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Large payment-service providers must safeguard money in consumers’ e-wallets under new law

SINGAPORE — Consumers who deposit money into their mobile wallets with larger payment-service providers can be assured that their money will be safe, even if the companies go belly up.

Large payment-service providers will soon have to be licensed as major payment institutions, under a new law passed in Parliament on Jan 14, 2019.

Large payment-service providers will soon have to be licensed as major payment institutions, under a new law passed in Parliament on Jan 14, 2019.

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SINGAPORE — Consumers who deposit money into their mobile wallets with larger payment-service providers can be assured that their money will be safe, even if the companies go belly up.

Under the Payment Services Bill — which was passed on Monday (Jan 14) and could take effect later this year — payment-service providers that exceed a monthly average of S$3 million in transactions, or S$5 million in electronic money in their daily float (in a calendar year), will have to be licensed as a major payment institution.

These providers will require a guarantee by any bank in Singapore to be fully liable for their customers' monies, have a deposit in a trust account or engage in other safeguards as prescribed by the Monetary Authority of Singapore (MAS), Education Minister Ong Ye Kung said in Parliament. 

Payment-service providers which do not go above the threshold will be licensed as standard payment institutions. They are not required to adopt such safeguarding measures of customers' monies under the new law, but will be required to tell customers so.

This is to ensure that the measures will not be too onerous or stifling for businesses, Mr Ong, who is also an MAS board member, said.

There are three classes of licences in total, and the third is strictly for money-changing service providers.

Under the new law, Singapore residents will not be able to withdraw Singapore dollars from the electronic money accounts. This is to promote greater adoption of cashless payments.

Personal accounts cannot exceed S$5,000 at any time and the total amount of payments made from the account in a year cannot exceed S$30,000, excluding transfers to the user’s designated bank accounts.

These caps do not apply to merchant payment accounts for business uses.

Stored-value cards such as ez-link cards and Nets cash cards will be regulated under the new law, which will combine the Payment Systems (Oversight) Act and the Money-Changing and Remittance Businesses Act.

However, payment services with a limited purpose — they cannot be used to pay for goods and services provided by an unrelated third party — will be excluded from the new law. They include frequent flyer miles, supermarket vouchers and even pre-payments for bicycle-sharing platforms.

Some concerns raised by Members of Parliament (MPs):

1. Capping the maximum amount in the account and transaction amounts

While the caps were put in place by MAS to limit customers’ potential losses, Mr Leon Perera, Non-Constituency Member of Parliament (NCMP) from the Workers' Party, said that there may be some individuals who need larger transaction sizes for their e-wallets.

Mr Ong said that MAS is prepared to grant exemptions to facilitate customers’ needs.

He also explained that the caps of S$5,000 and S$30,000 are based on data from the latest household expenditure survey. In the survey, the average monthly expenditure per household member for the 61st to 80th percentile was S$2,000, while the annual expenditure was at S$24,000.

2. Lack of regulation over cryptocurrencies

The Payment Services Act requires companies dealing in cryptocurrencies or digital payment tokens to meet anti-money laundering and counter the financing of terrorism requirements, but daily payments are not regulated for customer protection.

Mr Ong said that is because the use of digital payment token services in Singapore is very low compared to countries such as the United States, Japan and South Korea.

MP Louis Ng proposed that MAS maintain a central registry of key persons involved in initial coin offerings (ICO), which is a way for businesses to raise funds through the sale of digital tokens. He also suggested that businesses raising funds through an ICO should register with MAS.

However, Mr Ong said that such regulations will have a legitimising effect and “send a wrong message that Singapore is promoting such activities”.

It also gives a “false comfort that such activities are safe”.

3. Allowing the withdrawal of non-Singapore dollars by non-residents

Mr Perera questioned why the new law allows non-residents to withdraw foreign currencies from their e-wallets, while Singapore residents are not able to do so.

He suggested that MAS allow limited withdrawals from these e-wallets to increase convenience for users.

Mr Ong said that allowing non-residents to withdraw foreign currencies from their e-wallets is to facilitate tourism spending. It is also because withdrawals from non-resident e-wallets will not affect the banking system in Singapore.

4. Not allowing credit facilities

Licensees under the Payment Services Act will not be able to provide loans, unless they hold the appropriate licence under the Banking Act or Moneylenders Act.

However, Nominated MP Walter Theseira suggested that low-risk, small-scale lending could be a key area of growth for financial technology firms seeking to expand regionally to consumers with little access to credit.

Mr Ong replied that lending and withdrawal activities are the core function of banks.

Allowing payment-service providers, which are subject to lesser regulatory scrutiny, to provide loans will undermine the position of the banks and may affect the stability of Singapore’s banking system.

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