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03 Jan 2020
Monetary Auth of Singapore
Suggestion View - 863
Cost of different modes of payment

It is important for the public to realize the true cost of different modes of payment. This will guide them to make the most sensible decision.

Cash Payment
Most people prefer to use cash payment because it is free. They do not realize that the banks have to incur a high cost to provide ATM machine for them to withdraw cash.

Merchants also have to spend time to deposit the cash in the bank. The bank has to provide the cash counting machines and bank tellers to oversee the mechanical counting.

This is a high hidden cost that the public is not aware. In some countries, there is a fee charged for withdrawing cash from ATM machines. We should levy this fee to reflect the cost of providing this service.

Cheque Payment
Paying by cheque is costly. Apart from the time taken to process the check, there is also the need to post the cheque. There is a lot of manual work involved with the payer, payee and the bank.

In some countries, there is a fee levied on cheque payment to reflect this cost.

Credit card
Many people do not realize that the card payment network (Visa, Mastercard) levy a fee of about 2% to handle the payment. This fee is usually paid by the merchant, but some merchants ask the customer to pay this fee. In other cases, the merchant absorb this cost as part of the operating cost, which has to be reflected by the price paid by consumers.

FAST transfers
MAS has introduced FAST transfers to allow immediate transfer of money from one bank account or e-wallet to another bank account. There is no fee charged for this service at present.

However, there is a large cost of processing this mode of payment. It is currently absorbed by the bank. At some time in the future, the bank has to impose a fee of $0.50 (my guess) to process this payment.

QR Payment
NETS has provide a platform for customers to pay to merchant using QR payment using an app or e-wallet. This mode of payment uses FAST. it is quite expensive. 

Currently, NETS absorb this cost. However, they will require to levy a fee in the future. This fee will make this mode to be unacceptable.

The solution
We need to find a cost effective way to make e-payment. China has adopted QR payment using e-wallet operated by Ali Pay and Wechat Pay. These methods are cost effective and only involve the banks for top up and withdrawals. The normal transactions are handled through the e-wallet platform and do not involve the banks.

The drawback of these two platforms is that it requires all parties to have a mobile phone with data. Most young children do not have the device and cannot participate in these platforms. 

A better solution is to use an e-wallet that is linked to a unique RFID card. It is described here.

I hope that the MAS will take the lead to implement a more cost effective approach, so that e-payment can really take off in Singapore

Tan Kin Lian

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