Adieu to the ATM?

Hari Sivan smiles in acknowledgement when I suggest to him that the 15 years he spent as a specialist in payments at Citibank and DBS Bank helped to explain why he saw the business opportunity that eventually became soCash.

"Come to think of it, yeah, you're right. I never thought of it that way," the co-founder and CEO of the Singapore-based fintech startup says with a laugh.

soCash is based on a simple premise: when people need to withdraw cash, they should not be limited to using an ATM. The money they need could be made available at a store or other handy "cashpoint". soCash is linked to the mobile app of a bank, so a customer simply opens the bank app to place a cash-out request and selects a nearby registered merchant, such as a 7-Eleven store.

The app guides the user via GPS to the store where she scans the QR code at the cashier and receives the amount of money requested. The sum is deducted from the user's bank account without the need for a machine, card or PIN code. The idea was pioneered in the United States by Spare, developed by Mercuri Systems, but soCash is the first mover in Asia, offering the service in Singapore, India and Japan.

"soCash is a technology platform connecting banks to the vast network of retailers with the goal of offering basic banking services, the first service being cash withdrawal and cash deposits," is how Mr Sivan puts it.

"For consumers, it's all about safety, convenience and privacy. For banks, it's converting their fixed costs into variable expenses, optimising liquidity and generating scale. For retailers, it's about additional footfall, revenue and productivity."

soCash could make the ATM a museum piece. Graphic by ocash.io

END OF THE ATM?

Besides doing away with the hassles of finding a functioning machine, waiting in line and punching in a PIN code, soCash is very safe as everything is done electronically. You can forget about card fraud completely, and personal safety is an added bonus.

Especially for women, using an ATM in a dark area at night can be fraught with danger, while the local convenience store is a different story as there are security cameras inside and there is always somebody working there, he says.

Consumers can also enjoy soCash promotions, including freebies while waiting, and Free Cash, a redemption or cash-back programme tied to referrals and other promotions.

For example, referring the app to two friends brings a Free Cash bonus of S$6 ($3 per friend). The next time that person withdraws $50 at a store, she will receive $50 cash but only $44 will be debited to her account.

For shops, installing soCash offers the potential of more customer traffic and purchases. For banks, re-engineering their cash supply chain will save costs of expanding ATM networks cash-handling logistics. The fact is, cash costs banks a lot of money, not least for armoured vehicles and guards to travel around replenishing ATMs.

Other optional services are "cash out" options integrated with point-of-sale (POS) cashier systems in certain stores linked to corporate retail brands. soCash, however, works without a POS machine, which allows smaller and independent shops to become cash transaction points, Mr Sivan notes.

Banks can avoid cash transport costs as well as ATM maintenance and just pay soCash a transaction fee, which the company shares with the cashpoint. This makes transactions 25% to 40% cheaper than conventional ATM transactions, as people do not have to pay for them unless the bank decides to charge them.

Banks can also choose to pay soCash for services such as sending staff to meet shopkeepers and training staff to understand the system. It is now lobbying large banks in Singapore to offload 25% of their ATM volumes while investing in soCash instead of ATM infrastructure, as the fees paid to soCash are roughly half the transaction costs banks pay for ATMs.

soCash is the first startup backed by the Monetary Authority of Singapore (MAS). It is poised to enter Thailand this year and is in talks with at least three major banks in the country, where regulators are fine-tuning regulations that would allow stores and other locations to act as banking "agents".

The company's current banking partners in Singapore include DBS, POSB and Standard Chartered, allowing its users to withdraw money from any merchant using those banks. Other clients include Citibank and HSBC.

Last October, soCash closed a Series A financing round in which the sole investor in was Vertex Ventures, a global venture capital group whose other investments include the ride-hailing service Grab. The company started with US$50,000 and so far it has managed to raise $925,000. soCash was selected as one of the Ten Hottest Startups in Asia by Startup Thailand for 2018.

FINANCIAL ENGINEERING

Mr Sivan did not originally envision a career in banking and finance. He studied at the National Institute of Technology Calicut in Kerala state in India, majoring in production engineering and industrial management. He spent most of his time creating algorithms for autonomous coordinated robotics systems, but then he discovered that he would be physically unable to do hands-on engineering work.

"My pursuit of engineering was over when I found out that I was colour-blind," he says, but he adds with a smile that he would not change anything as he is now doing what he likes and it is paying off.

His first job after graduation was with the Indian operations of US-based Cognizant Technology Solutions as a programmer. He then moved to HSBC India where he helped set up an automation process for credit card sales as a software engineer. At that point he followed his father, who is also in banking, to Singapore and joined Citibank.

