Singapore's banking hub has a corner where cash is still king

In the heart of Singapore, a financial hub where billions of dollars zip around the world over computer screens in nanoseconds, there is a crowded building where cash still reigns.

Six days a week, hundreds of people line up at The Arcade, a narrow, three-storey plaza abutting Raffles Place, to buy and sell hard currency at one of around 30 money-changer stalls. All manner of notes can be had in minutes: Singapore dollars for British pounds? Coming right up. Indonesian rupiah for Vietnamese dong? Icelandic króna? Maldivian rufiyaa? No problem. Some 150 currencies are available.

"Cash will remain forever," said Mr Abdul Haleem, 65, a veteran of the industry whose kiosk sits at the entrance to The Arcade. The towering offices of global banking giants JPMorgan Chase & Co. and Bank of China are just steps away.

The number of licensed money changers in Singapore dropped during the Covid-19 pandemic when many people were unable to travel and retail shops struggled to pay rent. But there are close to 250 physical stalls still operating, and new ones continue to spring up across Singapore. That is even though multi-currency payment apps such as YouTrip, Wise and Revolut have grown in popularity.

To understand how so many money changers can survive in the digital age, you need to know a bit about Singapore's place in the world. Though it is now among the richest countries - where financial titans from UBS Group to BlackRock manage more than US$4 trillion (S$5.1 trillion) and billionaires including Mr James Dyson, Mr Ray Dalio and Mr Sergey Brin have set up family offices - the nation remains a shipping and transit hub at its core.

Hundreds of vessels anchor in Singapore's harbour each day, many waiting to load and unload cargo at one of the world's busiest ports. For decades, that has made Raffles Place a prime location for money changers, just a few blocks from where the Singapore River empties into the Singapore Strait. Many sailors need to swop cash from their previous locations, and get money for their next destination.

"They get off the boat and come right here," said Mr Haleem, whose uncle Abdul Gaffoor, now 99, started City Money Changers in 1980.

Old-world relic

Many office workers also come in search of the best exchange rates - which are often better than what banks offer.

Mr Mohamed Rafik, 55, a partner at Arcade Money Changers, a stall opposite Mr Haleem's, remains optimistic. His evidence is that there are new licensees entering the industry who would not do it if they could not make a living.

"Money changers won't go out of business," noted Mr Rafik, while handling cash and paper receipts on a busy afternoon. Digital payment wallets may seem attractive now but the companies also have overheads and may try to increase rates in the long run, he predicted.

Right now, a thriving tourism industry is driving demand during the June school holidays. Singapore is close to hot spots like Phuket, Ha Long Bay and Bali, where cash is still needed to pay for food at street stalls or small restaurants, or to offer tips.

Travellers with cash also avoid the higher exchange rates and foreign transaction fees imposed by many credit cards.

For Ms Christina Ng, a teacher in her 40s who came to Mr Haleem's stall for Korean won, cash gives a sense of security while travelling. Paying with notes and coins is also a lesson for her three children.

"I want them to learn how to use the cash and do the transaction, so they need to see the physical money," she said. "We don't want them to just tap, tap, tap without actually knowing what they're spending on."

The money changers are good leading indicators of travel trends. Whereas demand used to be strongest for US dollars and Malaysian ringgit, the Japanese yen is now most sought-after, along with the Korean won and Taiwanese dollars, Mr Haleem said.

At The Arcade, the money changers carve out an existence on the fringes of the multi-trillion-dollar global foreign-exchange market.

Frugality gives them an edge against the financial institutions that occupy the opulent towers surrounding Raffles Place, according to Mr Rafik. The money changers will survive even if digital platforms cut their margins to zero to gain market share, he added.

Congregating in one location attracts more customers, but it also pares margins to the bone. Foreign currency bought at a commercial bank can cost 1 per cent to 4 per cent or more once you factor in a poorer exchange rate and transaction fees.

At City Money Changers, it is a high-volume, low-margin business. Said Mr Haleem: "Everybody wants to see the best price so they will shop around."

On the afternoon of June 19, his stall was selling the US dollar at S$1.2900, versus the S$1.2972 offered by DBS Group Holdings, Singapore's largest bank, on its retail app. The cash exchange rate was not as favourable as YouTrip's rate of S$1.2877 per US dollar.

Regulators have scrutinised the industry in the past, concerned about the potential for money laundering.

In 2016, the Monetary Authority of Singapore (MAS) cited a Raffles Place currency changer, along with other banks, for their roles in the scandal at 1MDB, the Malaysian sovereign wealth fund. The probe revealed inadequate risk management practices at the money changer, and failure to identify the beneficial owners of funds.

Money changers are now required to conduct customer due diligence measures for cash transactions exceeding $5,000, or for those topping $20,000 where the money is funded from an identifiable source like a bank account. That includes verifying customers' identities and keeping proper transaction records. The industry poses a "moderate level" of money-laundering threats due to its cash-intensive nature, according to the Money Laundering National Risk Assessment on the website of the MAS, the country's financial regulator.

Mr Haleem, who has been in this trade for 40 years, concedes that the future is not all bright for his industry. Business is about half that of pre-Covid-19 levels, and the increased competition is eroding margins, while wild currency swings can leave him sitting on devalued cash overnight.

He predicts the trend towards digital payments is only going to accelerate. "It will become worse and worse," he said, though he thinks there will always be a little room in people's wallets for cold hard cash.

One floor up at Crown Exchange, Mr Thamim A.K., a money changer in his 60s, is more sanguine. Sitting in a backroom surrounded by wads of Korean won and Indonesian rupiah, he said his 40 years of trading, with all the ups and downs, give him hope for the future.

"I've seen everything, all the currencies, fluctuations," he added. "The bank notes' business is still there. It's growing, in fact. It's fighting with digital." BLOOMBERG