Singapore: Fintech

At present, certain payment services are governed by the Payment Systems (Oversight) Act (Cap 222A) (“PSOA”) and the Money-Changing and Remittance Businesses Act (Cap 187) (“MCRBA”). Holders of Stored Value Facilities (“SVFs”), which are a form of pre-paid electronic cash or card that can be used for payments, are regulated under the PSOA. The PSOA empowers the Monetary Authority of Singapore (“MAS”) to monitor the development of the payment system industry in Singapore and make informed policy decisions. Money-Changers and Remittance Businesses are licensed and regulated under the MCRBA, and must obtain a licence from MAS in order to carry on business.

The Payment Services Act 2019 (No. 2 of 2019) (“PSA”) was passed on 14 January 2019, and is tentatively expected to come into force in early 2020, upon which the PSOA and the MCRBA will be repealed. The PSA is a single, activity-based and risk-specific legislation for payment-related services, which consolidates existing payments regulatory frameworks and introduces new types of licensable payment services.

Yes, payment services can be provided by non-banks.

The PSOA applies to all businesses involving SVFs that are not exempted. The MCRBA applies to all businesses offering Money-Changing and Remittance services, but excludes banks and certain financial institutions.

When the PSA comes into force, the PSA will cover the following services:

(a) account issuance;
(b) domestic money transfer;
(c) cross-border money transfer;
(d) merchant acquisition;
(e) e-money issuance;
(f) digital payment token; and
(g) money-changing.

Under the PSA, in order for payment services to be provided by non-banks, a licence must be obtained by the provider of such services.[1] There are a total of 3 types of licences, depending on the type payment services offered and the amount transacted:[2] (a) a money-changing licence; (b) a standard payment institution licence; and (c) a major payment institution licence.

In addition, MAS announced on 28 June 2019 that it will issue up to two digital full bank (“DFB”) licences and three digital wholesale bank (“DWB”) licences, allowing licence holders to conduct digital banking businesses in Singapore. A DFB will be allowed to take deposits from and provide banking services to retail as well as non-retail customer segments, while a DWB will be allowed to take deposits from and provide banking services to non-retail customer segments.

[1] Section 6 of the PSA
[2] Section 6 of the PSA

According to MAS, cash is the most popular payment method in Singapore.[3] Other payment methods include payment instruments such as cheques and cashier’s orders. Consumers also make payments with credit cards.[4]

However, as stated by MAS, there has been a recent surge in the adoption of digital payments and e-money offered by both banks and non-banks.[5] Recent examples include GrabPay, which is an e-money service in Singapore.

[3] Section 2 of “Payment Systems in Singapore”, published by MAS (available at https://www.mas.gov.sg/-/media/MAS/Singapore-Financial-Centre/Why-Singapore/Payment-and-Settlement-Systems-redirect-pages/EMEAP-Redbook-2011–Paymentclearing-and-settlement-systems-in-Singapore.pdf
[4] Section 2 of “Payment Systems in Singapore”, published by MAS (available at https://www.mas.gov.sg/-/media/MAS/Singapore-Financial-Centre/Why-Singapore/Payment-and-Settlement-Systems-redirect-pages/EMEAP-Redbook-2011–Paymentclearing-and-settlement-systems-in-Singapore.pdf
[5] Section 2 of “Payment Systems in Singapore”, published by MAS (available at https://www.mas.gov.sg/-/media/MAS/Singapore-Financial-Centre/Why-Singapore/Payment-and-Settlement-Systems-redirect-pages/EMEAP-Redbook-2011–Paymentclearing-and-settlement-systems-in-Singapore.pdf

According to the Open Banking Readiness Index published by Finastra,[6] Singapore ranks the highest in Asia-Pacific in terms of Open Banking Readiness. As of the time of writing, a number of banks (both local and international) have allowed access to data such as transactions and credit card services, including Citibank, DBS and Standard Chartered Bank.[7]

MAS’ Chief Data Officer David Hardoon has stated that MAS has opted to take an “organic” approach with regard to open banking.[8] Instead of enacting laws and regulations, MAS has been encouraging banks to voluntarily enable third parties access to its data.

A number of banks such as DBS and Standard Chartered Bank have voluntarily made customer data available to third party developers. MAS is proactively encouraging other banks to follow suit, and has published guidelines in this regard, including an API Playbook[9] setting out the benchmarks for Application Programming Interfaces (“APIs”) released by banks.

