Singapore’s true way to a cashless society

Vladislav Solodkiy, Managing Partner, Life.SREDA VC:

These days many countries are talking about the importance of innovations in the financial sector. Many of those are claiming that they will soon become the first to go completely cashless. They may be saying so, but what if they don’t really know how to do it?

Why Singapore is the next big city for fintech?

I saw a similar surge 3-4 years ago over fintech in the United States – a large number of projects, a lot of discussions, and the customers who are ready for innovation. The US fintech market is all about products and technologies, while the Asian market is about execution. The US and Europe created fintech for hispsters and geeks, while there is a huge number of unbanked people in Asia. Local banks – DBS, OCBC, UOB, CIMB, Mandiri – have a very strong position in the region and high quality service. Mobile operators are also joining the financial sector. Such government agencies like EDB, Infocomm Investments, SPRING, NRF do a lot to attract business to Singapore. Singapore is more and more becoming an “ideal home for start-ups” – leading entrepreneur points to accessibility to funding and stable regulatory environment. Another advantage of Singapore is that the city originally positioned itself as the “lab”: here you can create something outstanding, test the idea with local partners and clients.

The Monetary Authority of Singapore (MAS) has committed S$225M ($166.48M) over the next five years to growing the fintech segment of the startup ecosystem in Singapore. MAS’s managing director, Ravi Menon, revealed (“A Smart Financial Centre” on 29 Jun 2015) that this was a part of the Financial Sector Technology & Innovation (FSTI) scheme during a speech at the Global Technology Law Conference. Financial backing through FSTI is intended to drive a fintech ecosystem, in addition to building the technology skills among the country’s workforce, he said. He also noted the growth of digital payment systems in emerging markets, opportunity to provide innovations-without-approvals for banks and fintech-startups, and possible value of bitcoins and blockchain. MAS creates FinTech & Innovation Group. The new group in the Monetary Authority of Singapore will be responsible for regulatory policies and development strategies to facilitate the use of tech to better manage risks, enhance efficiency and strengthen competitiveness. Mr. Sopnendu Mohanty will head the group as Chief FinTech Officer. Besides, as far as I understand, the government is now interested in a local success story, which would “loudly” go to an IPO here on the stock market.

What about fintech-Vision of Singapore?

Denmark is on track to become the world’s first cashless nation, with its government pushing to free some stores, restaurants and petrol stations from accepting cash payments. The proposal to scrap cash transactions is part of a package of cost-saving measures being introduced ahead of the Danish election in September. It is understood the government is hoping to get rid of the option to pay by cash by as early as 2016.

In the Philippines, the government, USAID, and private banks have launched an initiative to create a single electronic payments platform for all transactions in the country. The initiative is part of a bilateral agreement between the Philippine and US governments. Dubbed the e-peso, the platform is envisioned to be a B2B, B2C, and C2C system for e-payments. The up to US$25M, five-year project has been awarded to a company called Chemonics. The overarching goal, really, is simple: to eliminate, if not substantially reduce, the use of cash in financial transactions; turning the Philippines into a “cash-lite” economy within 20 years.

The Indian government published proposals to encourage greater take-up of electronic payments in a country where cash still rules. It suggested a range of measures, including tax benefits to merchants if at least half of their transactions are handled electronically. Consumers could also receive income tax rebates if a certain proportion of their spend is cashless. Another idea is for government itself to drop certain surcharges it levies for making card payments. Among the objectives are improving financial inclusion, reducing the risks for individuals of carrying cash, cutting the cost of managing cash in the economy, as well as making tax avoidance harder. Electronic payments include cards, mobile wallets, mobile apps, net banking, or other similar means.

The question is not what will be the number of actions taken on enhancement of fintech startups work, but what will be the final global goal – “the big game” – for Singapore? What it can really do is not becoming the first to announce that it will become the first cashless society, but actually becoming one faster than others. We have to create such type of fintech-ecosystem of Singapore that could solve the problem of independent toothbrush-services (like in US or UK) – and provide them (and end-users) synergy from their first days.

