According to #PwC, 31% of Singapore’s Fintech firm provides payment services, making payments the largest subsector in Fintech.
What are some of the most commonly used #payment methods in Singapore? What is an E-wallet? How do “Buy Now, Pay Later” services work? If you are interested to find out about the answers to these questions, check out the following article as our student writer sheds light on recent developments in Singapore’s #Fintech scene and what to expect in 2023. #BNPL #ewallet #PayNow
Payments Industry: The Way Forward in 2023
2022 has been an exciting year for Singapore’s Fintech industry as we witness many new developments across various subsectors, such as the launch of virtual-only banks and heightened interest in Buy Now Pay Later (BNPL) services. Across the ASEAN region, the average size in Fintech deals increased from US$23 million in 2021 to US$26.5 million in 2022. According to KPMG, Singapore’s global market share has also doubled from 3.1% of global deal value for Fintech in FY 2021 to 6.4% in Q2 2022. As of June 2022, Singapore is home to 1007 operating Fintech firms, which constitutes 67% of the total number across the region. Such trends further anchor Singapore’s leadership position in Southeast Asia’s Fintech scene. As suggested by PwC’s 2022 Fintech State of Play report, up to 31% of Fintech firms in Singapore provide payment-related services, making Payments the largest subsector in Fintech. Let’s review the state of payments in Singapore in 2022 and the way forward for the payment market and what consumers like you and I might expect in 2023 and beyond.
Bye Bye Cash, Hello Cashless Payment!
In 2022, we observed a surge in the usage of digital payments, which can be attributed to e-commerce growth and the adoption of cashless payment technologies at physical stores. Among the many digital payment technologies, PayNow and e-wallets are becoming increasingly popular. Launched in 2017, PayNow is a P2P fund transfer service which allows payments to be paid to Corporates via UEN and to Individuals via mobile number, NRIC or Virtual Proxy Address, saving the hassle of providing elusive bank account details during the transfer. Over the years, PayNow has seen a surge in total number of registrations and has more than 5 million users till date.This fund transfer service has also been extended to corporate users and currently, the number of corporate users has already surpassed 240,000. PayNow allows users to make payments to entities by simply scanning a PayNow QR code, which is integrated with the Singapore Quick Response (SGQR) code. Given its high adoption rate and the convenience it brings, PayNow is unarguably integral to every Singaporean in their daily lives.
Apart from PayNow, the use of e-wallets is also becoming more prevalent in Singapore. According to Bloomberg, the market for e-wallets is expected to grow by 311% between 2020 and 2025 in Southeast Asia. Despite having Southeast Asia’s highest card penetration rate at 1.73 debit cards and 1.61 credit cards per capita, Singaporeans have been rather receptive to new payments technology over the years. In fact, the number of e-wallet users in Singapore has surpassed 4 million. An e-wallet is an alternative to mobile payment whereby users can make contactless payments using their mobile phones instead of using a physical card. In addition, e-wallets requires users to load funds into the them using credit or debit cards before transactions. Certain e-wallets, such as Singtel’s Dash Wallet, also allow users to top up their e-wallet through physical avenues – e.g. at 7-Eleven outlets and Singtel Shops. When one makes any transactions, the e-wallet will process the transaction directly and deduct from the amount of fund that was loaded into the e-wallet.
Locally, the top e-wallet providers are GrabPay, DBS PayLah! and Singtel Dash. Often, e-wallet providers can be categorised into a few categories as these e-wallets are embedded in various apps (See Table 1). Such embedment allows providers to integrate or even launch their own payment method to go hand in hand with their product offerings.
| Types | Examples |
| Independent Apps | GrabPay, ShopeePay, Alipay, WeChatPay, YouTrip, Revolut |
| Mobile Service Providers | Singtel Dash |
| Financial Institutions | DBS PayLah! |
Table 1: Types of E-wallet Providers
One reason for the popularity of e-wallets and why consumers may choose an e-wallet solution over credit cards is the attractive rewards and perks given, in addition to access to integrated features of the app. For example, for each GrabPay transaction made, users can earn GrabRewards points which can then be used to claim discount vouchers for ride-hailing and food delivery services offered on the same app. The region’s leading e-commerce platform, Shopee, also launched ShopeePay back in 2019 to provide greater convenience to users when checking out online. Secondly, certain e-wallets allow for multi-currency payment which may help to reduce costs when doing online shopping or paying while travelling overseas due to attractive exchange rates; some even absorb foreign transaction fees (which can be hefty for credit and debit card transactions). Frequent travellers may have heard of YouTrip which offers a multi-currency e-wallet that allows users to pay in more than 150 currencies when shopping online or overseas. Apart from online purchases, e-wallets have also expanded their offerings to allow payments at brick-and-mortar stores.
