COST OF EZ LINK CARDS

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COST OF EZ LINK CARDS: 6.01 pm

Dr Wang Kai Yuen (Bukit Timah): Mr Deputy Speaker, Sir, before I begin, I would like to declare my interest as an independent director on the Board of

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ComfortDelgro, the holding company of several transport operators in Singapore, including SBS Transit which operates the North East Line and also part-owner of Transit Link Pte Ltd. In preparing for this speech, I received no help or privileged information from ComfortDelgro. Everything I needed to know, I found on the Internet. Furthermore, many members of the public have contacted me regarding what I am going to say this evening. All of them are rather unhappy about the arbitrary approach adopted by EZ Link. This is unusual, Sir, and it shows the extent of public disquiet in this matter.

Sir, many Singaporeans found this decision to force them to buy the ez link cards high-handed and insensitive. They find $5 unreasonable and the timing of this measure unthinking and lacking in compassion as the economy is still in the doldrums and many Singaporeans are still unemployed. The ez link card system is imposed upon them and they have no choice but to use it. They are forced to pay ahead for services yet to be consumed. Now they are forced to pay for cards that they have no other use other than for taking public transportation. They believe EZ Link, as a company, could arbitrarily force them to do so because it is part of

the Government.

Sir, I propose to argue that it is conceptually inappropriate to force consumers to buy the cards or to be owners of the cards. We were told repeatedly in the past the advantages of the ez link system, such as proper collection of fares, minimum leakages, ability to implement fare adjustments in small steps, like in cents, rather than tens of cents. So, indeed, there are significant incentives for the operators to switch to ez link card system and there are savings that the operators could have used to cross subsidise these cards.

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The ez link card is just a token in the EZ Link Enhanced Integrated Fare System. The fare payment system cannot function without the cards and the card by itself has no use outside the payment system. By itself, the card has no intrinsic value at all. So it is not an item that you and I would go out and buy just because we fancy it or just because we like to have it in our pockets.

Sir, to determine whether the consumers should pay for the ez link card, the question we should ask is whether the card should be a property of EZ Link, or a property of the user? When the ez link system was first introduced, users paid a refundable deposit of $2 per card. They were not asked to buy the card. Sir, I submit that, by so doing, EZ Link has established the precedent that the card remains the property of the company. The commuter is just a custodian of the card. In fact, he is supposed to take good care of it. If a person were to fiddle with the card, I believe he is liable to be prosecuted by the EZ Link company. Of course, whether the company wants to do so is a different story. But if a person were to fiddle with the card to default the ez link payment system, I am sure he will be apprehended.

Sir, we are not the only city in the world using these contactless smart cards. The Hong Kong Octopus System operated by Creative Star, a joint venture of the Hong Kong transport companies, is another. There, too, the commuters are not asked to buy the cards. They too pay a refundable deposit of HK$30.

Before ez link cards, in Singapore, our commuters were using the TransitLink cards. Then, too, the commuters paid a $1 refundable deposit. They were not required to buy the cards. Why? Sir, I surmise that these two companies understood very clearly the fundamental

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principle, that is, the commuter is the custodian and, hence, he is only asked to pay a refundable deposit to take care of the card. Of course, Creative Star and TransitLink are subject to scrutiny by their respective public transport regulators. The regulator would probably veto the idea of asking the commuter to pay for the card even if this idea was to be suggested in the first place.

Now, Sir, by asking the commuter to buy the card, EZ Link is not just asking the commuter to pay for the card. It is actually changing the basic fundamental principle of the whole payment system. The card now becomes the property of the user - a property the user does not want to own. In fact, he refuses to own, and we are forcing him to own.

Sir, EZ Link could do so because its parent, the LTA, is both the regulator and the owner of the fare collection system. This, I believe, is fundamentally wrong. It is wrong in terms of principle. It is wrong because there exists a conflict of interests between the regulator and the operator. Getting the commuter to pay for the cards is a solution to a problem that could only be arrived at by decision makers with a civil service mindset. The fact that we see such befuddled thinking from the LTA should no longer surprise us in this House. In fact, it is the same agency that causes none other than Deputy Prime Minister Lee Hsien Loong to publicly acknowledge its two very big mistakes. Firstly, Deputy PM Lee Hsien Loong described the scheme to charge the taxi drivers a fee in order to monitor their performance "invidious" in the House recently. So he actually changed it. On the North East Line, Minister Yeo Cheow Tong did - which he denied - a policy U-turn. And Deputy PM Lee described it in public that it was a mistake made by the Government to require more than one rail operator under the premise of increasing competition. Are these just "honest mistakes", as we have a tendency to

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classify such mistakes made by civil servants? Or is it symptomatic of something deeper?