[6] https://www.finastra.com/viewpoints/market-insights/finastras-open-banking-readiness at page 18
[7] https://www.mas.gov.sg/development/fintech/financial-industry-api-register
[8] https://www.bloomberg.com/news/articles/2018-04-12/singapore-favors-organic-policy-in-move-toward-open-banking
[9] https://abs.org.sg/docs/library/abs-api-playbook.pdf

Data collection, use and disclosure is heavily regulated in the financial services industry.

Under the Banking Act (Cap 19), all customer information shall not be disclosed by a bank unless expressly provided for under the Banking Act.[10] Disclosure is only allowed under certain circumstances – for instance, if the customer has permitted the disclosure in writing.[11]

Additionally, the transfer and usage of personal data is also governed by the Personal Data Protection Act 2012 (No. 26 of 2012) (“PDPA”). Under the PDPA, there are a number of obligations in respect of the protection and handling of personal data that organisations have to meet.

To this end, MAS has issued a Notice on Cyber Hygiene[12] that sets out cyber hygiene practices that all banks in Singapore have to comply with.

It is likely that these obligations will impose an additional cost on providers of financial services, to ensure that the personal data under their control is properly collected, used and disclosed only in accordance with the law.

[10] Section 47 of Banking Act
[11] Third Schedule of Banking Act
[12] https://www.mas.gov.sg/-/media/MAS/Notices/PDF/MAS-Notice-655.pdf

MAS has laid down some general principles underlying its approach to FinTech regulation. First, MAS has indicated that regulation should not “front-run” innovation. Instead, it would monitor new innovative offerings, and would continually evaluate whether there is a need to step in to regulate. In addition, any regulation should be introduced when the risks arising from the new technology are material or crosses a certain threshold, and that regulation should be proportionate to the risk posed.[13] Last, the MAS would seek to incentivise risk mitigation aspects resulting from the new technologies while restraining any new risks created.

In order to encourage innovation by FinTech companies, MAS put in place the MAS FinTech Regulatory Sandbox (in 2016) and the MAS FinTech Regulatory Sandbox Express (in 2018), which are both special licensing regimes created for FinTech entities.[14] In essence, the Sandbox and the Sandbox Express will enable financial institutions and FinTech players to experiment with innovative financial products or services in a live environment but within a well-defined space and duration, by relaxing specific legal and regulatory requirements.

In addition, the MAS has issued “softer” regulatory instruments, such as guidelines, which provide interpretative guidance on the application of existing legislation to innovative FinTech solutions. These include the MAS’s Guidelines on Provision of Digital Advisory Services[15] and A Guide to Digital Token Offerings.[16] The MAS has also issued several guidelines outlining its expectations of financial institutions so as to address the risks from new technology solutions, such as the E-Payments User Protection Guidelines.[17]

[13] https://www.mas.gov.sg/news/speeches/2016/singapore-fintech-journey
[14] https://www.mas.gov.sg/development/fintech/regulatory-sandbox
[15] https://www.mas.gov.sg/-/media/MAS/Regulations-and-Financial-Stability/Regulations-Guidance-and-Licensing/Securities-Futures-and-Fund-Management/Guidelines-on-Provision-of-Digital-Advisory-Services–CMGG02.pdf
[16] https://www.mas.gov.sg/~/media/MAS/News%20and%20Publications/Monographs%20and%20Information%20Papers/Guide%20to%20Digital%20Token%20Offerings%20last%20updated%20on%2030%20Nov.pdf
[17] https://www.mas.gov.sg/-/media/MAS/resource/publications/consult_papers/2018/Epayments-User-Protection-Guidelines.pdf

There are a number of potential risks to the growth of the FinTech market in Singapore, including Cybersecurity risks and anti-money laundering and countering the financing of terrorism (“AML / CFT”) risks.[18] FinTech startups in Singapore also tend to be risk averse due to banking regulations, which would slow the growth of such startups.[19]

There is also a risk of fragmentation in the FinTech market, as the barriers to entry for the FinTech market are low.[20] This could ostensibly prevent FinTech businesses from capturing a market share that would allow them to operate profitably, which could hamper the growth of the FinTech market in Singapore.

[18] https://www.mas.gov.sg/news/speeches/2019/combatting-financial-crime-through-new-technologies-built-on-strong-fundamentals
[19] https://www.straitstimes.com/business/banking/in-race-to-be-asias-fintech-hub-singapore-leads-hong-kong
[20] https://www.businesstimes.com.sg/companies-markets/e-payment-market-will-get-more-fragmented-before-it-gets-better

The tax authority in Singapore is the Inland Revenue Authority of Singapore (“IRAS”).

