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Business Advice

To cashless and beyond

Contactless cards and mobile payments are bringing us ever closer to a cashless society
The Business Times - June 15, 2011
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To cashless and beyond

CASH has been central to human existence for centuries now but the idea that cash is king, at least in a physical sense, is on thin ice. In 2009, the UK payments council announced that cheques would be phased out of their banking system by 2018. While no such announcement has yet been made in Singapore, the use of cheques has faded steadily over the years. With online and even mobile banking fast becoming the norm here, will cash be the next to go?

Ever since credit cards were invented in the 1950's, an increasing proportion of the world's daily spending has been moving away from cold, hard cash. Debit cards only hastened the process as they made plastic payment methods accessible and attractive to a broader base of everyday consumers.

In Singapore, the volume of card-based billings has more than tripled in the past decade - rising from a mere $9 billion in 1999 to nearly $31 billion in 2010, according to data from the MAS.

The debate over the feasibility of a cashless society has existed for nearly a decade now, but even the most ardent supporters of paper acknowledge certain inherent flaws in the system. Could you imagine a world where e-commerce as we know it didn't exist? Would multi-billion dollar businesses such as Amazon and E-bay have been founded without cash alternatives? Online shopping, the fastest growing retail channel in the world, would simply collapse without the support of the various options for e-payment that are available to consumers today.

Cash also presents other problems to policy makers and governments such as money laundering, which can be curbed to some extent by going cashless. The 'cost of cash' is also a genuine concern for legitimate businesses that handle cash payments, as the total cost of processing cash payments is proven to be higher.

Singapore has also embraced cash alternatives for many years now even for small-ticket, everyday services - road tolls are paid electronically via stored value cards, commuters make payments for their fares through contactless payment cards, even food courts accept prepaid card payments.

The concept of a cashless society is by no means new, but at no time in the past has a future without cash seemed so feasible. While some transactions may still require the use of cash, recent developments in contactless payment and Near Field Communications (NFC) technology could soon change this.

The move to an increasingly cashless society is monumental and significant both psychologically and economically, and while the possibilities of a cashless society are no doubt exciting it will be necessary to overcome barriers in the form of infrastructure, and more importantly consumer behaviour, to achieve this.

Predicting a timeline for these changes with any accuracy is also a difficult proposition given the chicken and egg relationship between consumers' propensity to use new technologies and merchant acceptance. To put things in perspective, consider that to do away with cash almost entirely, the technology must appeal to everyone from the luxury retailer on Orchard Road to the noodle stall operator at a hawker centre in the heartlands.

Despite the challenges, consumers have been eager to embrace new payment methods. The rise of Internet retail, the ready acceptance of credit and the improved security of new technologies have all added impetus to the traditional convenience of card payments.

There are a host of contenders for the 'single solution' payment method that could replace cash, but the most promising among these are contactless cards and mobile payments made possible by NFC technology. The aim with such technologies is to replace the traditional 'swipe and sign' process with a faster, more convenient and more secure 'tap and go' solution.

To get consumers comfortable with the idea of tapping an object - such as a credit card, key fob or mobile phone - to make a secure transaction, MasterCard introduced the PayPass system in December 2002. The technology is already becoming widespread - there are approximately 88 million PayPass cards and devices in use at 276,000 merchant locations, plus trials and rollouts are underway in 36 countries.

The success of PayPass is integral to encouraging the widespread adoption of the technology, as it forms the basis of the eco-system that can support contactless transactions around the world. Merchants and other vital stakeholders are more likely to jump on the NFC bandwagon if your mobile phone can be configured to build on existing contactless payments technology.

The NFC trial that has perhaps generated the most excitement of late is the Google Wallet - an app that will make your phone your wallet so you can tap, pay and save money and time while you shop. This follows the MasterCard collaboration to provide Barclaycard and Orange mobile phone users the first contactless mobile payments service in the UK.

Closer to home, according to global technology analysts Gartner, the sales of smartphones in Singapore could hit 1.6 million units by the end of 2011. This, coupled with our tech-savvy population, makes the market an ideal test bed for innovations in the field. In conjunction with DBS Bank, StarHub and E-Z Link, MasterCard is piloting mobile NFC PayPass with the N-Flex solution developed by Gemalto in Singapore.

The Infocomm Development Authority of Singapore's recent NFC Call For Collaboration also bodes well for the future of NFC in Singapore as it will help establish a broadbased network that can work across multiple devices and vendors, bringing greater convenience and security to consumers.

Whether we can go the way of countries like Japan, where nearly 10 million people already use mobile wallets, remains to be seen but all signs at the moment point towards a cashless future.

The author is VP and Singapore country manager for MasterCard Worldwide




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