This startup is betting digital payments won’t wipe out cash

Photo from SoCash Facebook page.

Digital banking, e-wallets and a plethora of payment services may be snapping up investments. Still, Singapore-headquartered fintech startup SOCASH is betting cash will remain royalty, even if it’s no longer king.

“It’s not cash versus others,” Hari Sivan, founder and CEO of SOCASH, told DealStreetAsia in a recent interview. “It’s really about what is the best option for a particular purchase.”

Sivan said his company’s technology is similar to the “cashback” common for decades in grocery stores in many Western countries, where consumers can use their debit cards to make withdrawals from a cashier.

“It never really took off in Asia. So what we did really is replicate that,” he said, noting that his app eliminates the use of a card. “The idea was the small shop or the neighbourhood shop becomes an ATM for the community.”

To be sure, the service appears to run counter to government-backed efforts to encourage digital payments.

But Sivan noted the amount of physical cash in Singapore has actually been rising, even as banks are reducing the number of branches and ATMs.

In Singapore, the cash in circulation as a percentage of gross domestic product (GDP) was around 10 per cent in 2016, up from 8 per cent in 2000, according to 2016 Bank for International Settlements (BIS) data.

A 2017 survey by PayPal found 90 per cent of Singaporean respondents preferred cash as their main payment method, and 43 per cent said cash was the payment method they used most often. Half of the respondents said they were happy with their current payment methods.

Sivan pointed to India as a case-in-point showing cash will remain a key transaction medium.

Back in 2016, India’s Prime Minister Narendra Modi surprised the country by announcing the ‘demonetisation’ of the Rs 500 and Rs 1,000 notes – or around 86 per cent of the cash in circulation at the time. The move was widely anticipated to boost the adoption of digital payments in a big way.

However, the subcontinent still hasn’t shifted many of its dealings away from lucre.

Indian social media platform LocalCircles published a survey in November 2019 showing that three years after demonetisation, as much as 27 per cent of respondents were using cash without a receipt for more than 50 per cent of their transactions and 29 per cent were using cash for 25-50 per cent of their transactions. The survey had 30,000 unique citizens respond from more than 220 districts in India.

Reserve Bank of India data from February showed the country’s currency in circulation relative to GDP was 11.2 per cent for the 2018-19 fiscal year, down only slightly from 12.1 per cent from the 2015-16 fiscal year, and recovering handily from the 2016-17 fiscal year’s 8.7 per cent. By comparison, in 2018, that figure was under 5 per cent for Brazil, Canada, Indonesia, Sweden, Turkey and the UK, the RBI’s data show.

The high cash in circulation compared with GDP suggests “cash is highly preferred as a payment instrument,” the central bank said. The RBI cited a 2018 Credit Suisse report estimating 72 per cent of India’s consumer transactions are in cash.

In Singapore, Sivan said before the outbreak of the COVID-19 virus spurred the city-state into a lockdown, his app was seeing around 200,000 transactions a month, with an around 7 per cent growth rate. But he noted that consumer transactions overall – not just those in cash – have dropped sharply in the COVID period.

SOCASH doesn’t have an e-wallet or a payment service and is instead aimed at connecting merchants and banks, with an eye on letting the merchants replace the banks’ physical infrastructure, he explained, noting maintaining ATMs is “super expensive.”

The revenue model calls for taking a portion of the ATM fee, which would be paid either by the merchant or the consumer, depending on the jurisdiction, he said.

For the tourist product, which allows travellers from Japan to withdraw cash at regional merchants using the JCB network, SOCASH would take a percentage of the transaction amount, he said. That product allows Japanese travellers to avoid both a lack of acceptance for JCB regionally, and to overcome language barriers, he said. That product had been set to launch in March but was delayed due to flight disruptions.

The company has also begun offering business loans, using its data on merchants’ cash flows to help determine creditworthiness.

In addition, SOCASH is developing ways for retailers to use the app to communicate with consumers as they enter stores to collect their cash, such as advertising specials or new products, Sivan said.

During the lockdown period in Singapore, SOCASH also “cobbled together” an ATM-like machine set to be deployed at two Singapore grocery chains, Prime and Sheng Siong, Sivan said. The machine allows contact-less withdrawals using the app; later versions of the machine may include UV disinfection, he said.

SOCASH has raised a total of $7 million, including $6 million from Japan-based cash-machine-maker Glory Global Solutions in July 2019, according to Crunchbase data. Vertex Ventures, a subsidiary of Singapore state-owned investment company Temasek, also invested in the company in 2018, the data show.

Genping Liu, of Vertex Ventures, said his fund saw cash as the “starting point” of the investment thesis.

“Many countries, although they promote cashless, cash will always play a role for certain populations,” Genping told DealStreetAsia in an interview.

Indeed, as more transactions become cashless, that would make it even more expensive to maintain ATMs, he added. He noted that SOCASH has partnered with some e-commerce providers for payments for food delivery and e-commerce purchases.

The question becomes how to facilitate using cash at a lower cost, and then enable merchants to become virtual ATMs and also become involved in other banking-related transactions as banking infrastructure transitions to digital, he said.

Genping said SOCASH could have synergies with some of Vertex Ventures’s other portfolio companies, such as Nium that offers cross-border payments.

One use case is in emerging market countries, where a large population is unbanked, offering cash-in and cash-out points for remittance, Genping said.

Other potential synergies could come for Validus, which offers SME lending if it uses SOCASH’s data points about merchants, and for Storehub, which offers point-of-sale technology to merchants, he said.

SOCASH operates in Singapore and has tie-ups with banks DBS, Standard Chartered and ICBC. It also is developing its network in Indonesia and Malaysia. It has more than 16,000 merchants signed up in Indonesia and Singapore, and a pipeline of around 1,000 in Malaysia, but Sivan cited current pandemic-related difficulties in training merchants to use the system.

The company plans to enter Japan’s market once free travel is allowed to resume.

Among developed Asian countries, Japan is particularly enamoured of its cash, with cash in circulation to GDP ratio of 20 per cent, up from 13.5 per cent in 2000, according to the 2016 Bank of International Settlements data. A 2019 Sumitomo Mitsui Trust Group report put Japan’s ratio of non-cash payments, including credit and debit cards and e-money, at just 19.8 per cent in 2016.

Even for online purchases in Japan, cash is used for 13 per cent of transactions, a 2019 JPMorgan report said.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.