Header graphic for print
Global Media and Communications Watch The International Legal Blog for the Tech, Media and Telecoms Industry
Posted in e-commerce Justin TongAlly Smith

TMT2020: Instant Gratification – the Rise of Fintech and Real-time Payments in Singapore

EDITOR’S NOTE:  We are excited to present this entry in our new TMT2020 series, which reflects the key technology, media, and telecoms legal issues that are expected to impact today’s organizations and tomorrow’s marketplace.  It also provides an opportunity to highlight contributions by TMT associates across our global offices and practice areas. 

Real-time payments have become an increasingly common way of life in Singapore.  Their proliferation has significantly enhanced the ease and efficiency in which banks, businesses and individual consumers alike make payments and manage their everyday affairs. More efficient payment systems have also changed consumer and business expectations on payments, inspiring further evolution of the global payments ecosystem and compelling banks, retailers and credit card companies to innovate.

Modelled after the UK’s Faster Payments Service initiative and backed by Singapore’s central bank (the Monetary Authority of Singapore) and 14 major banks, Singapore’s innovative real-time “FAST” (Fast and Secure Transfers) payments platform was introduced in March 2014. This new platform has propelled Southeast Asia’s leading financial centre to the forefront of cutting-edge “Fintech” real-time technology.  The availability of real-time payments is also driving the development of a wider range of services in Singapore, including mobile, digital and other instant person to person (P2P) payments, in line with other developed countries such as the UK, Australia and the Nordic countries with similar nationwide real-time payments infrastructure.

As real-time payment systems expand to new jurisdictions, they will face potential a number of legal and regulatory challenges, especially where established international players are involved. For example, many jurisdictions have significant licensing, capital and foreign investment, local presence and other regulations.  Given the rapid pace at which real-time payment technology is developing globally, we expect many countries to play “catch-up” in the next few years to ensure that their legal and regulatory framework can accommodate evolving real-time payment solutions and services within their financial industry.

Real Benefits from Real-Time Payments Systems

Real-time payments systems like FAST have several advantages over traditional clearing processes.  They allow almost immediate electronic transfers for funds in Singapore dollars between the major banks in Singapore on a 24×7 basis.  In September 2015, five more banks began to offer FAST services, bringing the total number of participating banks in Singapore to 19.  Before the FAST system, interbank transfers could take up to three working days to complete – now the end-to-end processing time of FAST payments is approximately 15 seconds.

Real-time payments are not subject to traditional banking hours and can be sent any time of the day or night, throughout the year.  Moreover, these payments are irrevocable once sent, and recipient banks in a real-time payment system actively accept or reject payments, providing certainty on the status of the payment to the payer, the payee and the bank.

FAST – Payments Infrastructure in Singapore

The infrastructure for the FAST system in Singapore was provided to the Association of Banks in Singapore (ABS) by UK-based VocaLink, a leading global payments provider, building on its experience in the UK with the Faster Payments Service there.  The FAST service in Singapore expands on the UK solution, offering the ability to raise debit requests as well as push credits.  FAST was the first national real-time payments infrastructure system outside of Europe to utilise the ISO 20022 global standard, paving the way for near-instant international payments and streamlined communication between banks.

FAST infrastructure has opened the door for further layers of payment solutions for consumers in Singapore.  After the introduction of FAST, the Development Bank of Singapore (DBS), the largest bank in Singapore and in Southeast Asia, launched “PayLah!,” a mobile app allowing customers who bank with FAST banks to send and receive funds in real time, outside of the internet banking environment.  Despite being a DBS product, PayLah! is open to customers of other Singapore banks, allowing DBS to expand its services into the wider banking market.  Another major bank in Singapore, OCBC Bank, has integrated FAST into its mobile offering, allowing instant money transfer using Facebook, email and SMS within Singapore.

Singapore-style System Expanding to the US

After success in the UK and Singapore, instant payments are rapidly expanding into larger financial markets.  VocaLink announced on 10 December 2015 that it has entered into a binding agreement with The Clearing House, the oldest banking association and payments company in the United States, to develop a national real-time payment service in the United States, the world’s largest payment market.  The Clearing House processes approximately 50% of all commercial Automated Clearing House and wire volume in the US from its credit union and commercial bank customers.

VocaLink cited its experience in Singapore as part of its proven technology, system upgrade ability and speed to market, all factors which were instrumental in the development of this new project with The Clearing House.

Growth in Asia

McKinsey’s Global Payments 2015 report – Global Payments 2015: A Healthy Industry Confronts Disruption (published in October 2015, link here) – shows just how extensive growth in the payments market in Asia has been and is predicted to continue.  The Asia-Pacific region added about $75 billion in payments revenues in 2014, accounting for 55% of all growth in the industry revenues globally.  The report predicts that payments revenues in Asia-Pacific will continue to grow by 6% per year for the next five years, despite an expected broader economic slowdown in the region.

One of the key trends cited by the report in shaping future payments growth is the modernisation of domestic payments infrastructure.  McKinsey expects more countries to follow Singapore and the UK in establishing modern payment systems similar to the FAST and Faster Payments systems respectively, leading to a further rise in payments revenues.  Indonesia and Thailand are both cited as being in the “exploratory phase” in their plans for payments infrastructure modernisation.

Legal and Regulatory Challenges

The creation of new real-time payment systems in these and other jurisdictions will face potential legal and regulatory challenges, especially where international players are involved, as many Southeast Asia jurisdictions have significant restrictions on foreign investment into the domestic market including but not limited to:

  • Government licence and regulatory permitting;
  • Local presence requirements;
  • Capital requirements; and
  • Work permits for foreign workers required to undertake implementation, mapping and branding of the payment platforms onshore.

Given the rapid pace at which real-time payment technology is developing globally and the increasing complexity and sophistication of such services, many countries are playing “catch-up” to ensure that their legal and regulatory framework are sufficiently robust and up-to-date to accommodate the implementation and integration of real-time payment solutions and services within their financial industry.

Looking Ahead to Cross-Border Real-Time Payment Systems

Real-time payments represent a significant new phase of evolution in Singapore’s payments industry. They have demonstrated tremendous value for consumers and banks, but implementation of the necessary infrastructure requires significant foresight and investment.

The use of real-time payment systems in Singapore will continue to increase – as discussed above, the success story in that country has set other Southeast Asian countries on Singapore’s path, which may eventually result in the introduction of a real-time cross-border payments platform to facilitate commercial banking transactions across Asia.

Although the future growth and proliferation of cross-border real time payments services is very promising, significant legal hurdles and challenges will arise. Each country tends to have a bespoke domestic legal framework for payments, including specific security standards, know-your-client checks and data protection regimes.  Implementing successful cross-border systems for instant payments will require significant cooperation and commitment between governments and a willingness to make flexible adjustments to domestic payments and banking legislation.