Singapore goes more digital through NETS QR code

• NETS and its partner banks aim to drive acceptance at hawker centres and small merchants through QR codes
• They will spend more than $15 million on technology and marketing to make QR code payments a success
• Key challenges include gaining consumer adoption and convincing small businesses to accept traceable electronic payments

The concept behind NETS QR code payments is straightforward. The platform will be run by NETS, which NETS chairperson Tan Su Shan said has more than 100,000 point of sale terminals and processes about 90% of transaction volumes in Singapore. It is designed to standardise the acceptance of QR code payments so that customers of the sevenv participating banks - Citi, DBS, HSBC, Maybank, OCBC, Standard Chartered Bank and UOB - can scan and pay digitally. NETS expects that all of its 100,000 terminals will be able to accept QR codes by mid-2018, up from 30,000 at present.

The platform currently uses the NETS QR Code. Next year, Goh said, there will be a transition to a dynamic QR code which will print the merchant’s name and the transaction amount. And once the national standard SG QR code comes out next year, banks will go through another transition to shift to the new standard. “There won’t be any conflicting system,” OCBC COO Ching Wei Hong said. “There will only be one QR code. NETS will change the sticker for the merchants.”

Further changes are likely in store, Ching added to support international usage. “We want to make sure customers can walk into a store in China, hit their DBS, UOB (or) OCBC bank account, and have reciprocity. We are in discussion.” The plan, as DBS Bank head of consumer banking for Singapore Jeremy Soo summarised it, is “we first tackle local. We want to make sure anyone in Singapore has access to a simple QR scan. When the SG QR standard is ready, everything will converge into the standard. Then, regional - India to us, Thailand to us. Interoperability will be taken from a local scenario to regional interoperability.”

What the platform will do

The platform has initially been targeted primarily at hawker centres, which Goh estimates process more than $741.74 million (S$1 billion) per year. NETS has signed up about 20 hawker centres so far and is seeing anywhere from 20%-100% of each of the dozens of stalls in those centres sign up. NETS has more than 100 sales staff out promoting the solution and expects to sign up 30 hawker centres by the end of 2017, then to sign up all 120 hawker centres in the country over the next six months. It has also signed up more than 16,000 Comfort taxis and is targeting canteens at tertiary institutions.

To incentivise merchants, NETS is waiving terminal and transaction fees for hawkers for three years. The cost to NETS and the banks for that approach is huge, as each QR code set costs about $445 (S$600). The investment in infrastructure and set-up for 6,000 hawkers will cost about $10.3 million to $11.1 million (S$14 million to S$15 million), Goh estimates, and there will be other costs for incentives to drive adoption as well as a marketing campaign that will cost at least $4.4 million (S$6 million).

Challenges ahead

Despite the unity among the seven banks, they and NETS face a variety of challenges.

While the seven banks are using the NETS QR standard, there are other consumer banks in the market and Goh acknowledged that “other banks can choose. We do not know what direction they can take.”

Moreover, Chinese giant Ant Financial is rolling out Alipay out to hawker centres with its own proprietaryQR code. NETS has also had discussions with Grab Pay, which has yet another standard,with Goh saying it is “still working out the details.” It is also in discussion with card schemes such as Visa and MasterCard.

NETS also faces challenges at merchants. Sales agents “will face rejection,” Goh acknowledged. “We work with the chairmen (of the centres), that has support of the hawkers. Then we go back a 2^nd, 3^rd, 4^th time. That’s how we get 90%.”

A key reason for the rejection is taxes. As the World Bank said of other markets in Southeast Asia, in a comment that may reflect the situation in Singapore as well, “many small and medium enterprises (SMEs) keep more than one accounting book to evade taxes.” NETS declined to provide a response stating how it will overcome merchants concerns with taxes. 

The current target market may also be somewhat small. There were 216,900 enterprises in Singapore as of 2016, according to the Department of Statistics, of which 99% were SMEs. Even though there are about 100,000 POS terminals in place, NETS’ target for next year is just 6,000 hawkers. NETS has barely started to address personal service providers such as tutors or plumbers, though Goh did say that the target for the next three years is small cash-based merchants which “are not today our retail merchants. They are not retail shops. We’re giving them an incentive to come on board.” 