New start-up companies – including FinTech startups – in Singapore will be exempted from any tax on the first S$100,000 of the normal chargeable income (which will be reduced to 75% of the first S$100,000 from Year of Assessment 2020 onwards). Additionally, the company will be exempted up to 50% of tax on the next $200,000 normal chargeable income.

In addition, IRAS has further tax schemes such as the Productive and Innovation Credit (“PIC”) Scheme, and the Angel Investors Tax Deduction (“AITD”) Scheme, which both encourage FinTech investment. Under the PIC Scheme, eligible businesses may claim tax credits for expenditure on activities that involve innovation, such as the acquisition and leasing of IT and automation equipment. Under the AITD Scheme, an approved angel investor may claim a tax deduction after meeting several requirements.

As reported by Accenture, a total of US$735 million was raised in funding by FinTech companies in Singapore in the first three quarters of 2019 – seed funding had fallen 56% compared to 2018, while series funding has grown by 66%.[21] According to Accenture, FinTech startups in the payments space have been attracting the most investment in Singapore, with approximately 34% of the total investments going to these businesses. Insurance tech startups have also been heavily invested into, garnering 17% of the total funds raised.

[21] https://newsroom.accenture.com/news/singapore-fintech-fundraising-rises-sharply-in-2019-to-date-driven-by-spike-in-average-size-of-payments-and-insurtech-deals-accenture-analysis-finds.html

A FinTech entrepreneur would likely choose Singapore due to the ease of doing business in Singapore, as well as the ease of using Singapore as a springboard to enter regional markets.[22]

Singapore is ranked second amongst 190 economies in the ease of doing business, according to the World Bank’s annual ratings. This includes a low corporate tax rate of 17%.[24] Singapore also has a strong legal system and an extremely stable political environment.[25]

FinTech entrepreneurs will also be able to start a FinTech business in Singapore through the EntrePass scheme, which is a special work pass for entrepreneurs looking to start businesses in Singapore.[26]

[22] https://www.businesstimes.com.sg/technology/singapore-shaping-up-as-regional-springboard
[23] https://www.doingbusiness.org/content/dam/doingBusiness/media/Annual-Reports/English/DB2019-report_web-version.pdf
[24] https://www.iras.gov.sg/irashome/Quick-Links/Tax-Rates/Corporate-Tax-Rates/
[25] https://www.straitstimes.com/opinion/transforming-singapores-economy-in-uncertain-times
[26] https://www.mom.gov.sg/passes-and-permits/entrepass

The Singapore government is, generally speaking, very supportive of entrepreneurs who wish to do business in Singapore.[27] The Ministry of Manpower’s (“MOM”) policy is that immigrants may migrate to Singapore for work as long as they are issued a work pass.[28]

Foreign employees in Singapore must hold a work pass to be employed in Singapore. In the context of a FinTech startup, employees would likely have to hold either an S Pass or an Employment Pass. The S Pass is for mid-skilled foreign employees (e.g. technicians)[29] while the Employment Pass is for foreign professionals.[30] A foreigner must apply to MOM for these passes, which are issued at MOM’s discretion. It should be noted that the number of S Pass holders of a business is capped at (1) 15% of the company’s total local workforce in the services sector, and (2) 20% in all other sectors.[31]

[27] https://www.mti.gov.sg/Newsroom/Speeches/2019/08/Speech-by-SMS-Koh-Poh-Koon-at-the-Inaugural-Experience-the-Power-of-Innovation-and-Collaboration
[28] https://www.mom.gov.sg/passes-and-permits
[29] https://www.mom.gov.sg/passes-and-permits/s-pass
[30] https://www.mom.gov.sg/passes-and-permits/employment-pass
[31] https://www.mom.gov.sg/passes-and-permits/s-pass/quota-and-levy/levy-and-quota-requirements

As stated above, the stance taken by the Singapore Government is that it is supportive of entrepreneurship in Singapore, and its policies generally allow access to talent. As stated above, foreigners may work in Singapore – including in Singapore FinTech businesses – provided that they are issued a work pass by MOM.

IP Rights may be protected in a number of ways under Singapore law. Patents, trade marks and copyright in Singapore are protected under both statute and common law.

Trade secrets / confidential information also receive protection under the law of confidence in Singapore. Trade secrets / confidential information may receive protection if (1) the information has the necessary quality of confidence about it; (2) the information is imparted in circumstances imposing an obligation of confidence; and (3) there has been an unauthorised use of the information to the detriment of the party communicating it.

To this end, contractual agreements are usually entered into when there is a transfer of trade secrets / confidential information, to enhance the protection available for such trade secrets / confidential information.

