4 New Digital Bank License Winners in Singapore: What It Means for Us

Over the past year, we’ve seen a colourful eruption of consortiums (including bizarre unions such as SP Group x Xiaomi and Razer x Sheng Siong) as everyone and their mum scrambled to apply for a digital bank license with MAS.

But the show is over at last, now that the Singapore digital bank license results are out. In the end, MAS only awarded 4 digital bank licenses: 2 digital full bank licences + 2 digital wholesale bank licenses.

Here are the results, and what this new era of digital banking means for you and me.

 

Who are the 4 Singapore digital bank licence winners?

Type of licence	Digital bank licence winners
Digital full bank	Singtel & Grab
Digital full bank	Sea Limited
Digital wholesale bank	Ant Financial
Digital wholesale bank	Greenland Financial Holdings, Linklogis Hong Kong & Beijing Co-operative Equity Investment Fund Management

It’s no surprise that Singtel & Grab won a digital full bank license. Grab has been making such inroads into the finance space that we thought they’d better start getting regulated by MAS. Singtel also has financial products such as Singtel Dash (payment platform) and EasyEarn (insurance savings plan).

Sea Limited is perhaps better known as the parent company of Shopee, though it also owns gaming company Garena and digital finance company SeaMoney.

Meanwhile, the digital wholesale banking license is for serving SMEs and business accounts, and both winners are Chinese-based. Ant Financial is best known for Alipay.

And while we don’t know much about the Greenland consortium, the conglomerate of Chinese-based companies appears to be focused on “serving China’s SMEs in Singapore”.

 

How are the digital bank license winners chosen?

As noted above, when MAS announced in June 2019 that it would be awarding up to 5 digital bank licenses, there was a gold rush as companies of all kinds applied for a license.

MAS then assessed the 14 applicants holistically, based on the following criteria:

• Value proposition of business model, incorporating innovative use of technology to serve customer needs and reach under-served segments;
• Ability to manage a prudent and sustainable digital banking business; and
• Growth prospects and other contributions to Singapore’s financial centre.

Note that there are differences between a digital full bank license vs a digital wholesale bank license.

Digital full bank	Digital wholesale bank
Serves retail customers, with a deposit cap of $75,000 for each individual	Serves small and medium-sized enterprises (SMEs) and other non-retail segments
Will start off as a Restricted Digital Full Bank in Singapore and offer simple credit and investment products	Will open and maintain deposit accounts for businesses

“Restricted”? What can digital full banks not do in the meantime? 

According to an MAS spokesperson, “A Restricted Digital Full Bank will be subject to a deposit cap. The deposit cap will commence at S$50m (with a corresponding low paid-up capital of S$15m) and will be gradually lifted as the bank demonstrates its ability to manage its operations and risks in an adequate manner that is commensurate with the scale of its business.” 

There will also be deposit caps from each individual customer and restricted digital full banks can only offer simple credit and investment products. 

 

So what can digital banks do for us?

In general, digital banks should provide the same functions of a traditional bank but without the brick and mortar branches. (Although some virtual banks can tap on existing ATM networks.)

They operate purely on digital platforms, so you can probably expect real-time updates, quicker account approval times, quick investing services and personalisation. These will be done using artificial intelligence and big data analysis. 

Ideally, virtual banks should be faster, more efficient and operate at a much lower cost structure than traditional banks, since there is less expenditure on property rent and manpower.

According to an MAS spokesperson, digital banks will open up the below possibilities:

• New digital banks could potentially offer deposit accounts without imposing any minimum deposit amount or fall-below fees, as seen in the United Kingdom and Hong Kong.
• Digital banks with access to more wide-ranging data sources could adopt different credit risk assessment approaches to lend to under-served segments of the economy such as the young and micro enterprises.
• Increased competition from digital banks is also likely to spur existing banks to improve further on their own digital offerings.

Timothy Chen, CEO and co-founder of MaxFinx, a company that provides the infrastructure for digital banks, says, “Digital banking will speed up account opening, allow instant customer verification and personalisation of banking services at much lower costs.”

So, probably like how Circles.Life spurred incumbent telcos to revamp their pricing, regular folks should be able to see some innovative financial products and hopefully higher interest rates on deposits. Fingers crossed!

What are some of the most successful digital banks globally? 

Let’s look elsewhere to see how the digital banking landscape will play out in Singapore.

China was one of the first in Asia to embrace digital banking since as early as 2013. China’s mobile payment market is now the world’s largest market with $17 trillion in transactions in 2017. 

Huge financial technology companies like Ant Financial Service Group, known for their mobile app Alipay, and Tencent Holdings Ltd, creator of QQ Wallet and WeChat Pay, have since developed a range of apps that provide banking and payment services ranging from loans to insurance to private banking. 

Ant and Tencent have recently made way into Hong Kong, winning virtual banking licenses there too. To date, Hong Kong has issued 8 digital bank licences and the banks are expected to begin operations within 2019. 

In response, traditional banks in China have caught up with the competition and are moving into offering more digital services. There are now fully automated bank branches in Shanghai featuring teller-bots and “Intelligent Teller Machines” that much more capable than existing ATMS.

We will probably see the same trend happening in Singapore. Although for a period of time traditional banks can leverage on the fact that they can have both digital and physical banking facilities, they would probably need to up their game to serve tech-savvy consumers. 

Seven Bank in Japan, a unit of Seven & I Holdings did just that. Since improving their virtual banking services, they have offered banking and other financial services through ATM machines in 7-Eleven convenience stores throughout Japan, without operating actual branches. 

While virtual banks would need some time to establish themselves, it has the potential to become mainstream given the ubiquity of the digital services in our daily lives.

 

What does all this mean for you and me?

Singaporeans are already no stranger to mobile banking. Digital banking will probably only take it a step further.

The biggest hurdle for the new players would be to overcome the branding lead that our local banks enjoy, especially among the baby boomers.

But if there is any lesson to learn from Circles.Life’s entry to the telco market, attractive pricing and responsive customer service go a long way.

That said, with MAS taking a conservative approach, it will be some time before virtual banks root themselves in Singapore.

For a start, the 4 digital banking licenses will spice up Singapore’s banking offerings while not shaking up the incumbent banks too much.

An MAS spokesperson tells us, “Restricting digital full bank applicants to players that are anchored in Singapore ensures that a strong local core in our banking system remains, and we avoid unintended unilateral liberalisation of our full bank regime as a result of our WTO commitments.”

Oh, and in case you were wondering, the Singapore Deposit Insurance Corporation, which insures bank deposits up to $75,000 per person per bank, would also cover digital banks.

 

Apart from retail customers, SMEs also stand to benefit

Thinking of starting your own company? You may benefit from the services of a digital wholesale bank. Digital banking will probably allow small companies to get better credit scoring and subsequently, faster loan approvals.

Timothy Chen, CEO and co-founder of MaxFinx says, “Despite Singapore being a heavily banked market, there are still some who have fallen through the gaps, such as SMEs, micro setups, and so on. They are not as well served as the medium and large enterprises.”

MaxFinx will offer a cloud-based fintech platform that tailors financial services for banks and corporations. One of the software modules, transaction management, allows companies to monitor their cash flow and also review their counter-party risks and credit scoring.

He says, “This means that SMEs can get better credit scoring and faster turnaround for loan approvals. We strongly believe it will reduce fraud for a lot of business transactions too.”

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