Furthermore, the adoption of e-wallets has made it easier for foreigners to spend in Singapore, benefitting merchants. As the local e-wallet market matures, the Singapore government has also been actively pursuing partnerships to facilitate cross-border e-wallet payments. You may have noticed Alipay+ advertisements have started to spring up at locations like Changi Airport. Alipay+ is a payment solution which allows users from China to pay using their local e-wallets when spending overseas. Currently, Alipay+ allows Singapore merchants to accept 6 different e-wallets (see Table 2), of which half was made available last year. As we examine these foreign e-wallets, it is not difficult to realise that the providers are from Singapore’s top tourist regions by arrival – ASEAN, South Korea and China. Thus, as the COVID-19 pandemic subsides, we can expect greater foreign spending with the recovery of the tourism industry, and merchants who accept e-wallet payments will benefit from more convenient spending by visitors.
| Target Market | Foreign E-wallet Offering | Number of Users (2022) |
| Philippines* | GCash | 71 million |
| Thailand* | TrueMoney | > More than 50 million |
| Malaysia | Touch ‘n Go | > 17.8 million |
| South Korea | Kakao Pay | 39.44 million |
| Mainland China | Alipay | 1.3 billion |
| Hong Kong SAR, China* | AlipayHK | 3.3 million |
Table 2: Foreign E-wallets accepted under Alipay+ in Singapore
Due to its pros, e-wallets are predicted to surpass credit cards as the most common e-commerce payment methods with a share of 27% by 2024. However, as the use of e-wallets is becoming more prevalent, we ought to recognise that there are still limits and they cannot completely replace the use of credit or debit cards. For one, under Singapore’s Payment Services Act, consumers can only hold a maximum of $5000 in each e-wallet at any given time. Such caps may make the transfer of funds a hassle for consumers who frequently transact through e-wallets. Good news is, back in November 2022, the Singapore government initiated a public consultation and has started to review the possibility of raising the fund limit from $5000 to $20,000. We can foresee that in 2023, with greater adoption rate of e-wallets, there may be amendments prudently made to existing regulations to accommodate consumers’ needs.
Buy Now Pay Later: Stricter regulations moving forward
Buy Now Pay Later (BNPL) is a flexible form of short-term financing which allows customers to pay for goods over time through several interest-free instalments. Locally, Atome, ShopBack Pay Later and Grab PayLater are some of the most popular BNPL providers. Traditionally, banks have also been offering similar 0% interest instalment plans for credit cards and BNPL providers differentiate themselves by absorbing processing fees and providing attractive discounts. Their business model works by charging their partner merchants transactions fees for revenue generation.
Thanks to increasing e-commerce purchases, BNPL has started to gain traction in 2022 since its entry in 2017, particularly among the millennials. It is forecasted that the adoption of BNPL will see a CAGR of 19% from 2022-2028 and its Gross Merchandise Value in Singapore will increase from US$804.9 million in 2021 to surpass US$3158.3 million by 2023. Notably, Hoolah, one of Singapore’s largest BNPL service provider, experienced a rise in transactions of more than 1500% during the COVID-19 pandemic.
According to Milleu Insight research, 30% of Singaporeans aged 25 to 40 have utilised a BNPL service. There are reasons as to why BNPL is gaining traction among millennials. For one, BNPL allows millennials who are not eligible for a credit card to be able to afford big-ticket items. It could also be the case that millennials are more tech-savvy and are more accustomed to online payments. In order to increase the adoption rate, BNPL providers have also been launching campaigns and offering discounts and perks to users. For example, Atome’s app has several online shopping vouchers which allows customers to save some money when making purchases.
However, as BNPL gains traction, concerns such as BNPL services encouraging impulse purchases and whether such services will lead to over-indebtedness have surfaced. While BNPL services allow customers to pay in instalments, customers may be subjected to late payment fees ranging from $5 to $90 depending on the number of instalments missed and the type of item purchased. In 2021, the Monetary Authority of Singapore commented that while BNPL provides great convenience for consumers, consumers “may be at risk of spending more than what they have budgeted for”.
In response to these concerns, the Singapore Fintech Association partnered with industry players such as Grab Financial Group, Shopback and Atome to form the Buy Now Pay Later (BNPL) Working Group to launch a Buy Now Pay Later Code of Conduct, which includes guidelines on fees (including late fees and other charges), interest rates, and marketing practices to not mislead consumers. To prevent consumers accumulating debt, BNPL providers will ban customers from making further BNPL purchases once a payment is overdue. In addition, customers will not be able to accumulate more than $2,000 in outstanding payments unless they pass an additional assessment to review their credit worthiness.
The code of conduct also mentions that a credit information sharing bureau will be set up in late-2023 with the help of Experian, a leading global information services company. The bureau will include users’ credit information (such as BNPL balances, missed payments) shared by all accredited BNPL players in Singapore for creditworthiness checks to be carried out. With that, we can anticipate more regulations and mechanisms in place to protect consumers against overspending when using BNPL services in 2023 and to ensure that BNPL offerings provide consumers with convenience and value while minimising their credit risks.
Real-time payment systems: Transcending borders as the way forward
Back in 2021, Singapore created history by launching the linkage of Singapore’s PayNow and Thailand’s PromptPay real-time retail payment system – such linkage is the first of its kind globally. Subsequently, the Singapore government announced plans to link PayNow with DuitNow, Malaysia’s top real-time payments platform which has more than 8 million users.
For those who frequent Malaysia, this may be a good piece of news! It is known that the first phase of the linkage has been rolled out in the 4th quarter of 2022. In the future, consumers will be able to perform a variety of tasks such as making real-time fund transfers between Singapore and Malaysia with just a mobile number. In addition, customers will be able to make payments in retail stores by simply scanning the NETS or DuitNow QR codes displayed at merchants’ storefronts. This initiative is expected to bring about greater convenience to residents of both Singapore and Malaysia by simplifying the remittance process and enhancing in-store payment experiences. Moving forward, Singaporeans may be able to use PayNow when conducting transactions in Malaysia. The integration of India’s Unified Payments Interface with PayNow is also expected to go live in 2023. Such integration will enable users to transfer their money overseas easily, facilitating remittance.
The payments industry is still rapidly evolving as we expect to observe new and exciting developments. With greater growth, the various payment offerings are also expected to come under greater scrutiny in lieu of stricter government regulations moving forward.
References
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