The Minister in charge of MAS stated that there is no strong case to ban cryptocurrency trading in Singapore, and that at present, the nature and scale of cryptocurrency trading in Singapore does not pose risks to the safety and integrity of Singapore’s financial system.[32] In addition, MAS stated in 2017 that there is no regulatory safeguard for investments in cryptocurrencies, and MAS does not regulate cryptocurrencies per se.[33] MAS also stated that it does not regulate the safety and soundness of cryptocurrency intermediaries (including cryptocurrency exchanges), nor does it regulate the proper processing of cryptocurrency transactions.[34]

However, MAS has clarified that cryptocurrencies may be regulated depending on their characteristics and nature.[35] Where the cryptocurrencies / digital tokens constitute products regulated under the Securities and Futures Act (“SFA”), the offeror may have to comply with prospectus registration requirements for the offering of the digital tokens and licensing requirements for dealing in regulated products under the SFA. Asset-backed cryptocurrencies, such as stable coins, should also be analysed in the same manner to determine whether they would be subject to any regulation.[36]

MAS has also stated that where the offeror is seen to be operating a platform facilitating the secondary trading of cryptocurrencies / digital tokens constituting regulated products, the offeror may have to be approved or recognised by the MAS as an approved exchange or a recognised market operator, unless so exempted.[37]

It should be noted that once the PSA comes into force, depending on the scope of payment services, operators of cryptocurrency exchanges may potentially be required to obtain a licence under the PSA to carry out such activities.

MAS has stated that it may regulate ICOs if, as highlighted above, the digital tokens sold constitute capital markets products regulated under the SFA. This would depend on the characteristics and the rights attached to the digital token in the offering exercise.[38]

Regardless of the applicability of the SFA, the offeror would be subject to ongoing AML / CFT laws, such as the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Cap. 65A), Terrorism (Suppression of Financing) Act (Cap. 325). This would include a mandatory suspicious transaction reporting requirement for any person who reasonably suspects that any property or part thereof is linked to the prescribed drug dealing or serious crimes, which must be reported to the Suspicious Transactions Reporting Office of Singapore.

Whilst the PSA is not yet in force, we note that the PSA provides for a licensing requirement for carrying on a business of providing certain payment services such as “account issuance services”, which may be applicable to e-wallets, and “digital payment token services”, which may apply to persons dealing in digital payment tokens or facilitating the exchange of digital payment tokens. Under the PSA, depending on the scope of payment services, offerors conducting ICOs or operating cryptocurrency exchanges may potentially be required to obtain a licence under the PSA to carry out such activities.

[38] Paragraphs 2.1 and 2.2 of the Guide to Digital Tokens Offerings (available at https://www.mas.gov.sg/~/media/MAS/News%20and%20Publications/Monographs%20and%20Information%20Papers/Guide%20to%20Digital%20Token%20Offerings%20last%20updated%20on%2030%20Nov.pdf)

Blockchain-based technology is generally in its nascent stage in Singapore, and there are not many, if any, live blockchain projects.

The Infocomm Media Development Authority (“IMDA”) has initiated a blockchain challenge, whereby Digital Ledger Technology (“DLT”) businesses are required to develop a minimum viable product or proof of concept within a year.[39] Some of these DLT projects involve implementing DLT technology into the logistics[40] and manufacturing[41] industries, to streamline industry processes.[42] However, the technology employed by these businesses do not appear to have been deployed for commercial usage.

It remains to be seen whether blockchain implementations will gain widespread and mainstream acceptance in the Singapore market.

[39] https://www2.imda.gov.sg/-/media/Imda/Files/Industry-Development/Infrastructure/Technology/Factsheet-for-Blockchain-Innovation.pdf
[40] Air Cargo Billing, Costing and Reconciliation on Blockchain by Cargo Community Network Pte Ltd
[41] Extended Supply Chain for Electronics Manufacturing, by Distributed Ledger Technologies (DLT) Pte Ltd
[42] See Appendix A of https://www2.imda.gov.sg/-/media/Imda/Files/Industry-Development/Infrastructure/Technology/Factsheet-for-Blockchain-Innovation.pdf

It is reported that AI has been deployed in the financial sector in a number of ways to reduce the financial sector’s exposure to risk, although AI technology is still in its nascent stage.[43]

One reported example is that AI has been employed by banks to improve loan underwriting and fraud detection through machine learning, thereby reducing financial and compliance risks associated with the provision of financial services.[44]

While there is no regulation specifically targeting the implementation of AI, given MAS’ stance that regulation should not “front-run” innovation,[45] any future regulation of AI would likely be facilitative of the adoption of AI technologies, and would also manage the risks that come with the usage of AI. In doing so, there could be increased public confidence in AI, leading to further adoption of AI technology.

