A quick guide to Singapore's payment services ecosystem
9 June 2022 | Applicable law: Singapore
In line with her “Smart Nation” initiative and its vision to be the regional ‘FinTech’ hub, Singapore has continuously encouraged financial innovation. While FinTech carries tremendous potential to revolutionize the financial industry and change lives for the better, if left unchecked, it also poses real risks in the market, and the lack of comprehensive regulation for this evolving market may lead to problems which affect market integrity and consumer protection.
As such, in encouraging FinTech revolution, Singapore also places emphasis on mitigating risks brought by FinTech through regulatory reforms and institutional improvements together with industry players.
Further, the rise of FinTech has also resulted in considerable change in the payment services landscape, presenting new risks that arise from activities beyond the scope of the repealed laws(1) governing such services. This led to the enactment of the Payment Services Act 2019 (PSA), which came into effect on 28 January 2020.
PSA was introduced to streamline payment services under a single legislation with the main aim of promoting greater confidence among consumers and merchants to adopt electronic payments. It addresses, amongst others, money-laundering and terrorism financing; loss of funds owed to consumers or merchants; fragmentation and limitations to interoperability; and technology and cyber risk management requirements.(2)
In this article, we will set out the licensing framework under the PSA as well as exploring the new developments in the payment services landscape in Singapore.
Regulated Services and Licenses
As mentioned in our introductory article(3), PSA adopts an activity-based approach in regulating seven types of payment services:
- Account issuance service: The service of issuing a payment account or service relating to any operation required for operating a payment account(4).
- Domestic money transfer service: Provision of local funds transfer service in Singapore.
- Cross-border money transfer service: Provision of outbound or inbound remittance service in Singapore.(5)
- Merchant acquisition service: The service of processing payment transactions from the merchant and processing payment receipts on behalf of the merchant(6).
- E-money issuance service: The service of issuing of e-money for the purpose of allowing the user to make payment transactions, including to pay merchants or transfer to others(7).
- Digital payment token (DPT) service: The service of dealing in, or facilitating the exchange of, DPTs.
- Money-changing service: The service of buying or selling foreign currency notes.
Accordingly, most providers of e-money and e-wallets will be regulated for account issuance, domestic money transfer and e-money issuance services. Merchant acquirers that process payment transactions for merchants will fall under merchant acquisition service. Entities that buy or sell DPTs (commonly known as cryptocurrencies) or provide a platform to allow users to exchange DPTs are regulated under DPT service. As for moneychangers and remittance agents, they will continue to be regulated as money-changing service providers and cross-border payment service providers respectively.
Payment service providers can conduct multiple payment services under one license. Depending on the types of services, a service provider is required to hold either a (1) money-changing license(8), (2) standard payment institution license, or (3) major payment institution license. In relation to payment institutions, the key eligibility criteria are summarised as follows:
Every licensee under the PSA must also adhere to the ongoing compliance obligations, such as audit, cyber hygiene and Anti-Money Laundering and Countering the Financing of Terrorism requirements set out under the notices and guidelines issued by the Monetary Authority of Singapore (MAS) from time to time. A licensee is also required to pay an annual license fee and the applicable fees(9) in respect of each type of payment service (except account issuance service) that it is licensed to conduct.
One should also note that licensees under the PSA are prohibited from engaging in banking activities, such as lending to individuals or sole proprietorships. Likewise, e-money issuers are prohibited from on-lending customer money or using customer money to materially finance their business activities; and e-wallet providers are prohibited from providing cash withdrawal services.
What’s next for PSA?
Payment services ecosystem is a fast-evolving landscape in Singapore and globally. The regulators in Singapore are always watching out for emerging services and activities. In doing so, the regulators have been actively pursuing the objectives of promoting financial innovations as well as maintaining market integrity with measures to mitigate new risks bought by the development of FinTech.
One of the notable examples is the ‘buy now, pay later’ (BNPL) scheme, which has become a new trend in the e-commerce space. BNPL is not regulated by under the PSA, and MAS has been counting on industry self-regulation to manage the risks for now. That said, a code of conduct for the BNPL industry will be launched soon setting out the expectations required of BNPL providers.(10) Such code may potentially require BNPL providers to provide safeguards against ‘financial imprudence’ and over-indebtedness by consumers, for instances, setting a minimum age of BNPL users, a cap on the interest and late fees, and imposing a ‘freeze’ on making further BNPL purchases once consumers miss a payment. MAS has not ruled out the need for regulation yet and will keep monitoring the development in this space.
MAS is also actively studying the stablecoins’ market. Stablecoins combine the credibility of fiat currencies with the advantages of the blockchain. However, stablecoins do not fall under a specific category currently regulated by the PSA. Though MAS has indicated that in general stablecoins do not meet the definition of “e-money” and it may meet the definition of DPT, MAS is currently taking a ‘technology-neutral’ stance and will examine further the characteristics of stablecoins.(11) As stablecoins are gaining popularity in the market, we anticipate that MAS will be looking to roll out the new regulations to regulate such innovative products.
Not all payment services are regulated under the PSA. MAS applied a risk-based approach to identify payment services that pose sufficient risk to warrant regulation. As such, it is expected that more regulations and guidance will be introduced to regulate the payment services landscape in Singapore as and when the regulators deem necessary. As such, every licensee should keep abreast of the regulatory changes to ensure that it is providing payment services in compliance with the laws.
This article has been produced for general informational purposes only. The information contained in this article should not be construed as legal advice and is not intended to be a substitute for legal counsel on any subject matter. No recipient of this article should act or refrain from acting on the basis of any contents in this article without seeking appropriate legal or other professional advice.
This article has been widely republished on Lexology, Conventus Law, Mondaq and Martindale.
(1) Previously, the Payment Systems (Oversight) Act provided for the oversight of payment systems and stored value facilities, whereas the Money changing and Remittance Businesses Act provided for the regulation of persons who carried on money-changing business, remittance business or both. These two legislations have since been repealed after the commencement of the PSA. Domestic money transfer service, merchant acquisition service and DPT service are new payment services that are regulated under the PSA.
(2) MAS, “Consultation Paper on Proposed Payment Services Bill” (November 2017) Monetary Authority of Singapore Consultation Paper No P021-2017, at https://www.mas.gov.sg/-/media/MAS/resource/publications/consult_papers/2017/Consultation-on-Proposed-Payment-Services-Bill-MAS-P0212017.pdf
(3) Article titled ["Fintech today – A look at Fintech regulatory environment, and what you need to know" published by Withers KhattarWong on 11 May 2022.]
(4) Including non-bank issued credit card and e-wallet (including certain multi-purpose stored value card).
(5) Including payment gateway services, payment kiosk services or other local funds transfer, in any case neither payer nor payee is a financial institution.
(6) Including provision of a point-of-sale terminal or online payment gateway.
(7) The provision of stored value facilities is now regulated under the PSA as account issuance service and e-money issuance service.
(8) A money-changing licensee can conduct only money-changing services.
(9) Moneychanger is required to pay a fee of S$1,500. Standard payment institution is required to pay S$5,000 per payment service whereas a major payment institution is required to pay S$10,000 per payment service. However, no such fee is payable by any licensee in respect of account issuance service.
(11) FAQs on the PSA (revised on 7 March 2022), available at https://www.mas.gov.sg/-/media/MAS-Media-Library/regulation/faqs/PD/faqs-on-payment-services-act-2019/Payment-Services-Act-FAQ--7-March-2022.pdf (12) ibid.