Tuesday, June 05, 2007

NETS levy raise: Inevitable or unnecessary?

Come July, Singaporeans will not only have to embrace the rise in Goods Service Tax that will be raised to 7% from the present 5%, they will also have to pay a higher administrative fee to use NETS, the cashless payment system that was introduced 22 years ago.

The proposal to increase the fee three to four fold was met with angry protests from the members of the public. Singaporeans are concerned that the raise of its levy on businesses offering NETS as a mode of payment will increase burden on retailers, ultimately translating to higher prices for consumers.

The Consumers Association of Singapore (CASE) has stepped forward to lodge a complaint against the fee hike to the Competition Commission of Singapore. Tony Wong, who owns a mobile phone store The Handphone Shop, said that the raise in levy will incur an additional S$5000 a month for him. “We might have to up prices, our business cost will go up, we will try to ask customers to pay cash, but it's tough. Sometimes they buy a few phones, and they don't have enough cash, and they never return after they go to the ATM,” said Tan. NETS transactions account for 50 per cent of total sales at the store.

The current fee NETS levied on businesses is between 0.35 percent and 0.55 percent. It will be upped to 1.5 to 1.8 percent in July, bringing it close to credit card transaction fees.

Owners of NETS – DBS, OCBC and UOB, has said that the hike is indispensable to remain competitive against international debit cards. It is readjusting its business model to that of international debit card schemes by paying an interchange fee – a fee paid to card issuers for transactions processed by NETS.

But the explanation does not satisfy CASE. President Yeo Guat Kwang reasoned that “If it is cost factors, then they must come out to justify what are the main reasons... What are the key cost factors which will make them think that the current fee that they are charging, 0.3 to 0.55 is too low? Too low, in what sense? Can't cover all the cost, or is the profit not enough?”

Even though NETS said that it plans to help small and medium sized merchants by offering a one-off rebate of up to 25 percent until the end of the year, and have spoke of a series of marketing programmes lined up to drive sales, members of the public are not buying it. NETS still hold a leading share of low cost cashless transactions. It is not only the preferred mode of payment for many Singaporeans, it is also used by 80 percent of HDB retailers. Thus, the raised levy in July will definitely have a large impact on the cost of products. Furthermore, the concurrent rise in GST in July will greatly affect consumers.

The price hike may not seem to affect consumers’ pocket directly, but to Singaporeans who are still sore about the GST hike, it will be them who will ultimately bear the costs. Is NETS really, as most consumers put it – exploiting their monopolistic mode of operation as a basic infrastructure to provide a basic mode of payment for all Singaporeans, or is the raised levy a purely commercial and inevitable decision? What do you think?