For this, i wish to give CASE a pat on their backs. Finally, an advocate for the commoners against corporate giants! As what I had predicted in my previous entry, the 2% hike in GST is going to be used as the perfect reason for anyone or any business to hike up their pricing citing increasing costs and thinning profits.
Before I go about bashing the 3 local banks, OCBC, UOB & DBS that owe the Nets system, we have to recognize the fact that banks exist to make profits. And corporations have their loyalty linked not to any single individual or even their own CEO. They are only loyal to dollar signs. It is as cold as it can be but it's reality. It is therefore, understandably justified, that when a chance present itself to increase price which in turn increase profits, they have to grab it.
The 3 banks cited that because debit cards and credit cards earn the bank between 1.15 to 1.69 percent of the purchase price, which is much higher than the current rates of 0.35 to 0.55 percent of purchase price for purchases through NETS, they have to increase the NETS rate to 1.5 to 1.9 percent, so as to avoid the NETS system being priced out of market. A rather noble reason if you ask me. But all the same, it is bullshit. By increasing the rate, the 3 banks effectively have 2 payment methods -- NETS & debit cards (and credit cards, but that is not within the scope of this discussion, nor is it comparable, so it will be very much taken out of context here) that earns them higher transaction fees.
And no no no, the 3 banks should never cite increased competition as a reason to hike fees. A perfectly competitive market would mean the lowest price possible with zero economic profit. Saying that, it would mean that the banks should not have the market power to move prices. By saying that they have to increase price due to competition would only mean one thing: They have the power to change price across the market. They have great monopoly power! It was simply an insult to our intelligence by expecting us to buy their crap story after that statement. The worst part: citing competition between NETS and debit cards. Hey, the 2 products are products of the SAME organization! It's like telling me Microsoft XP is S$150 and the company earns S$100, and Microsoft Vista is S$160 and the company earns S$120. And because Vista earns the company more profit, microsoft has to up the price of XP to S$170 to avoid being 'priced out of market'. It does not make any sense!! You wanna cite competition? Fine, bring in Citibank (since renamed a simple 'Citi', and Singapore's first licensed full-fledged offshore bank), bring in StanChart, bring in RBS, bring in Barclays, let them collaborate on a new Nets system. In fact, I encourage these offshore banks to come together to provide more debit cards to Singaporeans. I see business opportunity here in wrangling business away from the local banks.
On closer analysis, going by the figures, they are planning to make it more lucrative through NETS as one can see the higher percentage charged for purchasing price. 1.15 to 1.69 percent for debit and an increased figure of 1.5 to 1.9 percent for NETS. A no brainer if you ask me. And by pricing debit cards transactions lower than NETS would mean more profits as it is generally known that more people pay through NETS than debit cards. 5-10 years into the future, because more people pay through debit cards due to its lower transaction costs, and as the banks see their gold pot dwindling in NETS but another new pot of gold appear with big letters stated 'debit card', will the banks then say, "Oh, because the NETS earn a higher fee for the bank, I think it is just right that we increase the rates for debit cards so as to avoid debit cards from being priced out of the market."?
Here is the true story. 22 years ago, debit cards are almost non-existent in the United States, all the more unheard of in Singapore. Because not many people qualified for a credit card, the banks bank on a new system called NETS that can contribute to much convenience and the evolution of a cash-less society. For all that, the banks get to earn transaction fees from all purchases, a lucrative market worth at least S$10 billion [I do not have concrete data here. But if lecture notes from the National University of Singapore is any reliable data, the figure is placed at S$8.1 bn in 2004, adapted from the module Money & Banking 1]. The best part is, the banks do virtually nothing except putting up ads encouraging people to spend via NETS.
15-18 years down the road, the financial system has evolved. Debit cards are introduced and promoted in Singapore and as debit card functions similarly to credit cards and NETS, the banks priced it higher than NETS and similar to credit cards. Now one fine day (only recently), the 3 top bankers at the 3 local banks realized that debit cards serve the same basic function as NETS in local context and earn them higher fees. 'Ding!!' a Big gigantic lightbulb lights up in their heads. "Eureka! We have strike GOLD!!"
They have 3 options. Allow the situation to continue and accept the fact that they are losing out on opportunity costs by leveraging on increased prices for transactions through NETS. Second option: Face out NETS, bear the full brunt of public outcry and in turn compel everyone to get a debit card so as to earn higher fees. Third option: Increase the transaction price for NETS, price it higher than debit cards, with a noble reason of avoiding the system being priced out of market hoping that the public 'understands'. In the process, they will earn even higher fees than choosing option 2, and has 2 money making channels instead of one. By doing a cross benefit-cost analysis and a weathered down discounted-cash-flow model, these MBA/CFA bankers conclude that Option 3 is the best option. In fact, option 3 will bring in more monies and pave a path for future increments.
It is mentioned that CASE will file a complaint with the Competition Commission of Singapore against NETS's monopolistic practice. But I do not harbor much hope. A prospective fee hike equates to higher potential net profits. This will then be enjoyed by large and powerful individuals, investors and financial institutions, shareholders of the 3 local banks, including our dear Temasek Holdings and probably GIC (since GIC is supposed to be the 'safe investor' of national assets as opposed to Temasek's more aggressive investment style, and banks are traditionally rather safe bets). So all price increase benefit business owners, benefit shareholders, benefit government, but all paid for by commoners who have no choice but to live with it. It is no surprise that the Gini coefficient continues to rocket up. I will be surprised if the government acts on this issue, of which I would believe is done more to mollify the public furore against inflation due to the 2% hike in GST rather than to go against monopolistic practices. After all, we do have a monopolistic government to begin with.
