Singapore is stuck in the 1950s
While the credit card is the online king
Buying online — just like anywhere in South-East Asia—is surging in Singapore. The internet economy has been growing year over year with 16% to US$10 billion in 2018; Google and Temasek are expecting it to take the size of US$22 billion by 2025. Yet, being only 3.2% of Singaporean GDP in 2018, the internet economy is nowhere close to where the US was at in 2016 with 6.5%. A lot of growth is projected in e-commerce, especially on mobile.
Ironically, the majority of those online purchases in Singapore still rely on something very physical: The credit card. According to Worldpay, 67% of all card-not-present payments are executed by people keying in the 16 somewhat digits of a dated payment method developed in the 1950s. But it’s not just the technology, that’s not ready for scale.
Two middlemen
From a merchant’s cost perspective, permitting an online purchase with a credit card can become expensive pretty quickly. That’s because there are typically 2 middlemen:
- A payment gateway, like Stripe, PayPal or Adyen
- A card network, like Visa, Mastercard or UnionPay
While absorbing any fees set by the card networks, payment gateways will typically offer online payment processing for somewhere between 3 to 4% plus a fixed amount per transaction. In Singapore, as an example, Stripe charges the merchant 3.4% + S$0.50. Simple calculation: If a consumer buys a S$15 product from your webshop, $1 (=6.7%) will be charged for credit card transaction fees. For any low-margin business, this can render your business model unworkable.
No alternative?
So how can the Lion City grow smarter digitally? Can online purchases be done any cheaper?
Well, yes! We are glad you asked.
In Singapore, since 2014, there is a system called FAST (Fast And Secure Transfers). It is an instant electronic fund transfer system, which is the local equivalent of Same Day ACH (used in the US) or SEPA Instant Credit Transfer (a standard in the EU). Most notably, the Peer-to-Peer transfer service PayNow has been built on FAST.
As of last year, PayNow transfers can also be directed to businesses. This enables instant payments for e-commerce by only using the UEN (Unique Entity Number) of a merchant. It cuts out the card network as a middleman and, even better, fees for PayNow have currently been waived by the three big banks (DBS, OCBC, and UOB) until the end of this year (2019). This makes PayNow significantly cheaper.
So what are we waiting for?
That’s a great question and that’ll be the topic of the next blog post. In the meantime, we at Maesh are working to get those transaction fees to as low as 1%. Sign up for the newsletter on our website and be the first to learn how we plan to do that.
