Digital-only banking licences awarded . . .
The Monetary Authority of Singapore made a historic and long-awaited announcement on December 4 when it awarded digital banking licences to four operators. Digital banks operate exclusively online and do not have physical branches. There were 14 eligible applications. The two digital retail banking winners are both based in Singapore. They include a consortium between Grab and Singapore Telecommunications, and Sea, the largest digital company in Southeast Asia (with a valuation of C$128 billion). The two winners of the digital wholesale banking licences, which only provide non-retail services, are both Chinese: Alibaba Group-affiliated Ant Group and a consortium comprising Greenland Financial Holdings Group, Linklogis Hong Kong, and Beijing Co-operative Equity Investment Fund Management. The four awardees are expected to commence their digital-banking operations from early 2022.
Challenges ahead . . .
The four digital banking licences, which are among the first in Southeast Asia, demonstrate Singapore’s determination to stay ahead as an innovative financial hub. The new licences will significantly expand capacity in Singapore’s fintech landscape and increase competition between the new entrants and three established banks in Singapore: DBS Group Holdings, Oversea-Chinese Banking Corp. and United Overseas Bank. As two of the awardees are Southeast Asia’s two largest tech giants, they can use their vast databases of consumer spending habits to conduct credit analyses and customer assessment, creating more personalized products and services. It is still uncertain whether customers in Singapore will immediately switch to digital-only banks due to data privacy issues, while the established banks have built their reputation and customer trust for decades.
A new digital banking era . . .
The development in Singapore’s fintech market will be closely watched by other countries in the region – such as Malaysia and the Philippines – that are also preparing to open up their banking sectors to virtual lenders. Given the accelerating digitalization driven by the COVID-19 pandemic, Southeast Asia is entering a new banking era with digital banks expected to transform a region with a mostly ‘unbanked’ population – over 70 per cent of Southeast Asia’s 670 million people still do not have bank accounts. A recent report by Google, Temasek, and Bain projects enormous growth potential for digital financial services in Southeast Asia, with digital payment expected to exceed C$1.3 trillion and online lending expected to grow to C$118 billion by 2025.