More cashless payment schemes could lift local banks' profits

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More cashless payment systems could lift local bank profits by up to 9 per cent over the next two years, according to Maybank Kim Eng Research.

Analyst Ng Li Hiang said yesterday that the higher adoption of such payments would increase credit card use, which would potentially lift bank revenue.

If 40 per cent to 70 per cent of expenditure here shifts from cash to cashless payment, bank profits could rise by 3 per cent to 9 per cent between this year and 2019, she said.

"Most payment platforms adopted by retailers are linked to consumers' cards and/or bank accounts.... local banks had a combined 66 per cent share of card payment transactions in 2016," Ms Ng said.

"Our channel checks suggest that the bulk of banks' card fees come from merchant discount rates and net interchange fees."

A merchant discount rate is charged to a business by a bank for providing debit and credit card services, while interchange fees are paid by a merchant whenever a customer uses a credit or debit card at their store.

If 40 per cent to 70 per cent of Singapore's total expenditure were to shift from cash to cashless payments, that would translate to between $70 billion and $123 billion worth of transactions.

"We estimate the potential increase in card fees to be around $421 million to $1.96 billion, with Singapore banks to generate profits of $60 million to $600 million (from these fees)," Ms Ng said.

But the analysis was based on certain assumptions.

For starters, the amount of customer spending shifting to cashless payments over the next few years may not hit the 40 per cent to 70 per cent. Ms Ng also noted that her analysis assumes these future cashless payments would be made by cards.

In fact, she said, "banks' card revenues may shrink should there be mass adoption of cashless payments through bank transfers or banking accounts, which usually do not incur additional charges for merchants and consumers".