A change to electronic payments will help Singapore in its ambition to become a 'smart nation', Monetary Authority of Singapore (MAS) managing director Ravi Menon said in a speech to a conference on fintech and financial inclusion.
MAS has put together a 'roadmap' in collaboration with KPMG, laying out the strategies it will use to encourage electronic payments including simplifying and strengthening the regulatory framework, and establishing a new governance model for payments.
A single regulatory framework should be developed that can be applied on an 'activity' basis rather than relating to specific payment systems, MAS said. This will give MAS flexibility to address new risk areas as they arise, and will also promote innovation and encourage non-traditional fintech players to offer new services, it said.
The report also recommends developing a new governance model and setting up a new national payments council. This council would be made up of both users and providers of payment solutions and would promote interoperability and common standards.
Singapore is already in a good position, with "world class" underlying infrastructure and one of the highest mobile penetration rates in the world, yet the use of cash and cheques remains high, Menon said.
Cash in circulation in Singapore is 8.8% of GDP, compared to 4.4% in Australia and 2.12% in Sweden, and 12.7 cheques per person were written in Singapore in 2014, compared to 7.1 in Australia, Menon said.
"In Sweden, the total number of cheques issued is so small that it is effectively zero on a per person basis," he said.
"The economic cost of this heavy reliance on cash and cheques is not trivial. Our studies estimate that the social costs of cash and cheques is around 0.5% of GDP, or about S$2 billion (£1.1 billion) per year. A good part of these costs can be attributed to the cost of securing cash, both in transit and in storage, and processing cheques," Menon said.
The industry already has infrastructure projects underway that "have the potential to transform the payment landscape for recurring, retail and peer-to-peer payments" with interoperable solutions, MAS said.
"These include enabling more convenient payments through a centralised addressing system and creating a seamless consumer experience with unified point-of-sale payment terminals," it said.
MAS will run a public consultation on the framework and the council over the next week, it said.
Technology law expert Bryan Tan of Pinsent Masons MPillay, the Singapore joint venture partner of Pinsent Masons, the law firm behind Out-Law.com, said: "The identified potential to grow electronic payments services is massive and a new regulatory infrastructure aimed at fostering innovation and new entrants is a tremendous opportunity for the fintech industry. The even larger prize would be the regional market which is undoubtedly watching these developments carefully."
MAS has been promoting the use of application programming interfaces (APIs) by financial service companies in Singapore to make better use of data. APIs allow software applications to interoperate with each other. MAS also announced its own plans to make its data available to financial firms to exploit through APIs.
MAS launched a new FinTech Office in Singapore in May, providing guidance to financial technology companies looking to set up in Singapore on the availability of government grants and helping to promote Singapore as a financial technology hub.