Mr Deputy Speaker, Sir, let us return to address the actual problem. So what is the problem? The problem is that more cards were issued than was considered necessary. Why are there more cards issued? Maybe people actually lost their cards. Maybe some keep them for souvenirs. Maybe people genuinely need more than one card, given the constraint of this system. For instance, I understand that there is always a queue in front of the machines for the people to top up. So for those people who have no time to top up, they would prefer to have more than one card. Perhaps, some people genuinely need more than one card to feel comfortable at using the system. Since there is a need for people to hold more than one card, and since the company has refused to provide more than one card per person, are there any alternative solutions to limit the card the commuter would hold? I would surmise that one solution would be to increase the refundable deposit. I am sure EZ Link could easily increase the refundable deposit from $2 to $5, $7 or $10, whatever is required, so that most people would find it silly to hold on to more than one card, and most people at most would say, "I would keep two cards." So increasing the refundable deposit would also increase the amount of float held by the payment system which, under ordinary circumstances, could be put to good use by the operators. Increasing, the refundable deposit would also likely to be readily accepted by the commuters.

So why is this step not taken? I think the answer lies in the fact that, in the ez link payment system, the float is being held by a bank, and not by the EZ Link company itself. Therefore, increasing the refundable deposit does not put money into the pockets of EZ Link to pay for the additional cards. Now that the initial lot

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of five million cards are being used up, EZ Link is under pressure to pay for more cards and the shareholders are unlikely to come up with more investments to help them pay for the cards. Therefore, the commuters are being asked to pay to buy the cards.

Which brings me actually back to the fundamental question: why would LTA set up EZ Link Pte Ltd to be a 100% owned company in the first place? Having done so, why does it sign over the right to manage the float to a bank? Why did it not adopt the same model as the TransitLink company that the ez link system be replaced? The TransitLink company is a jointly owned company by the transport operators. In fact, in that system, more than 8.7 million farecards were issued, and the company did not complain that too many cards were issued. There are several reasons for that. Firstly, the cards were cheap. I believe they were 20 cents each. Secondly, TransitLink held the float. More importantly, Sir, there were sufficient savings from the other operations of the TransitLink system to subsidise the cost of the cards.

So, indeed, Sir, why did LTA not replicate the same model? I can only surmise the reasons by looking at the moves EZ Link has made as a company. EZ Link card is designed to be used beyond transportation to pay for retail purchases. EZ Link, as a company, has entered into an exclusive agreement with QB Pte Ltd to extend the use of ez link cards for this very purpose. To enter into the realm of multiple electronic applications, MAS stipulated that EZ Link be tied up with a bank. QB Pte Ltd is a subsidiary of Green Dot Payment Services Pte Ltd which is, in turn, owned by Green Dot Capital Pte Ltd which is, in turn, owned by Singapore Technologies. As we all know, Singapore Technologies is a Government-linked company. So the Government has its hands in all this,

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somehow or other. Sir, I looked up QB on the Net and here is their company vision, and I quote:

"QB will leverage the strengths of the ez link card and its strong wallet penetration in Singapore to enable the conversion of cash payments to e-payments, thereby reducing the printing of small denomination notes and the minting of coins, aligned to the MAS' vision of Singapore becoming a cashless society by 2008.

QB has set its vision to become a world-class regional e-payment company, leveraging consumer friendly technologies. QB will work with partners in Singapore and the region to jointly build a seamless payment network, using contactless card technologies where appropriate."

Very bold vision, very ambitious, no doubt. But is there any hidden agenda as the Government has its footprints or fingerprints everywhere in this e-payment system? Perhaps, the closet entrepreneurs in LTA saw dollar signs all over this payment system when it could be extended beyond public transportation and wanted a piece of the action.

Sir, the root cause of the problem is the way that EZ Link Pte Ltd is set up as a company. Today, we are debating about who pays for the cards. Tomorrow or some time down the road, we could be debating who would be paying for the replacement of the very expensive backbone equipment of the system. I believe we must grab the bull by the horns and decide whether a Government regulator should be permitted to run the payment system of the sector it is set up to regulate. The existence of EZ Link seems to violate the maxim stated by Deputy Prime Minister Lee Hsien Loong about the need for a compelling reason for the Government to get involved in a venture that the private sector could

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provide. EZ Link is a clear example of a Government-owned company without a compelling reason for its very existence.

The only logical solution, Sir, is for the Government to put LTA back into the role as the regulator. It should direct LTA to divest EZ Link, where possible. I urge the Minister to initiate such a review. And pending this review, I urge the Minister to put on hold the decision of EZ Link to force commuters to pay for the cards.

Mr Tan Soo Khoon (East Coast): Thank you, Mr Deputy Speaker. I think it seems like I have only four minutes left on this. I will share my views with the House.