He spent the next five and a half years with the American bank as manager of its rewards and loyalty programmes, gaining expertise in cash-back and tactical rewards-based marketing initiatives.

As his career progressed and his interest in finance and marketing grew, he spent a year completing an MBA at the France-based EDHEC Business School, and returned to Citibank in Singapore as an assistant vice-president of the eBusiness Group, where he drove mobile and internet banking services and managed multiple payment and fund transfer projects.

When he moved to DBS Bank in 2010, he was put in charge of the company's online wealth management and payment systems in its emerging markets including India, Indonesia, Taiwan and China, which gave him more insights into Asian preferences for payment. That led to DBS Remit, which enables bank customers to enjoy same-day fund transfers to any bank in China and the UK as well as DBS in Singapore.

But despite the success of his brainchild, Mr Sivan was getting bored and he wanted to create something on his own.

By this time, few could question his knowledge and ability to identify "pain points" within the payment system. He and some of his peers believed they could develop more tangible and pragmatic solutions for those problems.

"We were sick of climbing the corporate ladder so we started talking and the idea of soCash originated in early 2016 when we realised the convergence of digital banking and the need for distributed platforms for many banking functions , the most lucrative being cash logistics," he recalls.

"What we found was that the cost of cash is the cost of logistics and we built on the idea from there."

Mr Sivan notes that he and the company's co-founders were lucky to have received plenty of support from his banking partners and regulators in Singapore because they recognised that a digital cash management platform would save the banks money and provide consumers with another convenient way of getting their cash out.

CASH IS ALIVE

As he pondered alternatives to the ATM, Mr Sivan recalled how he had often wondered why mobile wallets and similar payments had never really taken off in some markets. In his view, it is because cash is still very relevant in many markets. This is especially true in Asean and India, but not so much China as it is moving at astonishing speed toward a cashless society.

"Cash is an efficient payment mechanism for daily consumption and low-value payments. Compared to the alternatives, there is no transaction fee, there is instant settlement, trust, privacy and universal acceptance," he says. "Alternatives and mobile derivatives lag far behind and are usually elitist instruments promoting debt-based consumption."

Mr Sivan believes that the relevance of cash will be defined by the society at large and the collective intelligence usually makes intelligent choices.

"Leaving aside the motivated evangelisation for a cashless society, if we look at the usage data and price points, it is clear that cash will continue to dominate until a more efficient product evolves and gains adoption," he adds.

He notes that in economies across the world with healthy GDP growth and young populations, particularly in Asia, cash still dominates day-to-day consumption. It is still the payment of choice for the masses and even where there are alternatives, the market share of cash is still well over 25% no matter how you look at it, he says.

"This is simply because there are multiple challenges in adoption, primarily around transaction costs, settlement delays and acceptance challenges, just to name a few. While the mix may change, we strongly believe that runway for cash is pretty long."

Mr Sivan argues that digital payments are not taking off in India, where some channels have shown a healthy growth trend but volumes have declined as fewer people use the services. He believes India is likely to be cash-dominated for decades, much like developed markets like Japan and Germany. His view is backed up by World Bank data which shows that 97% of India's retail transactions are still conducted in cash or by cheque.

The June 2016 study also estimates that the total global value of micro, small and medium retailers' transactions was about $34 trillion, of which $19 trillion is paper-based transactions and $15 trillion in electronic payments. Only 20% (around $800 billion) of payments by micro, small and medium retailers in South Asia were made electronically in 2015 compared to 31% ($2.7 trillion) in East Asia-Pacific but that is still less than 46% ($1.3 trillion) in Europe and Central Asia and 71% in high-income OECD countries.

The use of cash is still growing year on year in both emerging and developed markets where cash in circulation from Australia to the US and from to Indonesia to Hong Kong has grown at nearly double-digit rates for the past half-decade. According to data compiled by soCash from central banks, demand for cash between 2011 and 16 continued to grow in major markets including India (14%), Indonesia (12%), Singapore, (9%), Thailand (7%), the United States (7%) and Australia (6%).

According to the World Bank's global market size study, developing countries have a higher percentage of paper-based payment transactions (cash and cheques). The trend is more prominent among micro retailers, where many entrepreneurs or mom-and-pop stores tend to shy away from electronic transactions, such as using debit or credit cards, because of extra costs including transaction and bank fees, lack of awareness and difficulty in accessing financial services.

Realising both the opportunities and challenges, Mr Sivan still sees a need to change the fixed mindsets of some traditional banks and shops that are still more comfortable with the ATM structure. Therefore, he believes that finding the right markets and partners is the path forward for his company as it sets its sights on Indonesia and Thailand.

"Our goal is to become the platform of choice for banks in Asean for cash circulation and beyond," he concludes.