I’ll Do It Legal – Lucky Luciano.

 

Lucky Luciano, who is considered to be the father of modern organized crime, was reputed to have said that if he had to do it all over again, he would “do it legal.” He said, “"I learned too late that you need just as good a brain to make a crooked million as an honest million.”

I think this line at a time when the hot topic in Singapore is “scams.” Banks have suddenly discovered that cyberspace is filled with scam artist and they have been forced to “warn” customers about the reality of being scammed online:

 

Scams are officially sexy. If you want to start a discussion on anything outside Covid-19, talk about scams. Crime has always been a sexy talking point and why shouldn’t a scam that robs a young couple of their funds for a dream home or an old lady of her pension be a talking point?  

While its fun to talk about scams and crimes in general produces grab headlines, the real money, as Mr. Luciano alluded to, is in the legitimate. Why break the law and risk the punishments that come with it when you can work within the law? There are ways of doing things which may sound questionable but are in fact perfectly legal.

Singapore is rich in examples of how people make money from doing things legitimately. If you look at the top, we have the example of our politicians, whom unlike most of their Asian counterparts, are known for NOT taking bribes.

There’s a reason for this. Our politicians are the world’s best paid and we are reminded that we need to pay politicians exceedingly well to ensure that there’s no incentive to use their positions of power to dip into the public purse. Our politicians are placed in a situation of “Why steal when you can get an exceedingly good life legally?”

When Singaporeans complain about politicians, it’s always about whether they are getting the value for what they’re paying rather than where any given politician gets their money from. Our Prime Minister is the world’s highest paid but unlike his former counterpart across the Causeway, he does not have to explain how he got a “donation” into his personal bank account.

Just as our politicians are in position where they have “no incentive to be corrupt,” our banks are placed in a position where they have “no incentive to be reckless” with their funds. Just as you will never have to bribe a politician in Singapore, you will never get a “subprime” situation out of Singapore’s banks.

Singapore is a wonderful market for banks to be in. Look the basics of what a bank does (borrow money cheaply and lend it out at significantly higher rates). Our banks offer some of the lowest interest rates around. The standard interest rate on a fixed deposit is less than one percent per year.

https://blog.moneysmart.sg/fixed-deposits/best-fixed-deposit-accounts-singapore/

On the other hand, the banks are position of lending at much higher rates. Home loans, which the most secure loans for banks hover around one percent per year and there are credit cards, which allow banks to charge up to 25 percent a year.  

https://www.mortgagewise.sg/

https://www.finder.com/sg/credit-cards/credit-card-interest-rates

You would imagine that the difference in what they pay to people they borrow from and what they get paid by the people they lend to would be the only license to print money. Well, it isn’t. One of the great money spinners for banks is “fees,” particularly “fall below” fees.

A fall below fee is essentially a fee charged for having less than a certain amount in your account. The amount can vary from as little as $2 a month for having less than $500 in your DBS savings account to as much as S$35 a month for having less than $10,000 a month in the business accounts offered by most banks.

https://www.dbs.com.sg/sme/businessclass/articles/finance-and-operations/best-sme-bank-singapore?pk_source=google&pk_medium=organic&pk_campaign=seo

 

The banks have ingeniously argued that it is necessary for them to charge fall below fees because customers might set up dormant accounts and having less than a certain amount in a bank account costs the bank money (let’s remember that the main inventory stored in a bank account is money, which for the most part exists as computer code, in the bank’s system).

It goes without saving that the people who provide a good portion of the bank’s fees tend to be the less well to do. A person earning S$1,400 a month (the amount most people consider the minimal for survival) is less likely to be able to keep the $500 minimum sum in his or her account at the end of the month than say someone earning S$5,000 and above. Hence, the person earning less is more likely to have to pay the monthly S$2 surcharge that DBS/POSB imposes. The same goes for enterprises. An entrepreneur starting out will need to factor an additional $35 a month in bank charges as a business expenses whereas an established government linked company does not have to. Reasons is simple, a government linked company will at any given time have more than S$10,000 in the bank than a “boot-strapping” entrepreneur.

Now, if you follow the argument as to why banks need to charge a “fall-below” fee, the immediate question is why don’t the banks hive off the customers to someone else. Budget airlines started by taking over the routes that were “unprofitable” for national carrier. It’s also been done in places like China, where “FinTech” firms compete with the banks. Firms like Ant Financial (Alipay) and Tencent (WeChat pay) have developed sophisticated payment systems that by pass the banks. It’s reached a stage where even the beggars (not exactly the people banks try to get as customers) offer you a QR code.

That’s not going to happen in Singapore. As much as the government talks about “inclusiveness” in the banking sector and inviting “Fintech” firms into the market, the ecosystem in Singapore is “Bank-centric.” Everything has to start and end with a bank account. In China, I don’t have to deal with the Chinese banks. I merely do as the Chinese beggars do – I get an account with Alipay or WeChat. By comparison, I need to have a bank account, even if the only payment system I’ll ever use is “PayNow.” The system is designed in such a way where the FinTechs can only exists as subcontractors to the banks rather than as competitors. This situation is best described by Mr. Emanuel Daniel, Founder of the Asian Banker:

https://www.emmanueldaniel.com/why-dbs-is-not-the-worlds-best-bank/

Sure, the banks haven’t wiped out large sums of money like the crooks behind the recent phishing scams. However, their ability to charge “fall-below” fees eats away at the savings of those at the bottom of the pile (S$2 a month might not seem like a lot but it adds up). More Importantly, what they’re doing is perfectly legal and their ability to continue doing this is blessed by the government.

The wisdom of Mr Luciano cannot be disputed. Sure, the guys doing the phishing are making the headlines but the guys really making the money are the banks. Instead of trying to break the law, we should always get the law to work for us instead.