As the competition to become Singapore’s first digital bank heats up, traditional banks are paying close attention as they plot their next move. On 28 June 2019, Senior Minister Tharman Shanmugaratnam announced that up to five new digital bank licences will be issued by the Monetary Authority of Singapore (MAS) comprising up to two digital full bank licences and up to three digital wholesale bank licences.
Singapore’s liberalisation of the banking sector has been going on for the last 20 years and the latest announcement coming from MAS is expected to put the banking liberalisation into hyperdrive and could potentially be a game changer in the ASEAN region in the next 3 to 5 years.
According to MAS, it had “received 21 applications for digital bank licences as at the close of application on 31 December 2019.” These applications can be broken down into 7 applications for the digital full bank (DFB) licences, and 14 applications for the digital wholesale bank (DWB) licences.
The names of these companies were not released by MAS but some of them already came out publicly with their bids. These include notable heavy-hitters in the technology and consumer space such as the Grab-Singtel tie-up, the one led by billionaire Jack Ma’s Ant Financial, a group led by gaming company Razer and a team led by Osim founder Ron Sim’s V3 Group.
Diverse group with unique strengths
Needless to say, the applicants are diverse and offer unique strengths that could work very well to their advantage.
“The new digital bank licences have attracted strong interest from a diverse group of applicants. These include e-commerce firms, technology and telecommunications companies, FinTechs (such as crowd-funding platforms and payment services providers) and financial institutions. The majority of applicants are consortiums, with entities seeking to combine their individual strengths to enhance the digital bank’s value proposition,” said MAS in its website.
There is now a new space where the digital bank will serve in areas that the traditional banks do not necessarily want to serve.
This latest development in the banking space has got some fintech experts talking. In an interview, Jasmine Ng, a speaker at the recent Global Retail Banking Innovation Summit 2019 (GRB Summit) and former CEO of Razer Fintech said that, “there is now a new space where the digital bank will serve in areas that the traditional banks do not necessarily want to serve. There is a collaborative opportunity here for both existing and new entrants to take the financial services industry to a new level.”
However, traditional banks should not be complacent. “There is a danger that the new digital banks will replace the old ones. But I believe that the banks which work to meet their customers’ requirements will continue to change and transform,” she added.
Varun Mittal, EY’s global emerging markets fintech leader provided a contrasting point of view: “The entry of these new banks isn’t going to make anyone obsolete.” He also added in a separate interview, that “in the event of an economic downturn, new digital banks could face operational challenges.”
The entry of these new banks isn’t going to make anyone obsolete.
The best is yet to come
While it’s still too soon to tell which direction this will go, what’s definite is that the implications of digital banking will be manifold. Firstly, on the negative side, as competition heats up, traditional banks will have to find ways to stay competitive which may include considering options such as hiking their deposit rates, reducing loan rates to companies and individuals and making significant investments in IT infrastructure to manage the scale and depth of the expected transaction volume. All of these could potentially bring down its net interest margin and ultimately, the bank’s profitability.
On the plus side however, there is a vast pool of customers waiting to be captured with the introduction and proliferation of digital banking. And with the traditional banks investing heavily on this area for quite some time now, it is almost foreseeable that a definite advantage belongs to them.
Nirav Patel, Managing Director of The Digital Banker, a globally trusted news, business intelligence and research partner to the worldwide financial services sector, believes that the best is yet to come.
“As soon as the announcement was released in June last year that Singapore will be issuing digital bank licenses, fintechs, retail and private banking leaders, as well as large institutions across Asia, have been vocal with their respective set of expectations that are well beyond the usual norm in this industry.
“While digital banking has already been making headway in regions such as North America and Europe, and while places in Asia such as Malaysia, Taiwan and Hong Kong have all introduced digital banking licences in the past 12 months or so, Singapore’s entry into the fray paints an unusually exciting future for all stakeholders.
Singapore’s stature in the global community, in terms of its business competitiveness, regulatory environment and political stability, presents a significant opportunity to shake things up – for the better.
“Singapore’s stature in the global community, in terms of its business competitiveness, regulatory environment and political stability, presents a significant opportunity to shake things up – for the better. As we head into the digital future, the combination of disruptive banking innovations and firm foundational infrastructure by the government, can only produce the best outcome for the banks, the economy, and most importantly, the millions of average consumers and small businesses that stand to benefit the most,” he concludes.
MAS is expected to announce the successful applicants in June 2020. Successful applicants are expected to commence business by mid-2021 and by then, we could be looking at a totally different paradigm. Who knows? The very definition of ‘banking’ might even be challenged.