Sir, nothing gets the Singaporeans more worked up than another increase in his transport cost. This increase in the price of the ez link card implemented, in fact, just one day after the company made its announcement, seems to many, as another effort to test the Singaporean's resolve to have another price increase forced down his throat. I think this can only happen when a Government-owned company, like EZ Link, holds monopolistic power and therefore has the clout to push through a price increase with such impunity.

Raising prices to cover what it loses in its business is, of course, the easiest option when one does not have any

competition. But fundamental questions have to be asked. Did EZ Link not foresee the possibility of so many more people buying cards and not using them? EZ Link has to be the only company I know that loses more money the more of its product it sells, so we are led to believe. In fact, I find it hard to accept that in this day of modern technology and mass production, this little card that is the cause of so much controversy, can cost $5 to produce. I would think that the more they produce, the more they sell, especially when demand exceeds expectations, the cost of the card should come down. So

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we are told that it has come down from $6 to $5, but I still maintain, and I still believe, that $5 is a very expensive price. Or is EZ Link not getting the best terms from its card supplier? Or is it simply involved in a bad deal that it cannot get out of? If this is not so, then somewhere from the beginning, right from the start, EZ Link must have had its business model wrong, and Singaporeans are now being punished with another round of price increase because of its poor business judgement. Or are we simply once again going to shrug it off by just saying that, "Ah, well, they probably made the wrong assumptions from the beginning and we will just ask the public to pay for the mistakes they make."?

I agree with Dr Wang that EZ Link must have thought from the beginning that it could make quite a lot of money out of the whole thing. Otherwise, there would not have been a company called EZ Link! So now things have gone wrong.

And it would appear to me also that EZ Link is now not trying hard enough to come up with alternative and better solutions. So many suggestions had been made in the past days, after the price increase: charge for advertising on the cards, extend its usage to other commercial transactions, sell cards with pictures of recording and movie stars at a premium so it can raise more money. In fact, someone even suggested, have photographs of some of our politicians on the cards, although I am not so sure if anyone would want to buy these.

Perhaps, as has been suggested, EZ Link is trying to recover quickly the huge investment it made of $300 million. Then it begs the fundamental question of why it did not buy an existing system that has been tried and proven successfully elsewhere, most notably the highly successful and profitable Octopus system used in Hong Kong. Why reinvent the wheel when it was already there? But

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being commercially practical does not seem to be EZ Link's forte. One is simply amazed by the fact that, with NETS launching its own combi-card for contact and contactless applications very soon, no contact seems to have been made by the two companies to try to work out a common card that would be convenient for their respective purposes.

Sir, I think, all too fast, it has been forgotten that, last year, in this House, when we debated the price increase in public transport fares, the House agreed that the Government should take steps to ensure that prices are not increased unjustifiably, especially during these difficult economic times. The difficult economic times are still not over. Perhaps, it is time now for the Government to, as they say, bite the bullet and write off this costly mistake and let a commercially-savvy outfit run the show.

Sir, I think it is time to shake things up in an area which seems to have created so much bungling for Singaporeans in the past one year. First, the price increase in public transport fares last year, then NEL fiasco, and now this. And unless we do start to do some things right, I am afraid that EZ Link will end up as the weakest link in our effort to achieve seamless travelling.

Dr Balaji Sadasivan: Mr Deputy Speaker, Sir, the Members have raised several points about the ez-link system. Their concerns have also been reflected in the Forum Page letters over the past week on the ez-link card cost.

First, I would like to assure Members that the overriding consideration behind every public transport decision is to keep fares low, and to ensure an equitable charging system. As I can see it, the points raised by the Members centre around two main issues:

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First, commuters used to get the cards free. Now, they have to pay $5 for them. It is only natural that they ask why they now have to pay.

Second, why is LTA in this business when it is also the regulator?

Let me start by explaining why commuters have to pay $5. But before that, let me share with Members the history behind the introduction of the ez-link system, because this issue was also raised.

Why did we have to replace the magnetic fare card system?

We introduced the magnetic ticketing system in 1987, together with our MRT system. The magnetic ticketing system was subsequently extended to the buses, so that commuters would require only one card for all their transport needs. As we expanded our public transport network, the amount of information that we needed to store in the magnetic fare card increased, and the existing magnetic fare card system could no longer meet the needs of the expanding MRT system. LTA then decided to move to a new smart card system.

The contactless smart card system was eventually chosen as the best option to meet our ticketing requirements, in terms of processing speed, reliability and performance, as well as its potential for non-transit application use. This decision was also endorsed by the National Information Technology Committee and the Electronic Payment Committee.

The final system chosen was based on proven technology that had at that time already been implemented in Hong Kong. Today, we can find similar systems being used in cities like Tokyo, Shenzhen and Delhi.

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Why did we need to impose a card cost?

