Prior to placing cash in a computerized wallet, do you check in the event that the supplier is authorized by the Money-related Power of Singapore? Or on the other hand, read through its agreements?
Singapore: As consumers use cash less frequently, it is now typical to see them wave smartphones in front of payment readers or scan QR codes to make purchases.
The use of pre-loaded digital wallets is a common alternative for people who don't qualify for credit cards or would prefer not to use them for contactless payments.
GrabPay, a service offered by tech giant Grab, is one popular choice in Singapore. Digital wallets are also available on popular e-commerce sites like Shopee, Lazada, and Qoo10.
Since the growth of e-commerce, there have been mobile app payments that can be connected to credit or debit cards or feature a stored value function to pre-load monies. However, the market expanded quickly during the COVID-19 epidemic due to a surge in internet sales and a growing trend toward contactless payments.
According to a survey by US financial technology firm FIS that studied payment trends in 2020, they appear destined to surpass credit cards as the most used online payment option in Singapore by 2024.
According to the most current study from FIS in 2022, these apps made up 29% of the value of e-commerce transactions in Singapore last year, up from 20% in 2020. This means that they are catching up to credit cards, which continue to hold the majority of the market with 42% of transactions.
As consumers move away from using cash for in-store transactions, these apps are becoming more and more popular. By 2021, the sector had increased from 11% to 14% of the value of in-store transactions, and by 2025, it was predicted to reach 23%.
But do the measures in place go far enough to protect consumers? How secure are the e-wallets where you store your money? Observe the following:
What are the shopper shields set up?
Major payment institutions are governed by additional regulations than normal payment institutions due to the size of their activities and associated risks.
For instance, they must abide by rules governing the security of customer payments stored in digital wallets like e-money.
This may take the form of a promise or guarantee made by a Singaporean bank or other financial institution to be completely accountable to the consumer for the money. As an alternative, they can place customer money in a trust account kept by a bank or other financial institution in this location.
According to Ms. Elaine Chan, co-head of WongPartnership's financial services regulatory practice, "these safeguards are intended to ensure that customers' funds are kept separate from other funds, such as the digital wallet provider's own proprietary funds, and not used for payment of the digital wallet provider's debts."
Even though they must inform their clients, standard payment institutions are exempt from these rules.
Authorities have previously stated that the less stringent regulation for these types of payment service providers is in accordance with their lower-scale operations and is intended to promote innovation.
Tian Sion Yoong, a partner at WongPartnership, responded when asked if this meant one was safer than the other: "To the degree that a large payment institution has these legislative responsibilities to preserve consumer money, then perhaps it might be considered as "safer" in that sense.
However, he continued, a typical payment institution can choose to implement these security measures even though they are not required.
Mr. Tian, who is a partner in the law firm's financial services regulatory and financial technology groups, advised consumers who had concerns to inquire directly with the institutions about what is being done to protect clients' money.
Other experts pointed out that the Monetary Authority of Singapore (MAS) has a "stringent" process when evaluating applications, be they from major or standard payment institutions, ensuring that only those that fulfill its standards get granted a license.
Applications must provide comprehensive information on consumer protection, cybersecurity, anti-money laundering, and other practices. The regulator then puts them through a number of tests and simulations, according to Mr. Leong Chuo Ming, a partner at Withers KhattarWong.
He continued, "MAS really wants to make sure that these suppliers know what they are doing, so the application process is actually rather severe."
Additional security measures include a $5,000 cap on the amount of money that can be held in electronic wallets and a prohibition on e-wallet companies offering cash withdrawal services.
According to Ms. Etelka Bogardi, a partner in Norton Rose Fulbright's financial services regulation group, these are partly designed to protect customers as well as ensure the stability of the entire financial system and prevent money laundering.
What laws apply to digital wallets in Singapore?
The Payment Services Act, which becomes effective at the start of 2020, governs them.
