Cash-reliance could be causing poor financial management in Singapore, a study says

Ever since the Prime Minister voiced concerned about Singapore’s backwardness at the National Day Rally, many of our conversations have been dominated by the topic of e-payments.

The reasons behind the push for digital payments have been well expounded. Not only does Singapore need to catch up with the likes of China to stay competitive on the world stage, e-payment adoption is also crucial if the economy wishes to remain efficient and relevant in an age dominated by fast-changing digital technologies.

Cash-reliance remains strong

Singapore’s finance industry is no stranger to e-payment technologies, and there are already plenty of options for consumers and merchants to choose from. And yet, six in 10 transactions in Singapore are still in the form of cash.

In fact, the value of notes and coins in circulation actually rose 130% from 2007 to S$42.5 billion in Dec 2016.

The cost of storing and processing cash was S$2 billion in 2014, managing director of the Monetary Authority of Singapore Ravi Menon said in a speech last year.

With such high costs associated to cash, it is baffling why an advanced economy such as Singapore’s is still playing catch-up and trying to reap the benefits of e-payments in business and everyday life.

A new study commissioned by PayPal has found that while there are many e-payment options in Singapore, 43% of respondents here said that cash was the payment mode they used most often. Only 3% said they used e- or mobile wallets most often, and an even more dismal 2% said contactless payments via mobiles were their most common payment method.

Payment modes in Singapore
PayPal Digital Payments: Thinking Beyond Transactions Singapore Country Report

The study surveyed 4,000 consumers and 1,400 merchants across seven markets in Asia, including 500 consumers and 200 merchants in Singapore, and found that cash remained the primary method for conducting transactions for 57% of respondents in Asia.

Not surprisingly, China showed the most promising results when it came to e-payments. Unlike Singapore and the rest of the cities, only 25% of China’s 750 consumers said cash was their most frequented mode of payment. In contrast, 48% cited e- or mobile wallets as their top preference.

Problems of using cash

Despite the high reliance on cash across Asia, about two in five consumers surveyed reported having problems with cash transactions. These problems include not having enough cash on hand (40%), not having Automated Teller Machines (ATMs) nearby (36%), and facing long queues at the bank or ATMs (39%).

Not only that, financial management was also identified as a major problem with the use of cash. According PayPal, 43% of cash-users in Singapore said they experienced difficulties managing their bill payments, compared to just 22% of digital payment users who said the same.

This suggests that while many Singaporeans prefer to use cash, many people also face difficulties managing their finances because of their reliance on cash.

PayPal Digital Payments: Thinking Beyond Transactions Singapore Country Report

Digital payments have the potential to help consumers manage their finances better by giving them the ability to track payments, make instant payments, and choose from multiple payment methods.

When it comes to adopting digital payments, around 69% of respondents in Singapore  cited convenience as the most common reason for adopting e-payment systems.

PayPal Digital Payments: Thinking Beyond Transactions Singapore Country Report

Security also seemed to be a big push factor with 41% identifying the assurance of secure transactions as a push factor.

Reduced business costs with increased reach

Apart from consumers, businesses also stand to gain from digital payment technology as it reduces operational costs and allows new business models to solidify.

“The role of digital payments in our lives is rapidly evolving. Much more than a mode of transaction, they are helping to enable increased financial participation and wellbeing, and opening doors for greater economic opportunity,” said Dr Rohan Mahadevan, senior vice president of Asia Pacific at PayPal Inc.

Online sales and social media commerce are some examples of how digital payments have generated new income streams for businesses, he added.

PayPal’s study found that 88% of Singapore businesses which have ventured into social media commerce said that digital payments have helped them reach bigger markets.

PayPal Digital Payments: Thinking Beyond Transactions Singapore Country Report

It also helps that businesses can move away from manual to electronic financial tracking by implementing a digital payment system.

“Transparent tracking of money flow, improved transaction efficiencies, unlocking new business models and the creation of more economic channels are just a few ways digital payments drive economic opportunity for both consumers and businesses,” Dr Mahadevan, who is also CEO of PayPal Pte Ltd said.