FILE PHOTO: Employees are seen at the reception desk of Ant Financial Services Group, Alibaba's financial affiliate, at its headquarters in Hangzhou, Zhejiang province, China January 24, 2018. REUTERS/Shu Zhang
Ant Financial, an affiliate of Chinese group Alibaba, is among those to have applied for a licence © Reuters

Singapore has kicked off a shake-up in its banking industry after opening its market to some of Asia’s leading technology companies for the first time. 

The Monetary Authority of Singapore (MAS) is set to issue five digital banking licences later this year after receiving 21 applications from companies including Singaporean gaming and internet company Razer, south-east Asian ride-hailing group Grab and Alibaba’s fintech unit Ant Financial. 

Xiaomi, the Hong Kong-listed Chinese smartphone maker, and Sea, the New York-listed tech group, also said they had made applications.

The combined central bank and financial regulator said on Tuesday that interest had been “strong” and that it would announce the successful applicants in June, with the winners expected to start operating by mid-2021. 

Virtual banks have been taking off across Asia as regulators seek to improve their digital services and catch up with western peers. Hong Kong, Malaysia and Taiwan have all introduced digital banking licences in the past 12 months. 

Unlike in Hong Kong, where virtual bank licences are no different to those issued to regular lenders, Singapore has created two new types of licences as part of the initiative. It is offering two full bank licences and three wholesale versions, the latter meaning a bank will be limited to serving corporate clients. Foreign companies must partner with local firms to form joint ventures headquartered in the city state and controlled by Singaporeans to apply for full banking licences. 

Singapore’s move was more “evolution rather than revolution”, said James Lloyd, Asia-Pacific fintech and payments leader at consultancy EY. 

“As in other markets we don’t expect the entrance of new players to result in a ‘Big Bang’ but rather a general improvement in service availability, customer experience and pricing,” he said. “More than anything else this initiative reflects the Singapore government’s desire to keep pace with innovation and fintech developments elsewhere.”

Singaporean banking groups are already permitted to set up digital bank subsidiaries, which Mr Lloyd said explained the lack of traditional lenders among the applicants. 

Some analysts argue that the impact on established lenders is likely to be limited given Singapore is a small, well-banked market, home to some of the most digitally savvy lenders in the world. 

Singapore’s three top banks — DBS, UOB and OCBC — “will not really face much disruption from these initiatives,” said Eugene Tarzimanov, senior credit officer at Moody’s. “They have very, very strong commercial franchises, domestically they’re well known and they have very diversified businesses, be it retail, SMEs or corporate [banking]”. 

However he predicted there might be “a bit more disruption” for foreign banks with smaller balance sheets such as Citigroup and HSBC, as well as for regional banks including Chinese lenders or Malaysia’s Maybank that tend to face higher funding costs. 

Citi said it welcomed the raising of the competitive bar in Singapore, calling it an “exciting” development. “It helps drive us to the next level,” said Amol Gupte, Asean head and Citi’s country officer in Singapore. 

The MAS said it would judge applicants based on their level of innovation, ability to build “prudent and sustainable” businesses and their contribution to the city as a financial centre. 

The strict capital requirements may make the process challenging for some lossmaking tech companies, such as Grab and Razer, but partnerships — the former has teamed up with Singapore telecoms group Singtel in its bid — would help, analysts said. 

Other applicants include the Beyond Consortium, led by V3 Group, one of Asia’s largest massage chair makers, and Singapore-based smart card company EZ-Link, which is widely used for transport fares in the city. 

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