Singapore’s Monetary Authority of Singapore (MAS) has confirmed a total of 21 applications for its digital banking licenses.
Seven bids came through for the digital full bank licenses, while 14 are for the digital wholesale bank licenses.
MAS intends to grant two DFB licenses and three DWB licenses this year, with a final decision made by mid-2020. These digital banks are expected to begin operations by middle of 2021.
Elsewhere in Asia, early adopters of digital banking include China, Japan, South Korea, Hong Kong, and Taiwan.
Southeast Asia, however, may be uniquely positioned to reap the biggest gains from a shake-up of its banking industry. Key factors include a young populace, impressive smartphone penetration rates, and a long history of financial exclusion.
It is estimated that about 600 million adults, or 47% of the adult population, lack a bank account in this region. Moreover, only a third of small and medium enterprises have access to lines of credit from traditional banks.
Singapore is first among its ASEAN peers on the jump on the bandwagon. Bank Negara Malaysia recently announced plans to grant similar licenses to modernise its finance sector.
Not surprisingly, barriers to entry for contenders in the island-state are far from low.
Aspirants for both types of licenses require massive paid-up capital, a proven track record in managing a technology or e-commerce business, compelling value propositions, a well-conceived roadmap for running a prudent, sustainable, and profitable banking business, and other contributions towards Singapore’s financial centre.
These stringent criteria have prompted a forming of consortiums among applicants to improve their chances.
Notable ones include the Grab-Singtel tie-up, as well as that of Razer Fintech – a consortium comprising supermarket operator Sheng Shiong, insurance company FWD, mobile internet provider LinkSure Global, online automotive marketplace Carro, and venture firm Insignia Ventures Partners.
Grab wants to target the underbanked, startups, and micro-SMEs with deposits, loans, asset management, and insurance services via its mobile-only platform, it said in a statement.
On the other hand, Razer Youth Bank will leverage its keen understanding of youths and millennials to customise relevant products and services.
So far, only two digital banking aspirants have revealed their solo bids.
Alibaba’s Ant Financial is gunning for a DWB to leverage its Lazada merchant network and ease of paying with Alipay at many local businesses in Singapore.
Possibly the biggest act of daring is Nasdaq-listed internet conglomerate Sea’s application for a DFB license, which requires S$1.5 billion paid-up capital.
Owner of Shopee, Garena, and digital financial services business SeaMoney, this Singapore-based group seeks to address the unmet financial needs of millennials and SMEs in the Lion City.
Successful virtual bank applicants are expected to offer attractive rates to lure customers.
But to win in the long run, they will need to leverage the use of Artificial Intelligence, Machine Learning, and big data to automate onboarding, Know Your Customer (KYC), underwriting, monitoring, and risk management processes.
It is ultimately consumers – the underbanked, youths, as well as SMEs – that will emerge as clear winner of Singapore’s push towards democratising its banking industry.