Network for Electronic Transfers
(Singapore) has received much criticism following its recent fee
increase. The debit network argues that since even its owners,
Singapore’s banks, have been lured by the interchange revenue
offered by the international card schemes, it has no alternative.
Titien Ahmad reports.

The recent fee increase by Network for Electronic Transfers
(Singapore) (NETS) has drawn criticism from the local merchant
community and media. It has raised its fees from 0.35 to 0.55
percent of transaction value to 1.5 to 1.8 percent.

Although NETS says that this is the first significant fee
increase in 22 years, the timing of the announcement has not helped
as it was around the same time as the implementation of the
increase in the goods and services tax from 5 to 7 percent.

Explaining its move, NETS said that it “now has to pay card
issuers an additional fee, called an interchange fee, similar to
the practice adopted by international debit card schemes”.

This is because, according to NETS, “the business model of
international card schemes has always been to include an
interchange fee as part of the total transaction that is levied on
merchants. In the case of NETS, we have not paid an interchange fee
to card issuers in the past. As such, NETS needs to adapt to this
new business model and include an interchange fee too. Unless NETS
makes this fee change, card issuers may not find it attractive to
issue NETS-enabled cards in the future.”

The network is owned by three local banks, DBS, UOB and OCBC.
However, the lure of interchange revenue from MasterCard and Visa
has proved attractive enough for these banks to switch to
international debit cards. NETS claims: “Card issuers have replaced
more than 600,000 NETS-enabled cards with international debit cards
over the past four years. As more of these international debit
cards are issued instead of NETS-enabled cards, NETS’s viability in
the market will be threatened.

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“Staggering the fee change over a few years may be easier for
merchants to bear, but the lower fees that result will make it
harder for NETS to remain attractive to the card issuers. If this
happens, card issuers will continue replacing NETS cards with
international debit cards, and NETS will no longer be viable.”

Some 13,000 merchants in Singapore accept NETS, but this change
will most affect merchants that have exclusively adopted NETS as
the cashless payment method over the international networks because
of higher interchange from the latter.

Aneace Haddad is founder and chairman of payment software
company Welcome Real-time, and a frequent commentator on the
payments industry through his online blog. He said: “From a card
issuer’s point of view, I think NETS is already seen as an option
that is essentially equivalent to Visa and MasterCard debit
products. The bank’s viewpoint is this: do we issue a card with the
NETS brand on it, or issue a Visa- or MasterCard-branded debit
card? If they all offer similar levels of interchange, as is now
the case since the beginning of the month, then NETS is a pretty
good choice because some merchants only accept NETS cards. From
that angle, NETS is very much in competition with Visa and
MasterCard debit products, and has been for some time.

“The issue is, now that NETS has merchant acceptance, how does
it keep that? Put yourself in the mind of the merchant who has
accepted NETS cards for a long time and now the acquirer says that
they’re changing the interchange fees. The merchant will probably
continue to accept NETS cards – they have to bite the bullet and
pay fees – but will also think about accepting Visa and MasterCard

“NETS will now need to show merchants how they can provide more
value than Visa or MasterCard. Before, the proposition was based on
cost – it will be difficult for an organisation that competed on
cost to compete on value. The long-term issue is how NETS can keep
up market share, as they could have a slow withering away of
revenue from merchants. A lot of people have a Visa or MasterCard
card as well as a NETS card and they might be more attracted to use
the Visa or MasterCard card as soon as merchants accept them.

“This will not have an immediate effect but the gradual impact
will bring down NETS’s market share. If you look at other types of
companies like NETS such as ETSL in New Zealand and others in
Belgium, Switzerland and the rest of Europe, in virtually all cases
the local debit network has a monopoly. The banks acted as a
monopoly for NETS but when they begin to get hungry they look at
the other options. This was what triggered the decision and I
believe we are going to see that happening more and more around the
world. It all boils down to the card real estate and the
competition will be around how the payment schemes can get their
brand on the card.”

When contacted by CI, NETS declined to provide additional
details on the number of merchants that have dropped out of the
NETS network and when the next revision of merchant fees will

MasterCard also declined to comment on whether it will be
revising the merchant fees it currently charges for its debit
Local media reports indicate that, while merchants will feel the
pinch from the fee increase, few will accept a lower fee in return
for exclusively accepting NETS cards and declining other credit or
debit payment network cards.

The president of consumer watchdog the Consumers Association of
Singapore was reported by Channel NewsAsia as saying: “You are
telling me, now a Toyota has to also fetch the same price as a
Lexus… is this reason? I don’t see this as a reason; you can’t
accept such a reason.”

Although Singapore shoppers are reportedly little concerned
about the fee hikes, believing it to be a matter between the
retailer and the network, NETS will have to work hard to remove
these concerns from its merchants’ minds.