Retail fintech opportunities

When famous designer and visionary John Maeda landed in Silicon Valley in 2013 to take on a new role as a partner at Kleiner Perkins Caufield and Byers, he didn’t have a car – or even a place to stay. But instead of meeting with CEOs or consultants, he decided to discover Silicon Valley via the sharing economy services. “People said, ‘Oh, you must be learning so much in Silicon Valley from all the CEOs,’ ” he says. “And I’m like, ‘No, I’m learning through Airbnb hosts and Uber drivers.’” “It’s so easy to stay within our biases. But what inspires creativity is exposing yourself to what might make you feel uncomfortable or different.” Of course Singapore is of the most developed placed on Earth – also in terms of the financial sector size and the level of financial services. A huge amount of multiple slide presentations made by different sorts of consulters would prove that with a large number of graphics and diagrams. However, as “a client of Singapore”, at a hawker centre or in a cab, I often hear: “Of course I could accept the card, but do you have any cash by?” I also see very long queues at DBS ATMs on a salary day. These facts demonstrate that Singapore is still a very much cash-oriented society.

Here are the fintech directions that may be helpful for the further enhancement of the quality of life of the “smart nation”:

• Food and shopping – two passions of the Singaporeans. These two directions may become drivers of the consumers’ behaviour change. According to MAS’s managing director, Ravi Menon: “First, payments at stores and restaurants. This is almost a Uniquely Singapore phenomenon: many of our stores and restaurants have multiple Points-of-Sale (‘POS’) at their payment counters; this not only clutters valuable real estate but also makes life difficult for customers and merchants. As more stores and restaurants introduce self-checkout facilities to improve productivity, we need a unified POS – a single terminal, preferably mobile – that will: allow merchants to enhance efficiency by simplifying front-to-back integration; and enhance the shopping or dining experience of customers.”
• Financial literacy and inclusion (especially for kids and youth). Many times in conversations with locals I herd that young people face the problem of “dept ratio” more and more often: due to the high availability of loans they spend more than they earn. PFM-services  like MoneyDesktop, mobile banks like Moven, “social online banks” like Fidor, and gamification services like SmartyPig or MyWithBoard habituate the users (especially the young ones) to not only analyse their expenses, but also to plan their medium- and long- term goals. Singaporean all-family bank HomePay is a great example of how you can engage children with the world of finance through their parents and make it in a very gentle and educational way. Wage services like ZenPayroll motivate users not to withdraw salary from an ATM right after it was transferred, but to use cards and online applications as often as possible. There’s still no mobile-first banks for Y-Generation like Simple (sold to BBVA) or Rocketbank (one of TOP100 hottest startups according to Wired) in Singapore (and entire Asia). Both banks are part of our portfolio.
• Big data, IoT, O2O. I think it would be very much useful to study more cases of great thinking like Angela Ahrendts demonstrated at Burberry (and now implementing it at Apple). This is a fantastic example of how to be not only online, but how to combine offline and online experience (the similar use cases are based on Square Stand at Blue Bottle Coffee). This is very close to tablet-based cash-registers, mPOS, card-not-present payments etc. (f.e. Poynt or Shopify POS). How to integrate different devices and different sorts of data, which could be useful not only for fintech, but also for transportation/healthcare/advertising/security systems in Singapore (like Starbucks WiFi, Shopster, Navigine, TIDE)? Apple has launched a number of pilots based on BLE technology (iBeacon) in some of the Macy’s stores, and there were similar projects ran in the stores that partnered with PayPal. This is possible due the BLE technology and complex interaction between smartphones with installed mobile wallets linked to banking cards and application-based tablet cash registers. Such services as Lenddo (honoured as a 2014 Technology Pioneer by the World Economic Forum) allow to analyse a huge amount of information about the users – not only their credit history, but also the data coming from their mobile operators, social networks, messengers and smartphone manufacturers. This analysis not only helps to understand customers better, and decrease their banking risk rates, but it’s also extremely helpful in many other areas, such as KYC-procedures for state services, eCommerce, people recruitment and others.

