The Payment Services Act: Fintech Licencing in SingaporeFintech in Singapore
Singapore is well known as one of the world’s leading financial centres.
In recent years, Singapore’s low corporate income taxes, double taxation agreements with more than 80 countries, zero tax rates on dividends, capital gains and profit repatriation, easy cross-border transactions, government incentives, strong technology capabilities, and highly educated workforce has made the country a natural hub for financial technology (fintech) investment.
In 2019, fintech investment in Singapore exceeded S$1bn, with over 1,000 fintech firm and over 40 innovation labs operating in the country (see figure 1).
High levels of investment have been accompanied by the creation of a strong regulatory framework. The Monetary Authority of Singapore (MAS) has taken a more restrictive approach towards fintech services which have the potential to creep into the realm of shadow banking, repeatedly warning firms not to stray into banking without first obtaining the required licence.
Types of Payment services that require the licence
With the new Payment Services Act (PS Act) coming into effect on 28 January 2020, any company that provides any type of payment service in Singapore now needs a licence.
The new PS Act regulates seven types of payment services:
- Account issuance services;
- Money transfer services (Local/Domestic);
- Money transfer services (Cross-border/International);
- Merchant acquisition services;
- e-Money/e-Wallets;
- Digital token/Cryptocurrency issuance services;
- Money-changing services.
The Act does not apply to payment aggregators, as they do not process funds but instead store and relay payment information
Who has successfully secured a licence in Singapore?
The graphic below displays which companies, as of September 2020, have already obtained a Major Payment Institution Licence.
In total, 139 companies have received a Cross-Border Money Transfer Licence. They can be broadly categorised in the following way:
1. Global leaders
The undisputed champion in this field is Western Union, who has embraced the shift to digital transactions. Other emerging global players are TransferWise, WorldRemit, TransFast, Remitly.
2. Global disruptors expanding to Asia
This group are innovative fintech companies that spotted areas that were not properly served by banks or then-existing global players and subsequently stepped into to service this gap in the market. In this category there are many relatively young companies that started within the last five years, utilising the so-called ‘Land and Expand Strategy’. They refer to themselves as disrupters. There is, in fact, very little differentiation in what these companies offer, so most of them use aggressive marketing strategies in order to stand out from their competitors. Notable firms in this area include OF, Revolut, and E-Remit, among others.
3. Home-grown Singapore start-ups
These are companies with multi-million dollar investments, and include firms such as Fomopay, SingX, Thune, YouTrip, and SingLife.
4.Vertical integrators
These are companies that moved into fintech from other Industries, who are equivalent to banks in terms of revenue and customer base. Examples include AliPay, GrabPay and Ez-Link.
5. Kiosks
There dozens of licence holders that enable those such as domestic helpers and workers in the construction sector to remit money back to their home countries, e.g. to Bangladesh or the Philippines. These companies do not usually have a web-site or advanced technology – meaning they are not fintech per se – but they have been in business for years and they offer an important service to certain groups of customers. These companies have a physical location where they serve their customers, and they, due to the nature of their operations, require a licence in order to do business.
6. Casino owners: Marina Bay Sands and Resort World Sentosa.
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Key takeaways for those wishing to engage in payment services in Singapore
A Singapore-incorporated company or a foreign corporation registered in Singapore:
- must have a registered office;
- must have a minimum paid-up capital of S$100,000.
The applicant’s board of directors should have either:
- at least 1 executive director who is a Singapore Citizen or Singapore Permanent Resident;
- at least 1 non-executive director who is a Singapore Citizen or Singapore Permanent Resident;
- at least 1 executive director who is a Singapore Employment Pass Holder.
- Fitness and propriety of the controllers and directors;
- Governance structure;
- Qualifications and experience, particularly in operating a payment services business and compliance with regulatory requirements;
- Financial condition and track record;
- Business plan and model, including operational readiness;
- Ability to comply with obligations under the PS Act, including compliance, technology risk management and audit arrangements;
- Regulatory status in other jurisdictions, where applicable;
- For applicants with a holding company, commitment to operations in Singapore;
- Whether the public interest will be served by granting a licence.
As with most licenses in Singapore, the Payment Institution Licence is quite affordable:
- the application fee is S$1,500 and
- annual licence fee is S$5,000.
Licence will be revoked if
- Business is not commenced within six months of granting of license;
- The firm ceases to provide payment service for six months;
- The firm does not conduct any payment transaction for six months.
- 20% of controllers and directors, as well as the CEO, should be approved by MAS, subject to fit and proper requirements.
This is a significant power granted by the legislation because it gives MAS the ability to scrutinise the entities and individuals behind such payment service providers;
Applying for Standard Payment Institution Licence
Compared to the Major Payment Institution Licence, the requirements to obtain a standard licence are lighter. This is in order to encourage smaller e-Money and digital payment service providers to enter into the market.
Risk mitigation
Like any financial product, payment services are associated with many risks and may be used for money laundering or terrorism financing purposes. The licence holder will need to comply with Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) regulations, which is a common practice for many businesses in Singapore:
- MAS may inspect, under conditions of secrecy, the books of the licensee to determine whether they are conducting their business in a way that can be detrimental to the interests of their customers, or where there is a suspected offence under the PS Act.
- MAS may even provide to regulatory authorities outside Singapore materials to enable them to carry out an investigation or enforcement when requested to do so
Bridge Consulting Asia can help you with the incorporation of your payment services startup in Singapore and can obtain the relevant payment service license for you, as well as being your long-term compliance provider and ensuring that your business stays in compliance with Singapore’s monetary, corporate, and tax regulations.
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