[43] https://fintechnews.sg/27160/ai/the-potential-of-ai-in-banking-report/
[44] https://fintechnews.sg/27160/ai/the-potential-of-ai-in-banking-report/
[45] https://www.mas.gov.sg/news/speeches/2016/singapore-fintech-journey

It has been reported that Singapore is one of the largest InsurTech hubs in the Asia region.[46] Singapore InsurTech companies include GoBear, an insurance plans and financial products comparison platform and Bandboo, a peer-to-peer online platform for people to co-insure one another.

Further, PolicyPal Network, a Singapore InsurTech start-up, is a direct insurance broker that employs machine learning and artificial intelligence to offer digital insurance policies and allow users to select and manage existing policies.[47]

Beside InsurTech companies, there are also notable InsurTech innovation labs in Singapore. For one, Metlife Lumenlab focuses on building new products and services grounded in technology and data to help people achieve richer and more fulfilling lives.[48]

[46] http://fintechnews.sg/23449/insurtech/asia-100-insurtech-companies/
[[47] https://www.todayonline.com/business/policypal-be-first-digitised-direct-insurance-broker
[48] http://fintechnews.sg/26093/fintech/top-28-fintech-and-insurtech-innovation-labs-in-singapore/

In Singapore, digital payments have been gaining traction.[49] An increasing number of merchants in Singapore accept digital payments, alongside other traditional payment methods.

In 2017, the PayNow service was introduced, enabling customers of participating banks to transfer funds directly to one another using their mobile phone number or personal identification number (i.e., NRIC/FIN), almost instantly and on a 24/7 basis, without the receiver needing to download the app.[50]

Contactless and cashless payment services (for example, through the use of NFC, QR codes, etc.) offered by established international players such as Apple Pay, Android Pay and Samsung Pay are also prevalent, allowing users to tap and pay for goods and services at any Visa payWave and Mastercard PayPass contactless payment terminals.[51] Other cashless mobile payment options offered by private sector players include GrabPay, Singtel Dash and Alipay.[52]

[49] https://sbr.com.sg/financial-services/commentary/steady-rise-e-payments-in-singapore
[50] https://www.abs.org.sg/consumer-banking/pay-now
[51] https://www.straitstimes.com/tech/cashless-payment-systems-in-singapore
[52] https://www.straitstimes.com/tech/cashless-payment-systems-in-singapore

In Singapore, incumbent financial institutions state that they generally embrace disruption of the finance industry, and place much emphasis on the innovation and development of FinTech solutions. To this end there is much collaboration between FinTech companies and the incumbent financial institutions.[53]

For example, as mentioned above at question 4, banks have been proactive in supporting open banking. DBS, OCBC, Citibank and Standard Chartered Bank, which are either local banks or banks with a local presence, have allowed third party FinTech developers to access customer data through API, in order to allow these third party FinTech developers to offer value-added services to its customers.[54]

[53] https://www.dbs.com/insights/uploads/20161010_Digital_Banking_Low_Res.pdf
[54] https://www.mas.gov.sg/development/fintech/financial-industry-api-register

Banks and other financial institutions in Singapore are generally active carrying out their own FinTech development. This is done either through the banks’ in-house team, or through FinTech incubators.

For example, DBS Bank initiated the Startup Xchange program in 2018, whereby FinTech startups are paired up with its business units, such that each startup will be able to directly address and solve problems that are faced by the business unit.[55]

Similarly, other banks also have their own accelerators. Citibank, for example, runs an accelerator program for startups through Citi Ventures. Under this program, Citibank invests in promising startups, including those in the FinTech space, and also provides mentorship and guidance to these fledgling startups.[56]

[55] http://www.citi.com/ventures/
[56] https://www.grab.com/sg/pay/

Yes. Some key examples that have been reported on are as follows: (1) Payment intermediaries such as GrabPay, which facilitate electronic payments in a fast and secure manner;[57] (2) Deployment of chatbots by financial entities such as DBS, OCBC, Standard Chartered and Citibank, to automate customer support and allow for an immediate response to customer queries;[58] and (3) Deployment of robo-financial advisors as a substitute for human financial advisors – AI systems that recommend portfolio compositions to investors based on algorithms developed by the robo advisor’s company.[59]

[57] https://www.grab.com/sg/pay/
[58] https://sbr.com.sg/financial-services/in-focus/rise-chatbots-heres-how-singapores-big-banks-are-adopting-fintech
[59] https://blog.moneysmart.sg/invest/robo-advisors-singapore/