Digital Banking Licensees in Singapore Are Uniquely Placed for Regional Opportunity

By September 20, 2019 February 9th, 2021 No Comments
Digital Banking Licensees in Singapore Are Uniquely Placed for Regional Opportunity

The Monetary Authority of Singapore (MAS) announced in June 2019 it would issue up to five new digital banking licences, aimed at non-bank entities. Singapore’s Central Bank set off a flurry of interest and speculation with the announcement, as a number of financial hopefuls expressed the desire to snatch one of them. 

The list includes both local and international names, like ride-hailer and SoftBank portfolio company Grab, major telco Singtel, gaming hardware stalwart Razer, internet group Sea, and Ant Financial, Alibaba’s powerful payments arm. 

In all, 21 companies are now known to have applied for one of the five licences, which are set to be announced later in 2020.

It’s not hard to see why they would be interested. Anyone even tangentially connected to finance has witnessed the impact of technology on their sector in the past five years.

Singapore is by no means the first country to introduce digital banks, but it will hold a large piece of the pie. For one, it’s geographically well-placed to reach a number of important emerging markets. Secondly, it is home to ideal conditions that can help new ideas flourish, both in terms of infrastructure as well as support and resources.

Emerging Opportunities in Digital Banking

Anyone looking into digital banking in Asia probably has their eye on either Hong Kong or Singapore. In fact, Hong Kong announced a total of eight new digital banking licensees in May, including units of Ant Financial, Ping An, and Xiaomi.

Even as Hong Kong’s plans for digital banking are on hold because of the general unrest, Singapore offers a different perspective to digital banking than its rival financial hub. As the most prominent and developed nation in Southeast Asia, Singapore has long been a gateway into the region’s developing economies, like Indonesia, the Philippines, Vietnam, and more.

What many of those markets have in common:

  • large numbers of unbanked populations
  • high smartphone penetration (mobile-first markets)
  • lack of legacy infrastructure

Singtel is hoping to capture some of that market potential with a mobile payments offering, through a partnership with Grab. This is still a green-field opportunity in many Southeast Asian countries, with several players battling for dominance. 

In an Insight on Smartkarma, independent analyst Valerie Law explored the telco’s continuing venture into the payments landscape. “The huge growth potential is what draws Singtel and other e-wallets to consider forays into financial product distribution and/or banking,” she wrote. 

As she pointed out in her Insight, research by Euromonitor projected mobile payments in Southeast Asia to be worth around US$32 billion by 2021. “[It is] a tenfold increase from 2013 as smartphone penetration increases,” Law pointed out.

Read Valerie Law’s full Insight: How Singtel Could Succeed as a Digital Bank – Part 1

Gliding on such tailwinds, Grab has been ramping up its efforts to provide microlending services in Indonesia. Singtel, meanwhile, could be a serious contender in remittance services for unbanked segments like migrant workers who need to send money to their families abroad.

The Time Is Right

It’s a great moment for a lot of those companies to enter the digital banking fray. Technologies like cloud storage and processing (processing and storing data in clusters of remote servers that can be activated or deactivated as needed), artificial intelligence, mobile connectivity, and so on, are advanced and mainstream enough that both startups and large institutions can benefit from them.

The so-called digital transformation is affecting players of all sizes, whether they are adopting it or not. According to Deloitte’s 2019 Banking Industry Outlook, this is the best time to be undergoing this transformation.

“Economic fundamentals are strong, the regulatory climate is favourable, and transformation technologies are more readily accessible, powerful, and economical than ever before,” is the report’s opening message.

Successful transformation will depend on how effectively banks are able to combine data management with modernising their core infrastructure, embracing AI, and migrating to the public cloud. These should be a priority, the report insists, dubbing this “a symphonic enterprise”. 

Fertile Ground

Singapore occupies a uniquely strong position in this fintech universe. The city-state enjoys benefits like stable governance, business-friendly regulatory frameworks, and forward-looking institutions. 

For example, MAS took the prescient step of advocating the release of open banking APIs (application programming interface) to help software developers create improved banking and financial applications. “New virtual banks can tap on [such resources] easily to launch their banking propositions,” Law wrote in her Insight.

In addition, Singapore has seen higher adoption of fintech services compared to other countries, which makes it fertile ground for more such solutions. 

According to EY’s Global Fintech Adoption Index 2019, fintech adoption in Singapore consumers has almost tripled in the space of two years, going from 23 percent in 2017 to 67 percent this year. That surpasses the global as well as Asian average of 64 percent and 63 percent respectively. 

Digital Banking Licensees in Singapore Are Uniquely Placed for Regional OpportunityMobile payments and peer-to-peer money transfers form the bulk of the adoption worldwide – which, in turn, leads to further advances in technology and products. “Most Asian markets benefit from a powerful ‘fintech feedback loop’, with the increased adoption driving increased innovation – and vice-versa,” says Varun Mittal, EY Global Emerging Markets Fintech Leader. 

Rapid growth in mobile payments in China, with platforms like WeChat and Alipay that dominate the market, inspires similar solutions in Southeast Asia, Mittal argues. 

“This influence can be seen in the response of incumbent institutions seeking to build out their own fintech-inspired propositions, as well as increased regulatory support for non-traditional challenger players across banking, insurance, and wealth management,” he adds.

A wealth of private investment in fintech is another factor that makes Singapore particularly attractive to players interested in new financial solutions. 

Fintech investment ballooned in the first half of 2019 to US$453 million, up from US$118 million for the same period last year, according to a report by Accenture and CB Insights. 

The growth comes even as global fintech investment has slowed down, mainly due to the decline of mammoth deals within China. Hong Kong is no slouch in this area, however; fintech investment there grew from US$23 million to US$152 million, albeit across far fewer deals than in Singapore.

While the five digital banking licensees won’t be announced until next year, the potential opportunity for the entire ecosystem will certainly not stop there.

Lead image by Jonas Leupe

This post was updated on 6 March 2020 with new developments and details.

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