Since Lee Kuan Yew’s and Deng Xiaoping’s time, Singapore and China have enjoyed close bilateral relations and the personal ties the leaders have built has evolved into a strong institutionalised relationship between the two countries with significant investments by both in strategic areas.
Technology and smart nation initiatives are at the forefront of China and Singapore national development plans and during PM Lee’s recent visit to China, he expressed Singapore’s interest to learn from China’s experience in growing a vibrant environment for technology start-ups and visited SenseTime, China’s largest artificial intelligence algorithm provider with a market value of more than USD 1.5M.
Although both nations have been recognised for their Smart City Development (IDC in their AP Smart City Evolution Index saw Singapore and China topping 4 & 3 categories respectively), Singapore had been exporting their model for a Smart City to China since 1994 with Suzhou Industrial Park, the high-tech eco-island of Nanjing, the eco-city of Tianjin and the City of Knowledge in Guangzhou.
China 1: Singapore 0?
However in recent years, China has triumphed Singapore in the Smart Nation agenda, most significantly in the smart payments landscape. In the now familiar story of Singapore’s Manpower Minister Lim Swee Say feeling “suaku” when buying chestnuts at a roadside hawker in Shanghai with cash, PM Lee has issued a challenge for Singapore to address this gap during this year’s National Day Rally. The e-payments drive became one of the 5 strategic national projects the Government is working on to promote adoption of smart technologies.
Cashless in China
In many major Chinese cities, cash is becoming obsolete and in a short span of 3 years, the majority of consumers now use a smartphone to buy just about everything, amounting to USD 5.5 Trillion last year – more than the GDP of Japan, the world’s third largest economy.
This is especially significant as cash had reigned supreme in China as recent as 2014 and it was not unheard of for people to pay in huge sums of cash for a car or house. Even though mobile payments then were making their presence felt, it was mainly confined to online purchases – similar to what we are experiencing in Singapore now.
But concerns over counterfeit money, the fear of being robbed and the refusal of traditional financial institutions to provide more services helped to accelerate the adoption of mobile payments.
Currently the two leading providers of mobile payment in China, WeChat and Alipay, dominate 90% of payment that Chinese consumers spent using their phones last year.
In my recent trips to China, cash payments are met with dirty looks by vendors, who would have to search for change for me, holding up the queue. This is unlike in Singapore, where most vendors prefer cash – with some even offering incentives to pay by cash so that they do not have to pay an extra 3% to service providers.
Both Alipay and WeChat pay are extending their foothold in Southeast Asia with more merchants accepting the payment method in order to capture the Chinese tourist market. Alipay reported 8 times increase in transactions overseas during the Golden Week holiday in October. With Southeast Asia’s consumer spending expected to reach US$2 trillion (S$2.72 trillion) by 2020, there is a strong financial incentive for Singapore to catch up on the potential of mobile payments.
Changing the Cash is King Mindset
Compared to other similar cities, Singapore has played second fiddle when it comes to Smart Payments. Hong Kong Octopus card was launched in 2007 and can be used for payment in many retail shops in Hong Kong, from convenience stores, supermarkets, fast-food restaurants, on-street parking meters, car parks, to other point-of-sales applications such as service stations and vending machines.
In Singapore, 6 in 10 transactions are still carried out with cash and cheque and this number grows to 90% for transactions at hawker centres and wet markets.
In a survey done by EY, only 38 out of every 100 Singaporeans are comfortable paying with their phones, compared to the global average of 50. In China, that figure is 83.
Some of the roadblocks include the consumer mindset that cash is safer and merchants also highlighted charges, delay in payment settlements, and suppliers requesting cash as reasons to favour cash.
In my mother’s words, “No need to be so complicated, cash is easy.” A majority of the Singapore population does not have the incentive to relearn payments.
Step 1: Integration
Compounding the difficulty is the lack of integration.
