The payment industry is a fragmented one. Singapore has more than 500 payment companies; some provide just remittance services, while others offer multiple payment solutions.
Smaller companies often offer limited payment solutions, such as QR codes and/or POS machines, limiting their scalability. While bigger players could scale but often offer a closed-loop payment ecosystem to protect their business.
As a result, merchants often have to register with multiple payment companies, which takes up to three days for each registration. The fragmented payment industry is eating into merchants’ already razor-thin margins.
Based on the Singapore Payments Roadmap report, 18 per cent of merchants interviewed said cost is a major challenge, while 20 per cent cited slow settlement speed, and 13 per cent cited security.
Some payment companies are working to provide more options but most partner with other companies licensed to provide specific payment activities. This partnership model doesn’t resolve merchants’ pain points of registering with multiple platforms, nor the slow settlement speed and cost, since it still revolves around fiat and the traditional settlement method.
Alternative payment to tap into new customers
A possible solution could be using cryptocurrency. Blockchain technology enables the whole transaction to be decentralised, so no third-party settlement is required, which speeds up the settlement time for merchants.
As a result, merchants can receive and transfer funds almost instantly. Generally, crypto transaction costs are also lower than traditional payments.
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For merchants, accepting cryptocurrency could open new customer segments. A recent survey found that around 16 per cent of Singapore’s adult population holds some form of cryptocurrency, and the country ranked sixth in crypto ownership among the 22 countries surveyed.
Out of the 16 per cent holding crypto, merchants could tap into two distinct customer segments: millennials who are tech-savvy and adventurous and crypto natives.
Millennials are more likely to own cryptocurrency and try new things, including using crypto to pay for goods and services. Charles & Keith and Novelship announced that they would accept crypto as payment, partly to target their customers, mostly millennials.
Crypto natives, especially early investors in crypto, are looking for new ways to enjoy their newfound wealth on high-value, luxury products. With the current global crypto value between US$2-3 trillion and further growth is expected, this population is expected to increase.
Cryptocurrency challenges
The most common concern about cryptocurrency is the risk of money laundering due to its anonymous nature. The Monetary Authority of Singapore (MAS) is actively reducing the money-laundering risks related to crypto.
MAS has clamped down on unlicensed crypto operators and requires licensed operators to adhere strictly to the travel rule, which requires sharing both beneficiary and originator identities and information.
Second, crypto is a volatile asset that could mean huge risks. One way to counter the threat is to partner with payment providers who offer instant crypto ramping into fiat based on a quoted price. This minimises the fluctuation risks since merchants would not be holding onto the crypto.
The third concern is the lack of standardised protocol or crypto used for payment. The most common crypto available as payment is Bitcoin (BTC), Ethereum (ETH), Tether (USDT), and USDC.
Also Read: How CoinDCX aims to be India’s gateway to the broader global crypto ecosystem
Most of them are transferred via the ERC20 or TRON20 network. Customers need to convert their cryptocurrencies to ones the merchants accept before they can make a crypto purchase. This might turn away some crypto users who prefer to hold onto their crypto than convert to the merchant-preferred crypto to make purchases.
What’s ahead for cryptocurrency as payment?
Traditionally, the payment industry revolved around the fiat ecosystem. With the rise of crypto, companies are innovating and exploring outside the confines of the fiat ecosystem.
For merchants, while many are adopting the wait-and-see approach to how crypto payment will evolve, some are going in head-first to tap into its potential to speed up transaction time, reduce costs and open up new customer segments.
Using crypto has risks but also offers opportunities for innovation and growth. The crypto payment industry is just starting. Together stakeholders should join forces to learn, adapt and evolve to make the crypto payment process safe, secure and seamless.
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