Nets may succeed in unifying e-payment
S'pore's drive towards cashless payments started in the mid-1980s
The push for cashless payments in Singapore may revolve around QR codes and mobile e-wallets today.
But Singapore's drive towards that goal began much earlier, in the mid-1980s.
It also involved one company that is now a familiar name to almost every Singaporean: the Network for Electronic Transfers (Nets).
Nets is ubiquitous in Singapore today - $24 billion was transacted on its nearly 97,000 acceptance points island-wide last year.
But it was not an immediate hit when it was piloted in 1985.
Mr Patrick Yi, general manager of Nets between 1987 and 1994, told The New Paper: "When I took it on, it had not really taken off. In fact, internally, there were doubts about whether it would actually take off."
Nets had been part of a larger government campaign to promote electronic transactions in the mid-1980s. The Government had estimated it would save $24.5 million in manpower cost by reducing cash use.
Part of the drive included getting Singaporeans to receive salaries through direct credit to the bank and to pay bills by General Interbank Recurring Order or Giro.
Nets as a company was formed by five of the largest banks here and officially launched its service in 1986.
It was envisioned as a simple and secure personal identification number-based debit card system with the conveniences of credit cards but without the risks, said Mr Yi.
But soon he discovered that the adoption of Nets by both merchants and consumers was plagued by a catch 22.
"You needed a critical mass of both players in this transaction. If the cardholder did not see enough merchants for him to use his card, why bother to change his habits?
"Unfortunately, the merchants think the same. If no one is using it, why bother to have a terminal?"
He realised it would take at least five years for Nets to reach enough usage to create a "network effect" that makes people want to opt in because enough people are already using it.
The Nets team focused on ramping up the number of terminals available, especially in high-traffic retail outlets such as supermarkets first.
In 1990, the team set the goal of increasing the number of terminals from 1,570 the year before to 6,300 in 1995.
"If you understand you need to get to a critical mass as quickly as possible... you need to give incentives, like practically giving it away for free initially, just to get it out there in the market."
In a Business Times commentary in 1990, Mr Yi said Nets was bearing the cost of terminal installations.
He told TNP that such incentives for merchants were slowly phased out in the last few years before he left.
But the trickier part involved changing consumer behaviour.
In internal studies, Mr Yi said Nets found that people who had used the service liked it because it was convenient to use - but those who had not yet tried it thought it was inconvenient.
He laughed and said: "People are risk averse and the majority of people won't try something unless it has been proven... The trick is to get (the consumer) to try, one time, two times, three times. You hope he finds it not so bad and makes a habit of it."
Besides advertising and press coverage, Nets also held joint promotions with large retailers such as Isetan and Metro, contests and demonstrations.
In 1997, three years after Mr Yi left, Nets saw 110,000 transactions a day on its terminals, chalking up about $2 billion a year. It was accepted in more than 10,000 retail outlets.
It was considered one of the most successful of similar debit card systems in the world, compared with those in countries such as New Zealand and Australia, said The Business Times.
Nets would go on to introduce other payment systems, such as the CashCard in 1996 and online payment system eNETS in 2001.
Earlier this month, Nets - now owned by United Overseas Bank, OCBC Bank and DBS Bank - announced that it and four other banks have agreed to let its customers use a unified Nets QR code.
Customers of these banks will be able to use either their banks' e-wallets or Nets' own app, NetsPay, to scan the QR code and pay. They also want to reach all 120 hawker centres here by the end of next year.
Nets has set aside $15 million over the next three years in waiving installation and transaction fees for merchants who come on board. This is to help familiarise them with the system, Nets chief executive Jeffrey Goh told TNP.
Another $15 million will be pumped into promotional campaigns, such as rewarding customers who make a certain number of QR code payments a month at hawker centres.
Compared with the mid-1980s, when the technology of cashless payments was unfamiliar, one in three Singaporeans uses Nets daily now, Mr Goh said.
More merchants have also jumped on board. In the last five years, the number of Nets acceptance points have soared, from 67,000 to more than 100,000 today.
Mr Goh pointed out that a recent survey by Visa Singapore found that hawkers are willing to fork out a fee of under 1 per cent for each transaction to go cashless.
"So it really boils down to consumer behaviour... the default payment behaviour amongst consumers is to take cash out of their wallets for small value transactions even when e-payment options are readily available and right in front of them," he said.
Consulting firm KPMG found last year that about nine in 10 transactions at hawker centres and wet markets currently involve cash.
Dr Ivan Png, distinguished professor of strategy and policy at the National University of Singapore, said Netshas managed to make the debit payment method universal here.
But compared with 1985, today's e-payment landscape is cluttered. There are the multiple bank e-wallets, and also payment options offered by companies such as Alibaba's Alipay and FavePay by Fave, the company previously known as deals website Groupon.
Prime Minister Lee Hsien Loong said at this year's National Day Rally speech that we have "too many different schemes and systems that don't talk to one another".
Dr Png added: "If payment methods are not universal, people won't want to use it."
He said the best way to unite the fragmented market is to "push the financial institutions together to a single common standard" - precisely what Nets is setting out to do.
Analysts have said that if anyone can unify the market, it would be Nets.
Ms Ng Zhi Ying, an analyst at market research firm Forrester, said of Nets' latest move: "This is a significant move because of the collaboration among Singaporean banks that are working together to create network effects crucial to the uptake of mobile payments.
"This is a sharp contrast from before, when banks, telcos, and other mobile payment players were competing against each other. Kick-starting these network effects will allow this new system to reach critical mass faster."
Of course, Nets' work is still not done. Ms Ng said Nets' burden is to show consumers that this new system is a clear improvement over existing payment methods because it might be simpler, faster or more secure, for instance.
If Nets succeeds, smaller players trying to offer their own e-payment systems will all be "dead ends," said Dr Png.
Nets said this month it is exploring partnerships with other e-payment providers such as Grab, which extended its GrabPay to merchants this year.
Mr Yi, who has been living in the US since 2005 and founded medical products company MediPurpose, said he does not know the current payment landscape well.
But he thinks Nets' current attempt to court hawkers is about expanding its network of merchants and building on the progress made since early days.
He referred to his work with Nets as solving a "classic marketing problem".
"I set my goals, watched my numbers and kept trying till we got there. Obviously there were many challenges, some of which were discouraging but I am a patient builder," said Mr Yi.