SINGAPORE, March 31 — Although there are measures in place to protect the interests of bank users here, more can be done to improve the reliability of digital banking services and prevent disruptions like the one which hit DBS on Wednesday (March 29), said experts.
One suggestion they had was to publish service reliability reports of digital bank services to promote competition among the various banks here.
Banks should also reimburse customers for any losses they may incur from the disruption, such as late fees due to missed payments, the experts told TODAY on Thursday.
For consumers, the experts suggested having more than one digital payment option and always having cash on hand, to avoid a similar situation DBS customers faced on Wednesday.
This is especially so as many people today prefer to make cashless payments.
DBS customers were unable to log in to e-banking platforms such as the PayLah! mobile wallet for most part of the day.
Services resumed only at 5.45pm, with its digital services — Digibank Mobile and Online, PayLah! and mTrading — returning to normal, the bank said.
How reliant are Singaporeans on e-payments?
Lee Yen Teik, a senior lecturer of Finance at the National University of Singapore (NUS) Business School, said that Singapore’s adoption rate of cashless payments is the highest in South-east Asia at 97 per cent.
This data was based on payment methods at Singapore retail points-of-sale in 2022, in a 2023 survey published by German statistics company Statista.
Associate Professor of Finance Cindy Deng Xin from the Nanyang Business School at Nanyang Technological University added that the adoption rate of digital payments was accelerated during the pandemic, as people were encouraged to avoid physical contact by minimising the use of cash.
“I would say Singapore is now quite close to a cashless society.”
However, with many Singaporeans leaving home with only a mobile phone or digital watch as their payment method, any disruption is going to cause “significant inconvenience”, said Lee.
But the wide acceptance of traditional payment methods and the availability of multiple digital payment methods help to mitigate the impact of a disruption from a single payment provider, he said.
Current measures
The Monetary Authority of Singapore (MAS) has various regulations and guidelines in place to ensure that banks and other financial institutions protect the interests of their customers.
For example, there are minimum standards for payment system reliability. Systems cannot have an outage that exceeds four hours in a year.
This translates to a requirement of approximately 99.95 per cent of “uptime” yearly.
Banks must also have robust security measures to protect customers’ information and prevent fraud and unauthorised activities, said Lee.
There are penalties for non-compliance.
However, he added that the digital banking landscape is rapidly evolving and there is “always room for improvement”.
“Thus, MAS and financial institutions should continue to review and update their policies and procedures to keep pace with the changes.”
Carrot and stick approach
After a two-day service disruption in 2021, which MAS deemed a “serious disruption”, the authority had imposed more capital requirements on DBS, in what it described as a “supervisory action” against the bank.
DBS bank had to apply a multiplier of 1.5 times to its risk-weighted assets for operational risk, which translated to S$930 million (RM3.1 billion) in additional regulatory capital.
Professor Lawrence Loh, director of the centre of governance and sustainability at NUS Business School, said that such a move is punitive for the bank as there are opportunity costs for capital requirements.
The aim is to ensure DBS takes necessary steps to resolve any future disruption quickly and adequately, added Assoc Prof Deng.
On what can be done to incentivise banks to make their services more reliable, she said that the stricter monitoring and higher penalties by regulators could push banks to improve the management of such disruptions.
However, Lee said that harsher penalties could create a culture of fear and mistrust between regulators and regulated entities.
Instead, a “stick and carrot” approach, which combines regulatory enforcement with positive incentives to promote compliance and good behaviour may be more effective.
For instance, the authorities could offer incentives to banks that meet or exceed the minimum standards for service reliability, such as keeping within the four hours downtime per year requirement.
These incentives could be in the form of preferential treatment in some regulatory processes, reduced regulatory oversight, and other benefits, said Dr Lee.
He added that another way to improve service standards is to publish statistics of banks’ reliability performance, adding that this is done for instance for internet broadband service providers.
“Such mandatory disclosure promotes competition as customers tend to choose financial institutions with a better track record of providing reliable banking services. As a result, the service reliability and quality across the banking industry may improve,” he said.
Both Lee and Assoc Prof Deng also suggested that banks compensate customers who suffer a financial loss due to the stoppage of services.
What else can be done?
In the event of service outages, banks should also communicate promptly and transparently with their affected customers who may be frustrated and confused, said Lee.
If mobile push notifications fail, banks can use email or SMS alerts, social media platforms or website notifications to inform their customers of any payment service disruptions, he said.
Assoc Prof Deng added that if possible, banks should also inform customers about the estimated timeline of its service resumption.
Prof Loh said that the usual response to outages and issues are “reactive in nature”, where customers simply have to wait for problems to be resolved.
“Banks will have to be stronger in the proactive engagement of customers,” he said.
For instance, there can be information posted on their websites for customers to understand the outages that may happen and guidance on what to do.
Banks should also provide information for assuring customers on how technology risks are being managed, including how these risks are identified and reduced, he said.
On the customers’ part, experts agreed that opening accounts in multiple banks, having several digital payment options and carrying cash on hand are several ways to reduce the impact of such disruptions.
However, Assoc Prof Deng said that there is not much customers can do to avoid being affected by such potential outages.
“The responsibility should lie more heavily on banks.”
The experts also said that banks would be aware that it is in their interests to ensure that their services are reliable or they would lose customers.
“Ultimately the market will be the most effective arbiter,” said Prof Loh.
“If some banks regularly have outages, customers can take the initiative to switch providers. Reputation is the best disciplinary force.” — TODAY
