Singapore is one of the world’s leading financial centers, along with London and New York. It offers world-class options in banking and related financial services for corporate clients. In last few years there has been significant growth in the areas of Fintech and blockchain startups in Singapore. One of the hot growth areas within the country’s financial sector is payment services and the infrastructure to support them.
Everywhere in the world today, there is an explosion of tech-enabling startups and Singapore does not want to remain far behind in this race. Being a prominent financial center, the government is trying its level best to keep the country at the front of the competition.
In line with this the government has introduced the Payment Services Act 2019 (“the PS Act”). The PS Act came into force from early 2020. Previously, the regulations covering these acts were distributed in various other legal acts, however those are consolidated now in a Single act.
The primary objective of this Payment Service Act is to provide a regulatory and licensing authorisation to the government agencies. Since the entities which are being licensed or regulated under payment Services Act are all new, a framework was required, which is being covered in this case.
A payment service as the name suggests, is a service of making payment. In past, there were only two ways in which we could make payment – either in Cash or by writing a cheque. However, with the advent of technology, payment in many ways is possible. For example, you may make payment by mobile payment, google pay and many other applications like this.
Traditionally payments were managed by banks. However, this new wave of electronic money holding and transfer services are handled mostly by technology startups. So there is a need to regulate these providers and also provide licensing framework for them. Take example of paypal, which holds money for you and also enables payment for various internet services you may avail. However paypal is not a bank, nor does it has any banking license.
Another example can be of a cryptocurrency platform, which enables storage and transfer of monetary value to other parties.
Almost all fintech startups are subject to atleast one of the payment services licenses. Organizations involved in electronic stoage of money, Organisations facilitating payment remittances (like western union), organizations facilitating peer to peer transfer like paylah, all are subject to payment services act. As at the time of writing this article there are more than 600 organizations in Singapore which are licensed for some kind of payment Services.
Obviously, the next question then is which are the payment services which are subject to licensing? As a payment service provider you are required to obtain a license if you provide any of the following payment services:
These include any services that create an account for customer in which customer can keep some money. Examples are non-bank credit cards and electronic-wallets.
This refers to services that facilitate the domestic transfer of funds within Singapore, such as online payment gateways and physical payment kiosks. It includes both incoming remittances as well as outgoing remittance services.
Services that include cross-border transfer of funds into and out of Singapore, for example, remittance from Australia to Singapore. Normally international money transfer services are considered risky and hence these services can be provided by major payment institutions only.
Service providers that process payments on behalf of merchants (Businesses). Examples include credit card payments or point-of-sale terminals.
Services that facilitate the buying and selling of foreign currencies in Singapore, including online payment service providers and any firms profiting from the exchange of physical currency. You might have seen maney changers in Singapore major shopping centers. Typically a small office unit where you can convert foreign currency into local currency or vice versa.
Generally also referred to as bitcoin or cryptocurrencies. These Providers of exchange services for digital payment tokens (DPT) or platforms for the purchase and sale of DPT.
Normally three types of licenses are available under the payment services Act. If your company undertakes one or more of the above activities, you will need to choose between the following three classes of licences. Which license you need to take depends on the specific activities you carry.
Under the Money-changing license, you can only provide money-changing services. Under the PS Act, these are regulated largely the same way as they were under the previous Money Changing and Remittance Act.
If you are in the business of remittances as well as storage of money in the account then typically standard payment license will be required. However this license has restrictions in terms of total value hold and amount of remittances.
The thresholds are set out in section 6(5) of the PS Act. In summary, these are:
This license is very similar to the above. However it does not have any monetory restrictions mentioned above. The company with this license will be able to remit or store any amount without limit.
However since there are no limites for this license, the compliance that needs to be done and reporting to MAS is generally extensive.
Since the payment services are essentially dealing with remittances, there is always a chance that the account may be used for illegal purposes. So there are rules and regulations to take care of AML / CFT as well as for protection of account holders money. Specifically these rules are as follows:
The Act provides on keeping the funds of the account holder in a segregated account with a top tier banks. This way the account holders money is protected from any financial problems with the service operator.
In today’s world every payment provider is subject to AML and CFT regulations. Since the accounts are used for holding the money and also for remittances the AML and CFT transactions apply to the operator. At the time of onboarding and also at the time of high value remittances the payment service provider is required to carry out the AML CFT Checks.
The PS Act gives MAS formal powers to ensure interoperability of payment solutions, in the interests of consumers and market development. There are plans to adopt a common standard to make widely used payment acceptance methods interoperable.
One of the key aspect MAS is worried is about the technological robustness of the solution of the payment service provider. Hackers have become quite sophisticated over last few years, and an hacking attack on a payment service provider can have a significantly damaging impact on the reputation of the provider as well as Singapore. So MAS mandates various measures to be taken to make solutions secure and robust.