Depending on their monthly transaction volumes for regulated operations and the size of their daily electronic money (e-money) float, providers of digital wallets must apply for a license from the Monetary Authority of Singapore.
The licensable operations include the creation of accounts, local and international money transfers, the creation of electronic money, the trading or exchanging of digital payment tokens, and the acquisition of merchants.
Major payment institutions are those with monthly revenue of at least S$3 million for any licensable business, S$6 billion for two or more activities, or a daily e-money float of at least S$5 million.
GrabPay and ShopeePay are two providers of digital wallets that have the major payment institution license.
A conventional payment institution license must be applied for by those whose transaction volumes and e-money float sizes fall below the aforementioned requirements. Learn more information
Some computerized wallet suppliers have a statement that says clients will be unable to recuperate their cash assuming that the business falls flat. Would it be advisable for me to be concerned?
The language, according to Mr. Leong, is a "normal" component of the terms and conditions and serves to shield a company from "as many unanticipated scenarios as possible."
Ms. Bogardi agreed, stating that the phrase is identical to risk disclosure statements contained in other kinds of service agreements in that it outlines the worst-case scenario.
Additionally, the regulatory protections will take effect should a significant payment institution fall insolvent to give creditors a better chance of recovery, according to the attorneys.
Customers might try to get their money back from a bank if, for instance, the bank had given an undertaking or guarantee, according to Mr. Daniel Liu, a partner in the restructuring, insolvency, and special situations advising practices at WongPartnership.
Learn more information
Additionally, if the client monies have been placed in an authorized trust account, they would be regarded as "ringfenced" and not included in the assets of the business that are subject to liquidation.
According to Mr. Liu, "in terms of ownership, they would belong to the customer," adding that as part of the legal procedure, clients will have to provide the liquidator with proof of debt.
"It will take a while since the liquidators need to take charge of the company's activities and comprehend what is happening. But the client will probably be able to get their money back if a legitimate trust has been established over their finances.
However, because user protection measures are not mandated, your chances of recovering are less favorable when a non-major payment institution experiences financial difficulties.
- Assets from the dissolution of a business, including money from customers, are liquidated. Secured creditors will be compensated first, followed by other preferential debts like the liquidator's fees and employee wages, if there are no consumer protections in place.
- Clients would be categorized as unsecured creditors and handled on par with other unsecured creditors. In accordance with the amount owing, Mr. Liu stated that this group might potentially be given a proportionate part of the remaining assets, but full recovery seems unlikely.
- In spite of this, FIS stated that there is "extremely little danger" of customers losing their money as a result of a supplier in Singapore suddenly leaving the market.
- This is a result of the strict requirements established by the authorities as part of the Payment Services Act, as well as the fact that the vast majority of non-bank wallet providers in Singapore are "large firms related to huge tech, regional super applications."
What should users of digital wallets watch out for?
Being a wise shopper, though, is always a good idea.
Checking whether a provider of a digital wallet is licensed by the MAS is a crucial action, in the opinion of experts.
This can be done using the MAS website's financial institution directory, which displays a provider's license type and the services they are permitted to offer. Additionally, Mr. Tian advised customers to look up and steer clear of any service provider who has been added to the MAS's investor alert list.
"Any operator of a digital wallet that falsely claims to be licensed or controlled by MAS when it is not, may not be trustworthy and could be a scam," he stated.
Users should strive to study service agreements' terms and conditions before selecting "I agree," even though they aren't exactly riveting reading. Keep an eye out for information in these agreements regarding how customer funds will be protected in the case of insolvency.
Mr. Leong issued a warning about adding more money to a digital wallet than is necessary.
Finally, Use it as a checking account alone. It's not intended for that, he replied.
He also cautioned users of digital wallets to be on the lookout for phishing schemes, which are still "one of the biggest threats."
In incidents that have taken place in Singapore, con artists have tricked victims into divulging their personal information, banking information, and one-time passwords. In order to apply for e-wallets and conduct unauthorized transactions, the con artists would exploit this information.
