The costs of going cashless

LAST week, the government said it is targeting Singapore to be cheque-free by 2025 as part of the country's cashless push. It also said that from August onwards, companies and government agencies will be able to use PayNow.

PayNow, which has nine participating banks, was launched last year. It lets users send payments via their mobile phones without requiring bank account details. It has around 1.4 million registrations, and nearly S$900 million has been transferred via the service.

PayNow Corporate will have seven participating banks: Citibank, DBS, HSBC, Maybank, OCBC Bank, Standard Chartered Bank and UOB.

The day after the news was out, a reader emailed to complain that Singapore's attempt to go cashless is cumbersome.

The reader's main beef was that if a user has several accounts, there is no one PayNow app that can be linked to several bank accounts.

The digital ride is accelerating but the going has not always been smooth.

Read more: The Future of Money

Go to SPGroup to open a utility account and one gets stumped by the fields asking for the NRIC date of issue as well as date of birth. By now you would have thought our NRICs are available to an agency like SPGroup.

The date of issue and date of birth fields are far from intuitive. The date fields pop up with future months and years and it seems like one can only go forward - which is nonsense. How can one's NRIC be issued in the future for the person yet to be born?

A millennial came to the rescue and showed that you have to roll the red ball on the mouse to get the older dates.

Even more intriguing is why does SPGroup require the NRIC date of issue and birth date? It also asked for race. What is the purpose of knowing the person's race for opening a utility account?

Finally one has to input a verification code sent via SMS to complete the process. By then the mobile has gone on the blink - battery dead.

So what happens when we go completely cashless and batteries die or systems fail?

The idea of going digital is that efficiency rises and costs go south.

Cost-savings and job losses

The cost of processing cash and cheques in Singapore is said to be about S$2 billion a year, or 0.5 per cent of gross domestic product (GDP) in 2015, a KPMG study found. The cost includes storage, transportation, security and incineration.

But how many people would lose their jobs from the S$2 billion in savings?

It's far from clear who reaps the benefits from the billions saved; but the cost to society from people who are thrown out of work can include depression and family stress.

Retraining or re-skilling people does not always work smoothly because change is hard, especially if you're at a certain age.

My mother, who is 93, has a clerk to help with her investments and bookkeeping, including writing out cheques to pay various contractors. She can read her bank statements or look at a ledger for her stockmarket transactions.

Expecting her to read off her mobile is something else: the screen is just too small.

Unusual coming from a bank chief but comforting nonetheless, DBS CEO Piyush Gupta has talked about the social impact from digital transformation.

"... as we go down this path of digital transformation, we would be wise to think about how far, how fast, how best to take this forward," he said.

"It is right to ensure that we are at the cutting edge of disruption; if we don't embrace technology, we will suffer the death of many industries and players.

"On the other hand, we owe it to society to be thoughtful and wise about the slew of changes and pace them in a way to be suitable for all."

There is a cost to using cash - yet the move to cashless is being met with concern from some segments of society (and even central banks), which warn against abandoning physical cash too quickly, said Mr Gupta.

In Sweden, only 2 per cent of the total value of transactions is in cash - and even this is expected to fall to under 0.5 per cent by 2020. "On the surface, Sweden is well-positioned to go completely cashless."

However, the transition to digital payments is taking place so fast that the authorities worry it will become unviable for banks to maintain the infrastructure for handling cash.

"There are also concerns about the financial exclusion of certain sections of society such as the elderly or lower-income citizens. A parliamentary review in Sweden is now working on new measures designed to stop the decline of cash and to maintain a basic cash infrastructure," he said.

Plans for a government-backed virtual currency (E-krona) may also be scuppered due to concerns such as the ability to handle the demand for physical cash in the event of crisis or bank run.

The Bank for International Settlements has also warned that a central bank digital currency could create the risk of digital runs on central banks.

In a speech on Monday to fellow regulators in San Francisco, Monetary Authority of Singapore managing director Ravi Menon painted an imaginary scenario of a global cyber crisis in 2023 where AI-enabled malware infiltrates banks across the world and steals money from 500 banks, causing loss of public confidence and sparking bank runs.

His scary future shows tens of billions of dollars lost and Algor Bank, the world's 20th largest going bust, though the heroes of the day - regulators - managed to pull the world back from the brink.

Presumably Mr Menon is trying to spur thinking about the future of financial regulation with his story.

As to who pays, it would seem everyone.