businesses to handle cash – getting coins from banks to give change to customers, counting cash at the end of the day, depositing cash. Going cashless will do away with all of those.
Of course, there will be more benefits if the system is better designed. For instance, if the system is integrated with some accounting software, then it would also improve business productivity. And if the system can be integrated with some personal finance management system, where consumers can see what they’re spending on, and get alerts if they seem to be spending too much, then that would help people to better manage their finances.
What would it take to make this happen?
We have made some progress in coming up with a system that would make going cashless become beneficial for consumers and businesses. PayNow is a good start. But more needs to be done.
Singaporean banks and MAS need to come together to think how best to bring down the costs to business of going cashless. They have to put in great effort to design great user interfaces that deliver delightful user experiences. This means that they have to truly understand the things that are causing pain to users (which include consumers and businesses) when handling cash so that whatever system they come up with can ease or eliminate those pain.
If all those can be done, then perhaps going cashless in Singapore would make sense.