Leaving the wild west behind: Singapore’s new payment services bill is a defining moment for fintech regulation

Photo Credit: Wikimedia Commons

Singapore’s new Payment Services Bill seeks to drive growth and innovation by managing risks and creating a safer fintech ecosystem.


Last month, Singapore witnessed a major milestone in its Fintech landscape. The much-awaited New Payment Services Bill (PSB) was finally placed for its First Reading in Parliament on 19 November. It is seen as a defining moment of fintech regulation, seen by many as the key to driving fintech growth across the island-nation.

The PSB consolidates payment services regulations

The PSB replaces the former Money-Changing and Remittance Business Act (MCRBA) and the Payments Systems Oversight Act (PSOA) with a single regulatory framework.

The PSB will address some key issues plaguing financial innovation in Singapore – insolvency, fraud, money laundering, and cyber risks – that have limited innovation in financial products.

The focus is on protecting consumers and expediting the use of e-payments

The proposed Bill takes a unified and proactive approach to the emerging payment systems powering Singaporean industry.

Currently, the Monetary Authority of Singapore (MAS) regulates four payment activities— cross-border money transfers, e-money issuance and money changing services. The scope of the newly framed PSB has been revised to include four more activities— domestic money transfers, account issuance, merchant acquisitions, and virtual currency activities.

Each activity will be examined for its possible risks of money laundering and terrorist financing, as well as consumer and merchant exposure. The MAS will then explore appropriate standards to regulate the payment activities.

The new payment services bill will bring cryptocurrency exchanges and crypto payments will also under MAS oversight and the definition of “virtual currency” will be extended to mean digital payment token”. This will further enhance the legitimacy of cryptocurrency as a virtual payment.

Key changes to the proposed PSB include licensing and designation

The Bill adopts a two-pronged approach whereby protection is offered to both, the major players and the small investors using two parallel regulatory frameworks – licensing and designation.

The licensing regime regulates retail payment services, and the designation regime governs essential payment systems and operators that at the core of the economy’s financial stability like Systemically Important Banks (SIBs).

Once the Bill comes into force, all players in the payment services market will be required to procure a single licence to conduct any or multiple payment activities. Although this will facilitate the “ease of doing business”, fintech players will be forced to rework their strategies to gain the necessary approvals.

There will be three categories of licenses provided, and the license a business needs will depend upon the type of payment activity it engages in and the volume of transactions it processes. The three licences granted are as a money-changer, standard payment provider, or a large payment institution.

Activity-based licensing will create pre-conditions for engaging in different payment activities. For example, it could prohibit an e-money issuer from expanding into deposit-taking activities or restrict them from branching out into consumer lending activities.

The PSB creates a more inclusive and safer fintech ecosystem

However, the licensing requirements will ensure that industry risks are suitably mitigated and regulated. The PSB will help safeguard consumer interests, as well as those of the merchants and the financial system. It will also help reduce money laundering, particularly in the cryptocurrency industry.

Under the new bill, consumers are also better protected from industry risks. The threshold for e-money protection will be lowered from an average daily float of S$30 million to S$5 million (US$22 million to US$3.6 million).

This means that smaller firms handling lower than S$5 million (USD 3.6 million) per day will not fall under the PSB regulation, avoiding over-regulation and creating a positive environment for start-up growth and the emergence of new solutions.

The key takeaway of the PSB is an ease-of-doing business in the payments service sector. The new licensing framework brings unregulated sectors like the cryptocurrency under regulation, paving the way for the expansion of digital tokens as a legitimate currency and the widespread application of blockchain technologies.

At the same time, the new framework requires players to mitigate the risks involved in their digital payments activities, creating a safer ecosystem for transactions and further building public trust in the digital payment sector.

The new regulations further align the interests of the government and the industry players in the creation of a secure fintech ecosystem in which newcomers are free to innovate and challenge incumbents, free from excessive regulation and stifling government oversight.

It sends a message that the wild-west days of digital payment services are coming to an end. Singapore is not a modern-day Tortuga where fintech players can act with wild abandonment. It is a New World, a safe breeding ground for new payment services solutions, where new players are welcome and encouraged to enjoy the rapidly expanding digital payment market and the wealth of opportunities it brings.