Before I go about bashing the 3 local banks, OCBC, UOB & DBS that owe the Nets system, we have to recognize the fact that banks exist to make profits. And corporations have their loyalty linked not to any single individual or even their own CEO. They are only loyal to dollar signs. It is as cold as it can be but it's reality. It is therefore, understandably justified, that when a chance present itself to increase price which in turn increase profits, they have to grab it.
The 3 banks cited that because debit cards and credit cards earn the bank between 1.15 to 1.69 percent of the purchase price, which is much higher than the current rates of 0.35 to 0.55 percent of purchase price for purchases through NETS, they have to increase the NETS rate to 1.5 to 1.9 percent, so as to avoid the NETS system being priced out of market. A rather noble reason if you ask me. But all the same, it is bullshit. By increasing the rate, the 3 banks effectively have 2 payment methods -- NETS & debit cards (and credit cards, but that is not within the scope of this discussion, nor is it comparable, so it will be very much taken out of context here) that earns them higher transaction fees.
And no no no, the 3 banks should never cite increased competition as a reason to hike fees. A perfectly competitive market would mean the lowest price possible with zero economic profit. Saying that, it would mean that the banks should not have the market power to move prices. By saying that they have to increase price due to competition would only mean one thing: They have the power to change price across the market. They have great monopoly power! It was simply an insult to our intelligence by expecting us to buy their crap story after that statement. The worst part: citing competition between NETS and debit cards. Hey, the 2 products are products of the SAME organization! It's like telling me Microsoft XP is S$150 and the company earns S$100, and Microsoft Vista is S$160 and the company earns S$120. And because Vista earns the company more profit, microsoft has to up the price of XP to S$170 to avoid being 'priced out of market'. It does not make any sense!! You wanna cite competition? Fine, bring in Citibank (since renamed a simple 'Citi', and Singapore's first licensed full-fledged offshore bank), bring in StanChart, bring in RBS, bring in Barclays, let them collaborate on a new Nets system. In fact, I encourage these offshore banks to come together to provide more debit cards to Singaporeans. I see business opportunity here in wrangling business away from the local banks.
On closer analysis, going by the figures, they are planning to make it more lucrative through NETS as one can see the higher percentage charged for purchasing price. 1.15 to 1.69 percent for debit and an increased figure of 1.5 to 1.9 percent for NETS. A no brainer if you ask me. And by pricing debit cards transactions lower than NETS would mean more profits as it is generally known that more people pay through NETS than debit cards. 5-10 years into the future, because more people pay through debit cards due to its lower transaction costs, and as the banks see their gold pot dwindling in NETS but another new pot of gold appear with big letters stated 'debit card', will the banks then say, "Oh, because the NETS earn a higher fee for the bank, I think it is just right that we increase the rates for debit cards so as to avoid debit cards from being priced out of the market."?
Here is the true story. 22 years ago, debit cards are almost non-existent in the United States, all the more unheard of in Singapore. Because not many people qualified for a credit card, the banks bank on a new system called NETS that can contribute to much convenience and the evolution of a cash-less society. For all that, the banks get to earn transaction fees from all purchases, a lucrative market worth at least S$10 billion [I do not have concrete data here. But if lecture notes from the National University of Singapore is any reliable data, the figure is placed at S$8.1 bn in 2004, adapted from the module Money & Banking 1]. The best part is, the banks do virtually nothing except putting up ads encouraging people to spend via NETS.
15-18 years down the road, the financial system has evolved. Debit cards are introduced and promoted in Singapore and as debit card functions similarly to credit cards and NETS, the banks priced it higher than NETS and similar to credit cards. Now one fine day (only recently), the 3 top bankers at the 3 local banks realized that debit cards serve the same basic function as NETS in local context and earn them higher fees. 'Ding!!' a Big gigantic lightbulb lights up in their heads. "Eureka! We have strike GOLD!!"
They have 3 options. Allow the situation to continue and accept the fact that they are losing out on opportunity costs by leveraging on increased prices for transactions through NETS. Second option: Face out NETS, bear the full brunt of public outcry and in turn compel everyone to get a debit card so as to earn higher fees. Third option: Increase the transaction price for NETS, price it higher than debit cards, with a noble reason of avoiding the system being priced out of market hoping that the public 'understands'. In the process, they will earn even higher fees than choosing option 2, and has 2 money making channels instead of one. By doing a cross benefit-cost analysis and a weathered down discounted-cash-flow model, these MBA/CFA bankers conclude that Option 3 is the best option. In fact, option 3 will bring in more monies and pave a path for future increments.
It is mentioned that CASE will file a complaint with the Competition Commission of Singapore against NETS's monopolistic practice. But I do not harbor much hope. A prospective fee hike equates to higher potential net profits. This will then be enjoyed by large and powerful individuals, investors and financial institutions, shareholders of the 3 local banks, including our dear Temasek Holdings and probably GIC (since GIC is supposed to be the 'safe investor' of national assets as opposed to Temasek's more aggressive investment style, and banks are traditionally rather safe bets). So all price increase benefit business owners, benefit shareholders, benefit government, but all paid for by commoners who have no choice but to live with it. It is no surprise that the Gini coefficient continues to rocket up. I will be surprised if the government acts on this issue, of which I would believe is done more to mollify the public furore against inflation due to the 2% hike in GST rather than to go against monopolistic practices. After all, we do have a monopolistic government to begin with.
1 comment:
Because of the fee hike for NETS many shops are not accepting NETS payment unless the sale is at least $10 or more.
The said banks which provide the NETS service might think they have a monopoly in NETS but they'd better be careful.
There is in fact an approved financial instutition that pays higher than banks for non-fixed deposit.
Furthermore there is a kind of always-on and private Internet network that can provide secured transactions. In fact banks themselves are using such a service themselves but not for NETS transaction.
When you pull these two products together, bingo NETS is no longer in a monopolistic position.
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