Singapore unveils new e-payment methods to replace cheques

[SINGAPORE] Singapore is set to introduce two groundbreaking electronic payment solutions in mid-2025. This initiative, spearheaded by the Monetary Authority of Singapore (MAS) and the Association of Banks in Singapore (ABS), aims to phase out the use of cheques and propel the nation further into the digital age.

The Dawn of Electronic Deferred Payment Solutions

The two new e-payment methods, known as Electronic Deferred Payment (EDP) and EDP+, are designed to offer businesses and individuals more convenient ways to make payments while gradually eliminating the need for traditional cheques. These innovative solutions have been developed in collaboration with all Domestic Systemically Important Banks (D-SIBs) in Singapore, including Citibank, DBS Bank, HSBC, Maybank, OCBC Singapore, Standard Chartered Bank, and UOB.

EDP: A Digital Alternative to Post-Dated Cheques

EDP is tailored to cater to post-dated payments, a common use case for cheques in business transactions. With this solution, funds will be deducted from the payer's account upon presentment by the payee, mimicking the functionality of a post-dated cheque but in a digital format.

EDP+: Ensuring Payment Certainty

EDP+, on the other hand, offers greater payment certainty. Unlike its counterpart, EDP+ will deduct funds immediately upon issuance, providing an added layer of security for transactions that require immediate financial commitment.

Seamless Integration with Existing Digital Infrastructure

Both EDP and EDP+ will be seamlessly integrated into the existing digital banking ecosystem. Users will be able to access these new payment methods through their digital banking platforms, ensuring a smooth transition from traditional cheque usage. Moreover, the integration with PayNow, Singapore's popular peer-to-peer funds transfer service, will allow for easy identification of payees, further streamlining the payment process.

The Gradual Phaseout of Cheques

The introduction of these new e-payment methods is part of a larger strategy to phase out cheques in Singapore. The MAS has announced that all corporate cheques will be eliminated by the end of 2025. However, to ensure an inclusive transition, individual cheque users will still be able to use cheques for a period beyond 2025.

Extended Deadline for Corporate Cheques

In response to feedback from the business community, the MAS and ABS have extended the deadline for banks to cease processing corporate cheques to December 31, 2026. This extension provides corporate entities and businesses with additional time to familiarize themselves with new and existing e-payment modes and to shift from cheques to EDP solutions.

The Declining Use of Cheques in Singapore

The move towards electronic payment solutions is driven by the steadily declining use of cheques in Singapore. Annual cheque transaction volume has fallen dramatically, from 61 million in 2016 to less than 14 million in 2023. This represents a staggering 80% decrease in just seven years.

Rising Costs of Cheque Processing

As cheque usage declines, the cost of processing each cheque has been rising. From 2016 to 2022, the cost of clearing a cheque quadrupled from S$0.10 to S$0.40. If the trend continues, the cost could increase to between S$2.00 and S$6.00 by 2025. This escalating cost has necessitated the introduction of cheque processing charges by banks, set to commence from November 1, 2023.

Preparing for the Transition

The MAS is urging businesses to prepare for the transition and adopt these new solutions as soon as they become available. To facilitate this transition, banks will be reaching out to customers who have yet to convert to digital payments to address their concerns and provide support.

Consultation and Feedback

The decision to phase out cheques and introduce new e-payment solutions was not made in isolation. The MAS conducted a public consultation in November 2022, which received significant support and valuable feedback from both financial and non-financial service firms. A second public consultation is planned for 2024 to set out initiatives and timelines for eliminating individual cheques and terminating the Cheque Truncation System (CTS).

The Broader Context: Singapore's Smart Nation Vision

The introduction of EDP and EDP+ aligns with Singapore's "Smart Nation" vision, which aims to provide fast, simple, and secure payment options to all citizens. This initiative is part of a larger global trend towards digital payments, with countries like Australia also setting timelines for phasing out cheques.

Impact on Businesses and Individuals

The transition to these new e-payment methods will have significant implications for both businesses and individuals in Singapore.

For Businesses

Corporations will need to adapt their financial processes to accommodate the new EDP and EDP+ systems. This may involve updating accounting software, training staff, and revising payment policies. However, the benefits of faster, more secure transactions and reduced processing costs are likely to outweigh the initial adjustment period.

For Individuals

While individual cheque users will have a longer transition period, they are encouraged to start familiarizing themselves with digital payment options. The integration of EDP and EDP+ with existing digital banking platforms should make this transition relatively smooth for most users.

Security and Reliability

As with any new financial technology, security and reliability are paramount. The MAS and participating banks are expected to implement robust security measures to protect users from fraud and ensure the stability of these new payment systems.

Looking Ahead: The Future of Payments in Singapore

The introduction of EDP and EDP+ marks a significant milestone in Singapore's journey towards becoming a fully digital economy. As these new payment methods become established, we can expect to see further innovations in the fintech sector, potentially including blockchain-based solutions and enhanced cross-border payment capabilities.

The launch of EDP and EDP+ in mid-2025 represents a pivotal moment in Singapore's financial landscape. These new e-payment methods promise to offer greater convenience, efficiency, and security for both businesses and individuals. As Singapore continues to phase out cheques and embrace digital solutions, it solidifies its position as a leader in financial innovation and sets an example for other nations to follow.

The transition may present some challenges, particularly for those accustomed to traditional banking methods. However, with proper education, support from financial institutions, and a gradual implementation timeline, Singapore is well-positioned to make this shift successfully. As we move towards a cashless future, the introduction of EDP and EDP+ is not just a change in payment methods, but a step towards a more efficient, secure, and technologically advanced financial ecosystem.