Pictured: QR codes being used for payment

Should Singapore go Cashless? — A productivity driven angle

Singapore’s Prime Minister, Lee Hsien Loong, recently made the headlines during his National Day Rally on trying to push for a cashless society in SG and this caught the attention of many people from both sides of for and against. What ticked me off was that most of these arguments were widely anecdotal with no attempts made to shed light from the quantitative perspective.

Let me preface this by saying that first of all, I acknowledge and understand that this problem is extremely multi-dimensional, and that trying to put a number to it from just one of its facets is really barely scratching the surface.

In light of that, I have yet to digest all possible variables for me to make a meaningful and concrete stance on whether or not I think it is the right choice for Singapore to go completely cashless, but that being said, I think that there is plenty of value to be harnessed just from trying to make sense of the numbers from breaking down a microcosm of the actual full-fledged implementation.

Without further ado, let’s try to break it down.
Since the example of hawkers was widely cited, let’s try to work with that;

From the Purchasers’ Perspectives

On average, let’s assume that every hawker in Singapore makes a monthly revenue of about $10,000, which is considered to be on the low side. If the average cost of a meal at the hawker center is $5, on average a hawker will serve 2,000 customers every month.

Lets say every transaction that the hawker makes, we can shave off 10 seconds of time originally required for the buyer to look for his/her money, pass it to the hawker, and wait for him/her to find the right change. 2,000 customers every month will represent 20,000 seconds saved in this aspect, which is then translated into 5.5 (rounded down) hours saved every month due to the cashless implementation for the purchasers.

From 2016 statistics, it is shown that the median (i recognize this has an inherent skew, but let’s make do since using mean will result in worse skews) salary is $4,000. While this has been increasing consistently over the years, let’s just assume it didn’t this year and stayed stagnant. Assume that each person works 9 hours a days, 5 days a week — that translates into 180 hours a month and 5.5 hours translates into $122 a month. Of course, we should also take into account that time savings doesn’t translate directly into productivity $, but other opportunity costs as well, like more family time, more time to relax, etc.

As for the Hawkers

Let’s also make some basic assumptions about the hawker. If the hawker is only really busy and faced with a queue 20% the time (fair assumption, since lunch + dinner hours take up about 3 hours tops and most sales come in during that period), and let’s say one cycle of end to end transaction (from ordering to food getting served and payment) takes 2 minutes, shaving 10 seconds off that represents an 8% increase in efficiency, which translates into overall 1.6% increase in effectiveness and a potential of additional $160 revenue every month.

We now understand that if cashless was implemented, the total value that can be created is $160 + $122 = $282 per month, just from a pure quantitative, productivity driven angle.

From the NEA site we seem to have a total of 107 hawker centres in SG, and from a slightly less credible site, 5800 total hawker stalls. Giving it benefit of doubt, that equates to a total potential of $1,635,600 value created monthly.

Project Costs?

I won’t give my personal comments on how much I think this overall project should cost (partially due to my lack of knowledge), but from my limited understanding of how much government projects of this scale typically cost, I’d ballpark $1.5m — 2m SGD. Let’s just assume it is 2M SGD just for software development.

For logistics operations as well as headcount staffing costs required for education as well as training, to be frank i don’t have a good ballpark, but my overstated estimate for this is $1,000.

It’s highly unlikely that the weighted proportionate cost for the fixed development cost should be more than anything between 20–30% for the development of hawkers going cashless, but let’s just take 50% to be the upper benchmark assumption, and this portion of the project absorbs the proportionate 50% of the fixed cost sunk into development ($2m x 50% = $1M).

The total cost we would arrive at for the development of the project just for the hawkers would be ($1,000 x 5,800) + $1,000,000 = $6,800,000. I estimate this project to take no more than 2 years, but assuming it takes the full 2 years, and we factor NPV at a rate of 7% interest rate for 2 years (this is even unrealistic, since our inflation rate has been really low over past years), it totals up to $7,785,320. If we add in another year (paid upfront at start of the year) for the first year of operation, we arrive at the total sum of $8,330,292.4, and for a second year of operations also paid upfront, we arrive at $8,913,412.9.

Let’s just say that my estimates were really poor and I under-budgeted by 100% for this project, taking double ($8,913,412.9 x 2 = $17,826,825.7) of the projected costs.

Even with these fail-safes in place, if our figures add up, we would have broken even in terms of “value creation” on the 11th month of operation, and the project will have a 100% ROI on the 22nd operational month.

Just from this angle alone, I’d say it does look pretty attractive.