Singapore revamps its digital banking industry

Singapore is about to overhaul its banking industry for the first time in two decades as the Monetary Authority of Singapore (MAS) recently launched the application process for digital bank licenses.

The highly-anticipated move finally came two months after MAS chairman and Senior Minister Tharman Shanmugaratnam announced that the city-state would issue up to five digital bank licenses—up to two will be digital full bank licenses. At the same time, up to three will be digital wholesale bank licenses.

On the one hand, digital full banks will be allowed to take deposits from retail customers. On the other hand, digital wholesale banks will mostly serve small- and medium-sized enterprises as well as other non-retail segments.

Digital banking may not be a novelty in the island nation as MAS has permitted local lenders to operate within such a framework since 2000. However, the innovation this time is that non-banks are also allowed to apply for the licenses.

Applicants have to satisfy several eligibility criteria, which includes showing that the proposed digital bank’s business model is sustainable and demonstrating a track record in operating an existing business in the technology or e-commerce field.

Digital full bank applicants must be “anchored in Singapore, controlled by Singaporeans, and headquartered in Singapore,” according to MAS. Meanwhile, wholesale digital banks can be controlled by either Singaporean or foreign entities.

The measure by MAS would allow technology players and non-banking companies to challenge conventional lenders. The disruption could be a win-win situation for consumers, according to marketing information services company J.D. Power.

“It’s well overdue, in terms of more choices for customers,” opined Anthony Chiam, regional practice leader for global business intelligence at the company above.

Three major local banks dominate Singapore’s banking industry. They are DBS Group, Oversea-Chinese Banking Corp (OCBC), and United Overseas Bank (UOB). Some international banks with smaller operations are also significant players. Critically, technological progress in the city-state has resulted in the presence of a variety of fintech (short for financial technology) firms.

Several fintech and non-fintech players have expressed interest in applying for the digital bank license. They include lending platform Validus Capital, ride-hailing firm Grab, gaming equipment maker Razer, and telecommunications conglomerate Singtel.

Traditional banks have also jumped onto the bandwagon, with reports that OCBC is mulling a potential joint venture with Singtel.

Maybank Singapore is discussing with its head office in Malaysia on gunning for one of the five licenses.

Applications will remain open until the end of this year. MAS expects to announce the successful applicants by mid-2020, with the new digital banks expected to commence operations by the middle of 2021.


Singapore Central Business District. Picture credit: Jason Goh from Pixabay