Earlier this week, I tried to pay for a drink at a Buzz convenience store using PayWave but after checking their payment terminals, they said they only accept FlashPay. That resulted in $48.80 of change which I had to sort.
Even for carparks, with some accepting only the old CashCard, others using FlashPay, drivers often have issues even when dealing with cards from the same merchant – just ask the angry line of drivers in a long queue at our office building when a car does not have a compatible card.
“There are too many different systems of e-payment in Singapore”, said PM Lee.
For Singapore to make digital payments commonplace, the government is taking a step in the right direction – integrating systems. Regulatory oversight is crucial and the move towards a common QR code in Singapore prevents banks, payment networks and e-wallet providers with conflicting business interests to create close-loop systems that can only work with their own apps.
The PayNow system that Monetary Authority of Singapore is pushing for hopes to achieve this as 25,000 unified-point-of-sales terminals, which accept multiple payment options such as credit cards and contactless payments through phones, are expected to be deployed islandwide over the next 18 months by the Smart Nation and Digital Government office.
However as recent as this month, GrabPay has rolled out their e-payment solution in hawker stalls, shops and restaurants. How will all this add up in an already crowded and fragmented market?
Looking at the WeChat model
To successfully address the issue of large scale adoption, we can learn from WeChat. 3 years ago, 8 in 10 mobile payments in China were made using Alipay to buy products online. Today 4 in 10 mobile payments are made using WeChat Pay. The dominance that Alipay took 10 years to build has been diminished to half the market.
The key? Providing real incentives and making payment fun.
WeChat success started with their digital red packets – a product that DBS PayLah failed to launch two years ago. The main difference is that WeChat was a messaging app, and during Chinese New Year, it is common to send greetings to friends and family. By incorporating the digital red packet function into an existing activity – it provided the ease of transition. Would DBS PayLah have succeeded if they collaborated with WhatsApp or Facebook? Would the inertia of doing something new be reduced and the benefit of not having to queue for new notes and red packets allowed it to succeed?
WeChat launched by giving users a chance to win USD 80M in red packets and they didn’t stop there. It created a “Hongbao” game, in which users decided how much money to give in each red packet for members of their chat group to grab. WeChat Pay senior director Lilian Huang credits this fun entertainment factor as one of the main reasons it got popular.
The Merchant as a Customer on WeChat Pay
The merchant is an important part of the payment ecosystem and judging from the current adoption among hawkers, solution providers in Singapore has yet to crack the market yet.
WeChat was able to provide merchants valuable information that incentivised them to take the leap of faith.
Ms. Huang said, “In a cash transaction, you sell me your goods, I’ll pay you, and you keep the money, I keep the goods, right? However, do you know why I bought your product? You don’t. Do you know when will be the next time I visit you again? You don’t. All you have is the money you’ve received.”
WeChat positioned themselves as being able to facilitate users and merchants to build a relationship and developed a series of payment solutions for different industries to facilitate a better transaction experience. More than a million merchants in China have now signed up with WeChat Pay.
Can Singapore Catch up?
While I often complain that Chinese apps are inundated with excessive information, they often sync beautifully with each other making the app experience a seamless one. With WeChat, I can access WeChat Pay, Meituan Food Delivery, Didi Kuaiche taxi service, Dianping reviews and a whole host of other services.
When I access DBS PayLah, I am only using it to make payment.
For Singapore to catch up, there needs to be a more comprehensive view about what we are trying to achieve as our smart nation goal, instead of just focusing on payment as a separate aspect.
While integration brings about more convenience, it also raises the issue of data privacy – an issue that we will have to save for the next time.
For now, my mother’s data trail is still limited to the cute pictures and videos she posts on Facebook. Come January, she will be back at the bank queuing for new notes for Chinese New Year red packets while using Whatsapp to complain to us about the long lines.
Join us in our discussion on Smart Nation and the payment landscape in Singapore on the 26 & 27 February.