Profits could jump by up to 9%.
Singapore banks could cash in on cashless payments and have profits rise from 3-9%, Maybank Kim Eng revealed.
According to an analysis, new various initiatives to simplify e-payments, such as a common QR code and unified point-of-sales terminals, could increase cards usage and potentially add to the banks' revenue.
The analysis focused on impact on card fees should 40-70% of expenditure in Singapore shift from cash to cashless payments.
"Most payment platforms adopted by retailers are currently linked to consumers’ cards and/or bank accounts," said Maybank Kim Eng analyst Ng Li Hiang.
Local banks already have a 66% share of card payment transactions in 2016. Maybank Kim Eng said that the bulk of banks’ cards fees come from merchant discount rates (MDR) and net interchange fees.
If 70-90% of banks' card fees in Singapore are related to such fees, Singaporean banks earned $77m up to as much as $388m in 2016.
"This would translate to 0.6-1.5% margin, with OCBC having a lower margin than peers. We think OCBC’s lower margin may be attributed to lower fees generated from MDR and/or higher interchange fees paid," Hiang said.
Given that $70-123b or 40-70% of total expenditure in Singapore shift from cash to cashless, card fees could increase by $421m to $2b. Consequently, Singapore banks will make $60-600m.
Here's more from Maybank Kim Eng:
As there is a lack of detailed data, our estimates and analysis are based on broad assumptions.
If we assume 40-70% of total expenditure in Singapore is cash payments, this implies that SGD70-123b of expenditure could potentially shift from cash to cashless payments.
Based on Euromonitor data, Singapore banks have the highest share of card payment transactions, at 14-31%.
Out of SGD87b of payment transactions in 2016, we estimate Singapore banks’ payment transactions to be SGD57b. If we assume MDR and net interchange fees form 70-90% of banks’ total cards fees in Singapore, we estimate Singapore banks generated ~SGD77-388m in 2016.
Using card fees related to MDR and net interchange fees over total payment transactions for each bank, we estimate Singapore banks’ margins to be between 0.6-1.5%.
We think there are a few possibilities for OCBC’s lower margins compared to peers: 1) fewer merchants have signed up with OCBC as its merchant bank, hence lower fees earned; and 2) OCBC pays higher interchange fees to other issuer banks (i.e. cardholder’s banks), which may also imply that fewer OCBC cards are adopted by consumers in Singapore.
Do you know more about this story? Contact us anonymously through this link.