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Ride-hailing and digital payments group Grab will apply for a virtual banking licence in Singapore as the highly valued tech start-up tries to disrupt the traditional lending market in the south-east Asian country.

Grab said in a statement on Monday that it would team up with Singapore telecommunications provider Singtel in a joint venture targeting so-called digital first customers and small to medium-sized firms that tend to struggle to access credit. 

If granted, the licence would allow Grab and Singtel to compete with traditional banks in raising deposits from savers and extending credit to borrowers. Grab will own 60 per cent of the venture while Singtel will hold 40 per cent. 

Grab is backed by investors including Japanese technology group SoftBank, Singapore state investment fund Temasek and China’s sovereign wealth fund CIC. The company has raised about $8.7bn and is valued at $14bn. 

“The core of Grab’s mission has always been to solve everyday challenges and unlock economic potential in south-east Asia,” said Reuben Lai, senior managing director at Grab’s financial services business. 

Grab, founded in Malaysia in 2012, has expanded into areas of financial technology including electronic payments and digital insurance as it shifts its focus away from growth at all costs.

Neither Grab nor Singtel gave a timeline for the launch of the proposed digital bank.

The Monetary Authority of Singapore said in June that it would issue up to five digital bank licences, with Grab long-speculated to be among the interested applicants.

The deadline for digital bank applications is December 31. 

Grab and Singtel are seeking one of two full licences giving digital banks access to retail deposits, open only to companies based in Singapore and controlled by Singaporeans. The other three will be wholesale bank licenses to serve only corporate clients, and open to both domestic and non-Singapore applicants.

The MAS has said it intends the introduction of standalone digital banks to boost competition and strengthen the resilience of the city’s financial sector.

Ant Financial, the online payments arm of China’s Alibaba, and Singapore-based gaming hardware maker Razer have also said they were considering applying for a licence.

James Lloyd, Asia-Pacific fintech and payments leader at EY, said new entrants could struggle to gain share in Singapore’s banking market owing to large incumbents such as DBS. “Singapore is such a competitive market. It is one of the best-served markets in the region,” he said.

Virtual banks are also unable to access the city’s ATM network and face large upfront capital demands, he said.

South-east Asia more broadly represents a significant opportunity for virtual banks, according to a recent study by consultancy Bain & Co, which estimated that by 2025 the volume of lending by digital platforms in the region could more than quadruple to $110bn.

Singapore’s move to broaden it banking services comes as Hong Kong is taking steps to launch several digital banks next year.

Hong Kong this year awarded seven of its eight new virtual bank licences to mainland Chinese companies including Alibaba, Tencent and Xiaomi, pressing ahead with the Asia financial hub’s biggest banking sector shake-up in decades despite the political chaos that has gripped the city.

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