As a small, well-banked market with some of the world’s most digitally-savvy lenders, Singapore at first blush has no obvious need for a big dose of high-tech disruption.
That has not stopped a host of big names from betting they can shake up the market. More than 20 companies have applied for a handful of virtual bank licences on offer in the wealthy Asian city-state, ranging from local ride-hailing company Grab to Ant Financial, the online payments arm of Chinese ecommerce group Alibaba. Xiaomi, the Chinese smartphone maker, and south-east Asia-focused internet company Sea are also in the running.
Experts predict they will face an uphill struggle to capture share in one of the planet’s most sophisticated financial industries, but the bigger prize could be unlocking access to fast-growing markets elsewhere in the region.
Data from Moody’s show that as of September incumbents DBS, UOB and OCBC controlled over 60 per cent of Singapore’s S$660bn ($490bn) deposit base between them, suggesting there could be little room for new challengers.
“In practical terms Singapore is already one of the best-served and heavily banked markets in the region,” said James Lloyd, financial technology and payments leader at EY. “Converting mass market customers to a new bank is going to be very challenging.”
Singapore’s big three banks have invested significantly in technology, moving operations online. That could dilute the case for any new, virtual-only offering.
“If you use banks here in Singapore . . . you rarely need to visit the branch once you have joined,” said Zennon Kapron, managing director of Singapore-based consulting firm Kapronasia. That means “many of the contenders are going to struggle to come to market with enough of a value proposition to attract deposits and excite consumers”.
There are strict regulations that any new entrant needs to overcome. Only two of the five licences offered by the Monetary Authority of Singapore allow digital banks to take deposits and provide banking services to retail and corporate customers. The other three licences only let digital banks serve corporate clients. None provides access to Singapore’s ATM network. Full digital banks need to have at least S$1.5bn in paid-up capital on their books within five years of launching, a target analysts describe as tough.
There is “no obvious room for creating a vastly superior customer experience,” said Piyush Gupta, chief executive of DBS, Singapore’s top bank by assets. An MAS rule requiring a detailed projection on how the new digital lenders will be profitable within five years will also limit their ability to use price to compete with traditional banks, Mr Gupta added.
Given the hurdles, observers say it is not surprising that traditional banks from overseas have not featured prominently in the bidding process. Eugene Tarzimanov, senior credit officer at Moody’s Investors Service, said new digital banks may only capture a combined 2 to 3 per cent of Singapore’s domestically held banking assets. “It’s a fairly modest market position that digital banks might take,” he added.
The obstacles for digital-only banks in Singapore look manageable compared to those in Hong Kong, another Asian financial hub opening up to virtual lenders. That city is mired in its worst political crisis in decades and the anti-Beijing sentiment fuelling local protests could impact its new digital banks, which are mostly China-backed.
Long-term, entering one of Asia’s maturest banking sectors could pay off, analysts think. A report by Google, state-backed investment company Temasek and consultant Bain & Company last year showed that 40 per cent of people in Singapore have limited access to credit, investment and insurance products.
It is in these areas that Grab will look to capitalise on. The ride-hailing company, founded in Kuala Lumpur in 2012, has in recent years expanded into products like online payments to insurance.
“Virtual banks offer an opportunity to build a mobile-only platform offering deposits, loans, asset management and insurance . . . without being constrained by the need to establish a large physical branch network,” said Reuben Lai, senior managing director for financial services at Grab. The company applied for a full digital bank licence alongside telecommunications provider Singtel.
Sea, the parent of ecommerce platform Shopee and gaming service Garena, has similar ambitions. “Since we are already plugged directly into where consumers and SMEs are transacting online, the digital bank will be a natural evolution of what we already offer,” said Forrest Li, chairman and group chief executive.
There is also the prospect of using Singapore as a springboard to fast developing markets elsewhere in south-east Asia, such as Indonesia. A recent study by consultancy Bain & Co estimated that by 2025 the volume of lending by digital platforms in the region could more than quadruple to $110bn.
“Singapore is seen as a well governed, strict regime,” said Wong Nai Seng, regulatory strategy leader for south-east Asia at Deloitte. “To be able to get a licence here could add to the credibility of the [applicants] in their plans for the region”.
Singapore “will become a hub potentially for digital banks that want to operate within the region and Asia Pacific,” added Simon Tong, digital banking leader for Singapore at PwC.
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