BANKS in Singapore spend about US$200 million a year on ATM maintenance, logistics, insurance, counting and cleaning cash, and a host of other expenses just to maintain circulation of physical cash, estimates Singapore startup SoCash.
Helping banks to solve that multi-million dollar headache is the mission of SoCash, which is planning a US$8 million Series B fundraising round in a few weeks.
The company turns shops into ATM alternatives where users can withdraw cash at the checkout through a mobile app. For banks, this represents an opportunity to cut the massive costs associated with traditional cash logistics, said SoCash founder Hari Sivan.
With SoCash, banks pay only a transaction fee and a platform fee, said Mr Sivan, who spent about 13 years in the banking industry.
The process is straightforward enough: a user opens the SoCash app, inputs the withdrawal amount – typically below S$100 – and selects a cash point, such as a 7-Eleven. SoCash tries to predict the availability of cash using machine learning.
At the shop, the user scans a QR code using the app and collects the cash from the cashier. The user’s bank account is debited while the retailer’s account is credited by the participating bank. Banks that are currently using SoCash’s service include DBS, POSB and Standard Chartered.
Retailers are paid a fixed fee per transaction by SoCash, allowing them to use the store’s pool of cash earnings to generate a revenue stream while saving themselves the hassle of having to deposit their cash earnings at a physical branch, Mr Sivan said.
The cash withdrawal service also helps the shops to generate walk-ins and push in-store promotions on the app’s platform.
Meanwhile, SoCash earns a transaction fee and platform fee from the bank. Mr Sivan declined to reveal the size of the fees and whether they are on a flat or percentage basis, but said that it results in “substantial savings” to banks.
In the last 12 months, the startup has set up cash points at about 1,300 locations in Singapore, and it says that it processes close to 200,000 transactions per month.
A big pain point for banks is that cash is easily left lying in ATMs.
“So let’s say there are 3,000 ATMs in Singapore and they hold anywhere between S$150,000 to S$200,000 overnight. That’s a minimum of S$450 million of liquidity that is stuck in these machines. This is because of an inefficiency in the supply chain,” said Mr Sivan.
But in SoCash’s model, the user’s account is debited and the retailer’s account is credited, so money stays within the banking system. “Traditionally, the bank would have to draw down (an amount for cash circulation),” said Mr Sivan.
The startup’s direction appears to be going against the stream, judging by the global push towards cashless payments. But Mr Sivan is convinced that there is a place for cash.
“Cash will continue to dominate the retail payment landscape until a better product emerges. Cards and wallet derivatives aren’t going to be the magic pill – they have been around for decades. We don’t see any change in marketscape vis-a-vis cash in South-east Asia,” he said, citing reasons ranging from transaction costs, settlement times and frameworks that stifle small business growth. This is also why he reckons the possibility of a cashless society is decades away.
Mr Sivan pointed out that coins and notes in circulation in Singapore has climbed upward steadily due largely to economic expansion. It grew 45 per cent to S$45.8 billion from 2013 to 2017, according to data from the Monetary Authority of Singapore.
Willson Cuaca, managing partner of venture capital firm East Ventures, is a bit more sceptical about the dominance of cash in the coming years. He pointed to how consumers in emerging countries in South-east Asia are taking to mobile wallets for payments, for instance.
And as SoCash expands to Indonesia, it has to pay attention to the difficulty of agent acquisition because the agent model – in SoCash’s case, people serve as “cash withdrawal points” – is already so established, Mr Cuaca added. Startups that work with an agent model include Payfazz, where a user tops up cash with an agent to make purchases and pay bills, and Kudo, which was acquired by Grab.
“They might have to repurpose the product,” said Mr Cuaca. East Ventures is not an investor in SoCash.
To SoCash’s credit, its offering has already gone beyond just cash withdrawals. For instance, the firm is working with Grab Financial to provide loans to merchants.
And as it targets a Series B fundraise of US$8 million by end-June, it is working on a project in Bali where tourists can withdraw cash in rupiah at villas. Banks determine the conversion rate, and SoCash earns from the foreign exchange spread, transaction fees and platform fees.
To this end, SoCash is in talks for strategic investment with hoteliers and families that own multiple resorts in the target markets of Indonesia and Malaysia.
As for the other agent models in the market, Mr Sivan said the company is keen on working them. These agents carry a pool of cash from users with them, so there’s potential for that to be recycled, he said.
SoCash at a glance
- Founder and CEO: Hari Sivan. Spent close to seven years at DBS, with last held role being senior vice president managing DBS Remit regionally. Spent close to nine years in Citibank and HSBC prior to that, working in digital payments.
- Business: Logistics for cash recycling, leveraging a human network and digital platform
- HQ: Singapore
- Backers: Vertex Ventures, SPH Ventures (the venture arm of Singapore Press Holdings, which owns The Business Times), K3 Ventures (a Kuok family-linked fund) (Series A)
- Funding rounds: US$5.5 million (Series A, August 2018). Total capital raised is US$ 6.4 million.