“Blue ocean” of fintech-services for SMEs

If you take a look at the news about fintech startups, you might get a feeling that all the new financial services are built for retail clients, but not for businesses. However, these are namely the entrepreneurs that may become drivers of fintech, especially in Asia. I believe the target audience can be split in three segments that are most receptive to the new technologies and demonstrate the highest customer’s involvement at the same time. These are cafes and restaurants, hotels, taxi services and fashion retail. They use products not just themselves, but, being bound to working with retail clients, they also engage them with their new services. Close work with such segments provides banks (and telcos) with a number of advantages: marketing (fintech demonstrates a significantly lower price of customer acquisition and able to differentiate these products in the eyes of the end consumers), lower risks (fintech services generate so much new data about clients), lower talent acquisition costs and acceleration of new products. There are several kinds of fintech solutions that may be very useful for solving some of the SME problems: POS-management systems, Tablet-based cash registers; mPOS-acquiring; IoT-services: beacons & WiFi, card-not-present payments; Preordering; Working with feedback and loyalty; O2O experience to combine offline experience and online technologies; Online acquiring; POS-loans; SME-loans; Alternative sources of capital alike crowdinvesting, crowdfunding, P2P/P2B-lending; Cash-in/cash-out/remittances/payments services to turn your SME customer into your bank branch; Online-banks “like Simple” for SMEs.

How banks (telcos and VCs) could work with (and invest in) fintech?

The theory of disruptive innovation was invented by Clayton Christensen (the most influential business thinker in the world, according to Thinkers50), of Harvard Business School, in his book “The Innovator’s Dilemma”. Mr Christensen used the term to describe innovations that create new markets by discovering new categories of customers. They do this partly by harnessing new technologies but also by developing new business models and exploiting old technologies in new ways. He contrasted “disruptive innovation” with “sustaining innovation”, which simply improves existing products. The “innovator’s dilemma” is the difficult choice an established company faces when it has to choose between holding onto an existing market by doing the same thing a bit better, or capturing new markets by embracing new technologies and adopting new business models. According to Christensen, “When big companies fail, it’s often not because they do something wrong, but because they do everything right. Successful businesses are trained to focus on what he calls sustaining innovations – innovations at the profitable, high end of the market, making things incrementally bigger, more powerful, and more efficient. The problem is that this leaves companies vulnerable to the disruptive innovations that emerge in the murky, low-margin bottom of the market. And this is where the true revolutions occur, creating new markets and wreaking havoc within industries”. A study made by Christensen shows that big and successful corporations are not capable of breakthrough innovations. Their internal processes are built the way that they always chose a more predictable course of events losing sight of the future at the same time.

Two banks that staggered me the most (that have also succeeded in fintech) are BBVA and Goldman Sachs – their experience is teaching us the following: 1. Investing early on for insights, not profits; 2. Bank executives say they are most interested in forming partnerships; 3. Learn from startups instead of teaching them; 4. Big banks corporative culture may kill startups if those would be placed in the corporative environment of corporations; 5. Learn from your own mistakes: banks are loosing trust and startups may help them bring it back; 6. Make “disruptive innovations”, instead of “sustaining innovations”; 7. If you have money – you have to invest in new ideas and blood; 8. Mindset matters: Silicon Valley more useful than Wall Street; 9. Banks must stay banks (and let startups do their job) – they are good at this; 10. Sometimes you have to disrupt yourself – to stay alive. Chinese giants (like Alibaba, Tescent and Baidu) and Yuri Milner with DST do the same super-fast and successful work with fintech. While banks are competing with other banks somebody will disrupt them.

It could be useful to involve consultancy agencies into relationship management between fintech-startups and banks (and telcos, VCs and government) – like Moven bank is already doing with Accenture. In my opinion such fintech and banking super-experienced specialists like Mohit Mehrotra (Deloitte) or Denis Bugrov (McKinsey) could be great mediators and moderatos. Also, it could be useful to learn more about shells/middleware between banks and fintech-startups – the best case now is Bancorp from US – they provide open-based architecture for many fintech-startups and services like PayPal and Google Wallet and help their backend to setup new services faster/easier/cheaper, than with any traditional bank. Now Chase and BBVA are trying to copy their experience and business model. Until Singaporean/Asian fintech-startups will try to integrate with each bank directly – we will not see a lot of fintech-entrepreneurs like in the US here, and existing ones will spend a lot of money and time for each integration.  Fintech-startups could not only increase product line of Singaporean banks (and telcos), but also help them to expand capital of Singaporean banks for other countries without buying/establishing of new (and expensive) traditionally licensed banks.