Razer recently published an e-payment proposal summary, which includes committing S$10M to deploy a common cashless payment solution in Singapore, maybe Razer Pay, in 18 months.
What can you do with S$10 million? Not much actually. Let’s do some simple calculations.
Customer Acquisition Cost (CAC) for a payment service in Singapore should be higher than that of e-commerce. After checking with current CAC for various marketing channels in Singapore – we estimate the lowest to be S$40 per user.
So if you use all the money to ‘buy’ users, you would be able to buy 250K users [S$10 million/S$40].
That’s 4.5% of Singapore’s population (5.6M)- not exactly an impressive number.
And realistically, CAC generally increases when you have acquired the low hanging fruit ( i.e. the early adopters), so a more realistic average for the CAC would be $60-$80 per user.
That would give us between 125K and 167K users (2.2% to 2.9% of the population). Hmm, that’s even less impressive. .
And this is only acquiring users – you have not factored in usage yet!
And yes, based on experience from other countries, you need good incentives (often cash ) for people to change their behaviour – given that they already have another option which is not that painful.
OK – let’s assume that the government lends Razer a hand, requiring everyone to install such a payment application. To boost the usage rate, incentive of S$3 will be given for each payment, and 3 usages are enough to get a user hooked. With S$10M, you can create 1.1M users [S$10 M/(3*$3)]
This looks much better. Mission complete.
Wait, something is missing.
In order to make merchants accept such payments, you need to acquire the merchants. Acquiring includes convince merchant to use the system, install the system, train them and their staff etc. etc (it’s a very tough job).
Assuming you are hiring the cheapest part-timers to do the dirty work: S$8 per hour plus $4 commission per merchant acquired. Let’s further assume these part timers are super productive and acquire 2 merchants per hour each – That would give us a merchant acquisition cost of $8 per merchant.
Whilst this make sense on paper, – these are very, very optimistic assumptions to make.
We have managed a number of companies where merchant acquisition is involved. The best merchant acquirer we have ever encountered on – average – working 8 hour a day 5 times a week signed up about 40 merchants per month – , – or about 2 merchants per day. This works out to be a merchant acquisition cost of $36 per merchant.
Remember – this is the best merchant acquirer that we’ve ever encountered.. On average, the cost will be 3-5 times of that.
None of the above scenarios include Above-the-line advertising, tech and admin costs and other overheads.
The importance of Use Cases
You might ask, why is this so difficult? How could WeChat Pay achieve significance so easily? Why could Alipay sweep across China so easily?
The key here is both WeChat Pay and Alipay are based on specific, extremely popular use cases: WeChat Pay sits on the most popular social platform in China (with more than 800M active users); while Alipay sits on Taobao where millions across the world scanor a bargain daily (my wife’s colleagues in Singapore included).
Same can be said about GrabPay (digital wallet of Grab) and Go-Pay (run by Go-Jek in Indonesia).
With a strong use case, your cost of user acquisition lowers significantly.
In fact, most of WeChat Pay’s users were acquired for FREE – through gamification. The WeChat Red Packet was a master stroke, where users send each other small change in the form of virtual ‘red packets’. Tens of millions signed up for and started using WeChat Pay at almost no cost to WeChat.
What should Razer take note of?
If Razer can leverage a strong use case, they can acquire and educate consumers/ merchants at a low cost. However, which use case can they leverage?
Gaming, which Razer is particularly strong in, is a good use case, but it only works for gamers. Government services? Well even if you make it mandatory, how often do you pay for a government service?
It seems that, in Singapore, ride-hailing and hawker centres are the two best use cases. The former is hotly contested by Uber and Grab, with Grab trying to roll out a payment system; while the latter is, well, just too scattered and costly to consolidate.
Tackle the right problem(s)
What is the key problem preventing adoption of cashless payments in Singapore? You just need to ask a number of consumers, and merchants.
Singapore e-payment is the victim of it’s own monetary and stability success. It is not a hassle at all to bring cash around. Consumers will tell you, unless they can completely leave their wallet at home, having cashless payment here and there does not really make their lives easier. In fact, having to juggle multiple payment methods even creates stress.
For the merchants, many will tell you a very simple calculation. “Look I need to buy the terminals, I need to pay, often, more than 3% of the transaction cost,” they would say.
If your turnover (note, not profit) is S$100K per month – you would need to pay more than S$3K as payment costs. For many merchants, this amount is more than enough to hire a junior but meticulous staff to tally and deposit the cash.
This is even worse for those trying to sell things online. Stripe charges 3.4%+$0.5. That means if your average transaction size is S$10 (which is the case for many small merchants), you would need to pay 8.4% of your turnover for payment processing. Your turnover of S$100K would generate S$8.4K payment costs.
Quite taxing (literally).
In comparison, merchant costs for Alipay and WeChat Pay in China is lower than 0.6%, and for many smaller merchants, the number can even be zero.
A common payment system, if done correctly, can bypass many of the intermediate parties and lower the cost. Only then it makes sense for both consumers and merchants.
But we think even then, S$10M would be hardly enough for the whole project.