When the ez-link card was launched in April 2002, every Singaporean was given a chance to get a card free of charge, over a 9-month introductory period. As a result, 1.8 million of such cards were issued during this period and the great majority of adult commuters in Singapore would have got the card free. Commuters were also given the option to purchase subsequent cards with a $2 refundable deposit, even though the cost of each ez-link card then was $6. All these measures were intended to help commuters convert to the new ez-link system. We believed this gradual process of introducing the new fare system would have met the needs of all commuters well.

We are now 19 months into the launch of the system. 5.3 million cards have since been sold. But the number of new cards being sold daily remained high, at over 3,000 a day. There is nothing wrong with commuters owning more than one card each. But there is no reason for subsidising these additional cards, especially when all commuters would have at least one, if not a few, cards each by now. Moreover, all MOE and ITE students will continue to receive their first cards free.

Hence, going forward, we need to decide who should bear the cost of new cards. We have two options.

One, we can charge the cost of new cards back to the transport system. As suggested by some writers, the card costs could be passed on to the public transport operators through higher ez-link transaction fees. This will result in higher operating costs for the operators and will, in turn, translate to the need for higher fare increases in future. What this amounts to is that the commuters at large would be subsidising those who choose to hold multiple cards and those who lose

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their cards. This is no different from car insurance premiums being jacked up by those who chalk up excessive insurance claims.

Or, two, we can charge the card cost to commuters. In this case, only commuters who are buying new cards would have to pay for the card cost. The advantage of this approach is that the cost of the cards will not be added to the cost of running the transport system. Hence, fares can be kept at the current levels or, when increases do occur, they will be less than what would have been the case if EZ Link had not charged for the cards. This is the real benefit of charging for the cards from this point onwards.

Looking at the two options, it is evident that the option of charging card cost to commuters is the more equitable one. It is more equitable for those commuters who want to own additional cards or have lost their cards to pay for them. Those who are careful with their cards should not end up subsidising those who own multiple cards or who keep losing their cards.

Having come to the decision to charge for cards, it is our responsibility to commuters to seek out lower card cost alternatives, and to pass on any such cost reductions directly to commuters. At the very least, we can expect the cost of cards, as with most technology products, to come down over time. We have already seen this happen, as the card cost has come down from $6 to $5 over the past year. I would like to assure Members that future reductions in card costs will similarly be passed on to commuters.

In addition, as non-transit applications become more successful and pervasive, the additional revenue will also go to help defray the cost of operating the ez-link system, including the cost of cards.

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Dr Wang has mentioned EZ Link's business with QB and Green Dot. I will not go into the details of these deals. But, essentially, EZ Link is trying to get additional revenue from the card through advertising and non-transit applications. Profits from these revenues will be passed on to the commuters and will help to bring the cost of the card down.

While we commit to continue to find ways to lower card costs, I would like to add that we are taking all measures to minimise the impact of the new policy on existing cardholders. The existing $2 card deposit that commuters have paid will continue to be refundable. All these commuters will not be affected. They will not need to pay more to continue using their existing cards and will continue to pay the same fares.

The Member has also mentioned about choices. His point is that commuters should not be made to pay the card costs since they have no choice and there is also no intrinsic value in the card that the commuter can benefit from. I would like to assure Members of this House that this is not the situation. In practice, commuters still have the choice of paying by cash. Indeed, some 300,000 cash payments still take place every day. But this is a small percentage of the total number of transport transactions daily. Commuters know that using the ez-link card will save them up to 17 cents on a bus trip, and up to 26 cents on a train ride.

The Member has also questioned how the company, EZ Link Pte Ltd, came to be owned by the LTA. I agree with the Member that it is not ideal for the regulator to be in the business. Let me explain how this arrangement came about.

Our previous magnetic fare card system was managed by TransitLink,

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which is owned by the public transport operators. The ez-link card, on the other hand, is a new system that is relatively more complex. To ensure that ez-link took off, LTA, as the authority responsible for this function, decided to set up EZ Link Pte Ltd to facilitate the integration of the new ticketing system. As we are all aware, the system had its share of teething problems. However, over the months, LTA has worked hard to ensure that EZ Link Pte Ltd puts in every effort to resolve these problems in the most expeditious manner.

I would like to assure Members that the current arrangement is a transitional one. Although LTA had to come in to start up the ez-link system, it has no interest in managing the ez-link business over the long term. LTA will divest the ez-link business eventually. In the interim period, the parent Ministry will monitor EZ Link's business activities closely to ensure that commuters' interests are protected.

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Let me conclude by reiterating that imposing card costs on commuters is the most fair and equitable option for commuters as a whole. Commuters in general should not be made to subsidise those who wish to have multiple cards through consequential fare increases. Let me also reassure Members that EZ Link will continue to work very hard to bring down the cost of ez-link cards, and to pass on such reductions back to the commuters.

At a suitable time, LTA will divest EZ Link. In the meantime, my Ministry will monitor LTA and EZ Link to ensure that the interests of commuters are not compromised.