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Data Dive: Singapore Payments Licences Benchmarked

August 7, 2023
Research from VIXIO has shown that the new licensing regime for payment service providers (PSPs) in Singapore has not approved the large majority of payments applicants.

Research from VIXIO PaymentsCompliance has shown that the new licensing regime for payment service providers (PSPs) in Singapore has not approved the large majority of payments applicants.

Information gathered by VIXIO from several local media reports (here and here) show that of the 680 applications the Monetary Authority of Singapore (MAS) has received since January 2020, only 150 have been approved, with most either withdrawn, rejected or pending.

Based on the data, just 22 percent of Singapore licence applications have been successful, which is below many European markets. For example, previous VIXIO data dives have highlighted that countries such as Sweden, Germany or the UK could expect a success rate of 40-60 percent – albeit with a lower number of initial applications.

Part of the reason why the success rate is so low is that the MAS is yet to decide on many of the payment applications.

Speaking on the matter, VIXIO’s APAC specialist, Prasad Thandapani said, “There has been a backlog of payments applications that the MAS is only now starting to make headway in”.

“This is because the focus of the MAS over the past couple of years has been on closely scrutinising crypto licence applications, which the MAS has said it deemed high risk to consumers.”

“This focus was further exacerbated by the FTX and Terraform Labs scandals, which have had large ripple effects in the Singaporean crypto market, with the Temasek sovereign wealth fund losing over US$200 million in the FTX collapse.”

“The end of this backlog, therefore, will hopefully bring some certainty to the large number of Singaporean payment operators that have been operating in limbo for the past few years.”

Regime change

Since January 2020, payment firms in Singapore have been required to apply for either a standard or major payments licence. The former requires lower initial capital, S$100,000 compared to S$250,000, and is subject to a less comprehensive regulatory regime but restricts the volume of transactions the firm can process, whereas a major payments licence is unrestricted.

Before this, payment firms in Singapore were regulated similarly to Hong Kong – as designated payment systems and money changers, in which there is no formal licensing.

However, under new licensing guidance, the MAS has attempted to bring in payments services that previously fell “outside the existing regulatory frameworks”, with special emphasis on addressing money laundering, user protection or technology risk.

Given the desire by the MAS to address these risks associated with modern payments services, this might go part of the way to help explain why the authority was rejecting so many applications. For example, if the MAS decided that the firm’s compliance function was not sufficiently independent, suitably qualified or experienced. Some firms may have also been insufficiently experienced in making a licensing application, resulting in errors or poorly filled out forms.

Additionally, most firms have applied for a major payments licence, which is subject to a more comprehensive regulatory regime and most likely tougher to obtain. This could also help explain the relatively low success rate of applications.

New or old

Although the data might suggest that new firms have a very low chance of obtaining a licence, that may not entirely be true.

One thing that’s not clear in the data is whether these applications are predominantly new firms seeking a licence or existing firms seeking to rubber stamp their activities. However, there are several factors that suggest the latter.

For a start, the MAS has seen a significant number of applications in a relatively short space of time following the introduction of a new licensing regime. This suggests these applications are predominantly from existing firms. From January 2020 to January 2022 there were approximately 500 applications, similar to the number of applications in the UK and several times more than most European markets.

Secondly, the decision by the majority of firms to obtain the more difficult major payments licence may also suggest many were established firms seeking to continue operations and were large enough to be required to obtain the major payments licence.

This would also explain why 415 firms were given an exempted, pending review status, reinforcing the notion that these are mostly existing firms in the market.

Although the new licensing regime appears to be a challenging prospect for payment firms seeking to operate in Singapore, the data could indicate that rejected firms were existing market players that no longer met the minimum compliance requirements, or were inexperienced with the licensing process. Both of these factors would artificially lower the overall chance of success. Nevertheless, the new regime appears to have achieved the objective the MAS desired – of greater control in specific regulatory areas.

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