LEGISLATION TO FACILITATE ELECTRONIC COMMERCE

Assoc. Prof. Toh See Kiat asked the Deputy Prime Minister whether and when the Government will introduce legislation to facilitate (i) electronic presentation truncation and clearing of cheques and other electronic payment orders; (ii) issue of electronic legal tender; (iii) issue of electronic purses, stored value and payment cards by financially sound institutions other than banks; (iv) creation of electronic payment clearing and settlement centres by institutions other than local banks; and (v) protection of personal financial information gathered by merchants and other participants of electronic commerce.

BG Lee Hsien Loong: Mr Speaker, Sir, the Member has asked five separate questions and I will give him five separate answers.

1. The Monetary Authority of Singapore (MAS) has encouraged the financial industry to embark on a number of projects to improve the efficiency of the current payments infrastructure, including the cheque truncation and other electronic payment systems. The MAS is also considering appropriate legislative changes to facilitate the implementation of these new systems and processes.

2. Today only currency notes are legal tender. As cashless forms of payment become more widespread, the Board of Commissioners of Currency, Singapore (BCCS) is looking into the need to legislate for electronic payments to also be accepted as legal tender. Merchants covered by the legislation must then accept electronic payment, if tendered. Electronic tender will reduce the cost of handling physical cash, improve the efficiency of business transactions, and further enhance the cashless business environment for Singapore. However, widespread infrastructure to support such an environment will be necessary, and the public must be adequately prepared for the transition. BCCS is actively studying this.

3. Under the current regulatory framework, only licensed banks, with the approval of MAS, can issue multi-purpose stored value cards (MPSVCs). It is also common in major jurisdictions for the issuance of multi-purpose stored value cards to be restricted to deposit-taking institutions like banks. Issuing multi-purpose stored value cards is a form of deposit taking, so MAS wants to be certain that card holders have some protection should the issuer run into difficulty. Banks are subject to MAS supervision and to reserve and liquidity requirements on the proceeds collected from multi-purpose stored value cards, but other commercial companies have no similar requirements. We will continue to review this, weighing the balance between innovation and proper protection of proceeds.

4. The operation of clearing and settlement systems is not restricted to the local banks. For example, Citibank is the settlement bank for the US dollar cheque clearing system while Banking Computer Services Pte Ltd (BCS) is the operator of the Automated Clearing House, which clears Singapore cheques.

5. The Ministry of Communications and Information Technology is spearheading an inter-agency task force to study general privacy issues, taking into account international developments. The study will focus on the impact of e-commerce and Internet on data protection and privacy and will cover, among other things, financial information collected from e-commerce websites.

Assoc. Prof. Toh See Kiat: Sir, I would like to follow up by asking the Deputy Prime Minister, particularly on the question of other financial institutions issuing stored value payment cards, whether the Deputy Prime Minister or the MAS would consider allowing institutions like insurance companies, which are also regulated and very liquid, to issue such services and, secondly, to consider whether some very major and very liquid capital-heavy companies could also do these services, provided they are willing to be regulated by the MAS.

BG Lee Hsien Loong: Mr Speaker, Sir, as I have said in my main reply, our present policy is to confine it to banks, but it is an issue which we will keep alive and look at from time to time.

There is a basic difference between banks and other institutions. Banks take deposits. Finance companies are the only ones which are close to that. Insurance companies do not take deposits. Other companies, whether or not they are well capitalised, do not take deposits. Deposits are different from any other form of credit. If a company borrows money from the bank, the bank makes a judgement whether it is safe to lend this money to the company and, if the company turns turtle, the bank has a bad loan. But the bank is supposed to know what is good for it and looks after its own interests. Taking deposits from the general public is a different proposition, because people assume that the banks are safe and, particularly for the small amounts of money which many people deposit, as will be in the case of a stored value card, they assume that the money will be safe. They put it in and they expect it to be protected. And it is protected because the banks are regulated. There is a capital requirement so that the banks have a buffer, in case their business goes bad. There are liquidity requirements so that, in case many people turn up at the bank at the same time to withdraw their money, the bank is liquid and can pay out the money and will not find itself out of cash. And there is supervision by MAS on top of this, to make sure that banks stick to these requirements and are properly operated.

If you ask me whether somebody else who is well capitalised would like to volunteer to come under MAS supervision and therefore issue multi-purpose stored value cards, in a small way, you are asking me whether we would issue them a banking licence, to which the answer would be "No". But it is a gray area because, if we are talking about $5 or $10 in a phone card or some other stored value card with restricted purposes which you can use in the store, well, that is between you and the shop, you have given the company some credit, he has given you some discount. But when it is a multi-purpose card and you can use it in many outlets, then, in fact, it is akin to deposit-taking, and I think we should regulate it as such. There are many banks in Singapore, so there is no lack of competition for issuers of multi-purpose stored value cards. I know there are a lot of people whose eyes popped-out when they saw the opportunity of issuing such a card, because they thought that, if they issue a card, they will get a float; if they have a float, they can invest it; and if they invest it, they can get rich, and this is extremely favourable. That is when MAS starts to get worried.

Mr J. B. Jeyaretnam (Non-Constituency Member): The Deputy Prime Minister has said about currency notes being legal tender. Would he explain why the courts refuse to accept currency notes for the payment of stamp fees for court documents?

BG Lee Hsien Loong: I am not aware of this. If Mr Jeyaretnam could file a question, I am sure the Minister responsible would answer.

Assoc. Prof. Toh See Kiat: Mr Speaker, Sir, I would like to ask the Deputy Prime Minister whether he would not consider that the issue of stored value cards is really one way of promoting Singapore as an e-commerce hub because there is this perception that the banks are moving very slowly and perhaps the liberalisation of this area, just for stored value cards and not for the banking licence, would be good for Singapore as a whole?

BG Lee Hsien Loong: Mr Speaker, Sir, the problem of stored value cards is not a question of the banks being reluctant but of consumers being reluctant. There is no reluctance for people to hold credit cards. There are lots and lots of them and lots of people want more credit cards. But the use of a stored value card, where they have to top up money, put the money in, pay first, then spend it, it may run out, they will have to top up further, is not something which has caught on in many jurisdictions. It is quite popular in Japan, it is not popular in Europe or in America. Many issuers have tried. We thought that we had a killer application when we had the ERP system and every car owner had to have a card in his IVU. But although hundreds of thousands of transactions take place on the ERP every day, only a few hundred transactions take place off the ERP, because nobody goes to the provision shop and to buy a newspaper or groceries using a stored value card. They do not mind NETS because that is convenient. But to bring the money into the card and then carry around a few hundred dollars and spend it bit by bit and keep track, is not something which consumers have found convenient.

We may have another opportunity because we are going to have a contactless stored value card for mass transit, bus as well as train, and we are hoping to use that to make that more popular and use it for small purchases, like the Octopus Card in Hong Kong which can be used for small purchases in shops in the MTR stations. But we will have to watch and see how consumer demand develops.