There are issues with speed as well. Even one of the hawkers NETS brought in for the media launch, while expectedly positive, said QR code transactions take longer than cash.

 And although hawkers who close by 10:00 pm are credited by 6:00 am the next day, and NETS is looking at same-day settlement, cash is instant. Cash is also still important because hawkers usually need it to pay the companies that supply them with everything from food ingredients to plastic utensils. “We are working with some government agencies to enable QR payment,” Goh said, “so when they issue their invoice, hawkers can use their app to make payment.” QR code payment to suppliers is not, however, in place yet.

As Ching said, though, “the biggest challenge is driving consumer adoption. The automated teller machine (ATM) cash card will work, transit card with Flashpay will also work.” Tan concurred, saying “Singapore is a small island. Cash is readily available - too many ATMs. People have gotten used to cash. The confusion the last year or so, consumers are saying ‘what is the easyway?’ It’s our job collectively to tell our customers, it’s safe to scan and pay.” 

Regulatory involvement

What was also noticeable at the NETS QR Code launch was the difference in approach among regulators in the region. In some other markets, the central bank has been a catalyst or strong supporter of QR code payments and has also introduced new tax legislation that supports the move towards a cashless economy.

In India, for instance, the government back the launch of interoperable QR codepayments called BharatQR in February 2017 and was reportedly instrument in ensuring an interoperable solution. While the card schemes had launched proprietary QR codes earlier, the Reserve Bank of India (RBI) reportedly brought the parties to the table to develop a common standard. The interoperable mobile acceptance solution, developed by MasterCard, Visaand the government-backed National Payments Corporation of India, was supported by American Express and 14 national banks.While the launch of BharatQR does not resolve all the issues, as there is an already crowded set of digital payments that includes at least a dozen non-cash payment solutions such as the Unified Payment Interface (UPI) and Paytm as well as Aadhaar Pay, it does create a broader solution. And the government has introduced a national goods and services tax (GST) which Finance Minister Arun Jaitley said will make every transaction recorded online, making usage of cash more difficult. 

In Thailand, MasterCard, UnionPay and Visa came together and announced an interoperable QR code in May. After directing merchant acquiring banks to install more than one million point-of-sale terminals last year, the Bank of Thailand came on board in August and joined forces with the card schemes, banks and non-bank financial institutions to adopt a uniform standard for QR code payments. The standardised QR code format would be available nationwide in October, RBI governor Veerathai Santiprabhob said at the time. The Thai government is also making it mandatory for all companies to enter the national e-payment system by 2019, which may speed up digital payment adoption by overcoming some of the tax concerns.

In Singapore, the banks have driven the QR code initiative. “The three competing local banks are united with one vision,” Tan said. There is confusion around payments in the country, and “we want to address that confusion.” “Even “people who work in the banks are confused,” OCBC’s Ching added. “The three rival banks are coming together, trying to take away the noise.”

While MAS did not participate in the launch of the NETS QR code payments, it did announce soon afterwards that the new Singapore Payments Council has endorsed the specification for a common SG QR code using EMVCo standards. MAS said the SG QR code will be adopted by payment services providers from 2018. What this means in practice is that banks will go through a three-phase approach of launching the NETS QR code, then upgrading to a dynamic QR code, and finally shifting to the MAS standard once it is available. So far, neither MAS nor the Ministry of Finance has announced initiatives that could overcome the tax concerns of hawkers and other small merchants.

Making the QR code work

The NETS QR code is clearly a good next step towards consolidating a confusing mish-mash of QR code standards in Singapore and making it easier for hawkers and other merchants as well as consumers to use a QR code for payments. With a variety of transitions coming up in the year ahead, and without a push for all banks to adopt one standard or for merchants to face tax consequences if they don’t use electronic payments, it remains to be seen how fast merchants will actually come on board and whether significant numbers of consumers will see a reason to switch from cash or even plastic to the QR code anytime soon.