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05 Feb 2019
Smart Nation
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Why cashless payment is better

In Singapore, consumers are used to make small payments with cash. They withdraw cash from ATM machines and use the cash to pay to merchants.

They do not incur any fee to withdraw the cash from ATM machine or to pay the cash to the merchant. When the merchants deposit the cash into their bank account, there is also no charge. 

Most consumers and merchants overlook the fact that the bank has to incur cost to provide cash through the ATM machines and to count the cash that is deposited into the account.

Similarly, the merchant has to spend time to collect cash, count the cash, count the change, and to deposit the cash into the bank. The time spent on counting the cash could be used more productively for the business. If the merchant employs a worker to do the work, the time spent by the worker is a cost to the merchant.

Let us see what is the improvement in productivity when an e-wallet is used, instead of cash. 

The consumer can transfer cash from a bank account directly into the e-wallet. He does not have to spend time at the ATM machine. The bank reduces the cost in providing many ATMs and in filling up the ATM with currency notes.

The consumer can pay the merchant by scanning a QR code. The merchant receives the payment directly into his e-wallet. There is no need to count the cash and the change. At the end of the day, the merchant can transfer the collection from the e-wallet into the bank account. 

Much time is saved by avoiding the need to count cash at many stages of the transaction. The risk of stolen or lost cash is minimized.

Most consumers have a mobile phone. They can create an e-wallet in the mobile phone. 

For consumers that do not have a mobile phone, such as children or the elderly folks, the e-wallet can be a stored value card. The cash can be transferred into this card and payment can be made by tapping the card against a device. 

Currently, the banks provide a service to make transfers between bank accounts using the FAST payment system. This is suitable for making large payments. However, it is costly to use FAST for small payments. 

Although the FAST service is offered free, there is a cost that is now borne by the bank. Eventually, the cost has to be charged to consumers. Currently, a business entity has to pay a charge of $0.50 to make a FAST payment. A similar charge is likely to be imposed for consumers at a later date. This charge is too high and will not be acceptable for small payments.

Small payments should be made by e-wallet where the processing cost is much lower. 

For the e-wallet payment to take off, we have to take the following steps:

a) Create a standard system that is adopted by all consumers and businesses in Singapore. This system is like AliPay or WeChat Pay. There should be only one system.

Tan Kin Lian

b) Reduce the charge for e-wallet payment to $0.02 or 0.1% of the transacted amount. The merchant will be willing to accept this fee, as it can be more than offset by the saving in time of the workers.

c) All the e-wallet accounts are handled by a central system that can be owned jointly by all the banks.

d) The platform should have an interface to allow e-commerce, ride hailing and other online businesses to collect payment from the e-wallet. The consumer is likely to prefer to use this e-wallet to make all payments, instead of keeping money in the e-wallet of each merchant.

e) At some time in the future, the banks will have to impose a fee for cash withdrawal from ATM machine. This fee should reflect the actual cost incurred by the bank to provide this service. 

We need to move to cashless payments through e-wallet and to have a standard system that is adopted by all businesses.

I hope that the people in charge will adopt this strategy to make more people use cashless payments.

Tan Kin Lian


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