Commentary: Start digital banking now. Because it will soon be the norm
The Monetary Authority of Singapore’s recent award of four digital banking licences is a clear declaration of a digital future in banking in Singapore, says Myles Bertrand.
SINGAPORE: On Friday (Dec 4) evening, the Monetary Authority of Singapore (MAS) made a long-awaited announcement awarding digital banking licences to successful applicants after a rigorous selection process which was repeatedly delayed and extended due to the COVID-19 pandemic.
Four have been issued to date: A digital full bank (DFB) licence to an entity owned by Sea Ltd. A second to a consortium including local telco Singtel and ride-hailing giant Grab.
Digital wholesale bank (DWB) licences were issued to China’s Ant Group and a consortium including Greenland Financial, Linklogis Hong Kong and Beijing Co-operative Equity Investment Fund Management.
With this news, MAS has made a clear declaration of its direction for the future – and the future is digital.
CUSTOMERS AND BUSINESSES TO BENEFIT
Consumers stand to benefit. Customers of digital banks will have a better all-round experience, with easier interactions with banks, and simpler and faster access to new banking products.
While most digital services are currently available via traditional banks with an online presence in Singapore, opening up the industry to include non-banks will create extra competition that could considerably increase innovation in new products and services, and drive down costs of financing for consumers.
The tech-based nature of digital banks makes them much less expensive to run, with no overheads such as those associated with physical banking premises, and with technology doing work traditionally done by people.
These savings can be passed on to consumers in the form of low (or no) bank fees and higher interest rates on savings.
Digital banking products and services are also more personalised, as technologies like AI and data analytics can tailor offerings to meet individual customer needs.
Through analysing customers’ past financial behaviour and activities, products or services that may suit their needs can be suggested.
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Of course, having more digital banking services does not seamlessly translate into a corresponding increase in those served. Even with more providers, there will be those in society who prefer face-to-face banking at physical branches or simply lack the digital literacy to do so.
MAS and the relevant industry players will need to step up education and awareness of digital banking, its security and know-how.
Businesses, especially micro, small and medium enterprises (MSMEs), will also benefit from digital banking, with greater financial inclusion, better access to funds and lines of credit, and the removal of barriers like onerous application processes.
Licences issued to the two digital wholesale banks will allow them to provide SMEs and other non-retail segments with banking services. SMEs in Singapore have had grievances before that the lending terms they get from traditional banks in the past are unattractive.
According to the 2019 SME Finance Accessibility Survey and Research, only 39 per cent of SMEs were eligible for business financing in 2019.
There are other benefits to businesses. While a loan application for a small business may take up to three months from application to approval, business customers accessing new digital banking products may get this in as little as 15 minutes.
Traditional loan application processes require a great deal of human interaction to check financial figures, assess risk and analyse repayment capacity, whereas new digital banking products utilise AI, data analytics and open banking to make these same decisions, with far greater speed and less room for “human error”.
This will have enormous implications for MSMEs - many of which are currently unbanked and locked out of financial services - as they look to regroup and recover from the pandemic, with the time saved in loan application processes – and thus quicker access to financing - potentially being the difference between staying afloat and having to shutter.
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Joyce Tee, Group Head of SME Banking at DBS, said in May that “micro and small enterprises may not be familiar with the financing solutions available to meet their working capital needs, as they have typically flown under the radar of lenders”.
OTHER LOCAL REGIONS TAKING ON THE CHALLENGE
The issuance of these new licences is one of the biggest disruptions the Singaporean banking and financial services sector has seen in generations.
The 10 groups of applicants who missed out on a licence will also be reassessing their strategies and potentially looking at different regions to launch their first forays into digital banking.
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This includes world-leading Singaporean gaming tech company Razer, which has already stated that its commitment to extending into digital financial services remains unchanged, although it will obviously need to look at different countries to launch into.
There are several neighbouring countries experimenting heavily with digital banking, with the Philippines, Vietnam, Japan, South Korea and Thailand already welcoming key digital banking players to the market. Malaysia, too, will soon begin accepting applications for its digital banking licences with up to five to be awarded next year.
One example of a Singapore-based company looking further afield is DigiBankASIA, a Singapore-based fintech that last month announced a launch of a new full spectrum digital bank UNO in the Philippines.
The Philippines was selected as more than two-thirds of the population are “unbanked”, despite a high penetration rate of both mobile phones and internet usage.
The potential in Southeast Asia could be vast. More than 70 per cent of adults in Southeast Asia lack access to banking services. Of course, companies may have to comply with individual countries’ regulations and frameworks before gaining market access.
GREATER COMPETITION AND FINANCIAL INCLUSION
Other transformative regulatory changes announced by MAS include opening up direct access to real-time payment plumbing to non-bank financial institutions, which will enable non-banks to offer payment services at the same speed as banks.
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It will also launch an open banking portal, currently known as Financial Planning Digital Services (FPDS) so customers can share personal financial, insurance and investment information between different banks and providers and switch financial providers quickly and easily.
Traditional banks will need to focus on improving their capabilities in order to compete in this new fintech era. They must review how they currently service their customers and respond to what their customers want and need.
After all, they have to compete not just with the new digital banks but also technology companies.
According to DBS analyst Rui Wen Lim, “open banking developments will have a much bigger impact on the traditional banking sector than digital banks over the medium term”, industry media reported in an October article.
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As traditional banks push ahead on digital transformation to compete with digital banks and with more technology companies disrupting banking, consumers will find themselves at the centre of an innovative, lower-cost and customer-centric banking system.
That is good news.
Myles Bertrand is the Managing Director of Mambu Asia Pacific. He has been building and enhancing fintech businesses in APAC for more than 20 years, and leads the Mambu APAC team from its Singapore HQ.