[ad_1]
SINGAPORE: On Friday (December 4) evening, the Monetary Authority of Singapore (MAS) made a long-awaited announcement granting digital banking licenses to selected applicants after a rigorous selection process that was repeatedly delayed and extended due to the COVID-19 pandemic.
Four have been issued to date: a full digital bank (DFB) license to an entity owned by Sea Ltd. A second to a consortium that includes local telecoms company Singtel and private transport giant Grab.
Digital Wholesale Bank (DWB) licenses were issued to Ant Group of China 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 statement of its direction for the future, and the future is digital.
CUSTOMERS AND COMPANIES THAT WILL BENEFIT
Consumers will benefit. Digital bank customers will have a better end-to-end experience, with easier interactions with banks and simpler and faster access to new banking products.
While most digital services are currently available through traditional banks with an online presence in Singapore, opening up the industry to include non-banks will create additional competition that could significantly increase innovation in new products and services and reduce financing costs for consumers.
The technological nature of digital banks makes them much less expensive to run, with no overhead like those associated with physical banking facilities and with technology that does work traditionally done by people.
FILE PHOTO: A Grab logo is displayed at the Money 20/20 Asia Fintech trade show in Singapore on March 21, 2019. Photo taken on March 21, 2019. REUTERS / Anshuman Daga / File Photo
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 personalized, as technologies such as artificial intelligence and data analytics can tailor offerings to meet individual customer needs.
By analyzing clients’ past financial activities and behavior, products or services can be suggested that can be tailored to their needs.
READ: Comment: We got to know Grab for its trucking business. That will soon change
READ: Comment: Thanks to China’s move on Ant, FinTech firms may soon look like banks
Of course, having more digital banking services does not translate perfectly into a corresponding increase in those who receive services. Even with more providers, there will be people in society who prefer face-to-face banking in physical branches or simply lack the digital literacy to do so.
MAS and relevant industry players should intensify education and knowledge of digital banking, its security and knowledge.
Businesses, especially micro, small and medium-sized enterprises (MSMEs), will also benefit from digital banking, with greater financial inclusion, better access to funds and credit lines, and the elimination of barriers such as onerous application processes. .
The licenses issued to the two digital wholesale banks will allow them to provide banking services to SMEs and other non-retail segments. Singapore SMEs have had complaints before that the loan terms they get from traditional banks in the past are not attractive.
According to the 2019 SME Financial Accessibility Survey and Research, only 39 percent of SMEs were eligible for business financing in 2019.
There are other benefits for businesses. While a small business loan application can take up to three months from application to approval, business customers accessing new digital banking products can get it in as little as 15 minutes.
File photo of ATMs at Orchard MRT station.
Traditional loan application processes require extensive human interaction to verify financial figures, assess risk, and analyze payment capacity, while new digital banking products use artificial intelligence, data analytics, and open banking to take these same. decisions, with much greater speed and less room for “human error”.
This will have huge implications for MSMEs, many of which are currently unbanked and excluded from financial services as they seek to regroup and recover from the pandemic, with the time saved in the loan application processes and therefore, faster access to financing, potentially the difference between staying afloat and having to close.
READ: Comment: China’s decision to stop Ant Group’s giant initial public offering has bigger implications
Joyce Tee, director of DBS’s SME banking group, said in May that “micro and small businesses may not be familiar with the financing solutions available to meet their working capital needs as they have typically gone unnoticed by lenders ”.
OTHER LOCAL REGIONS ACCEPTING THE CHALLENGE
The issuance of these new licenses is one of the biggest disruptions to Singapore’s banking and financial services sector in generations.
The 10 groups of applicants who did not get a license will also re-evaluate their strategies and possibly look across different regions to launch their first forays into digital banking.
READ: Comment: Ant Group will return, but their path may not be so easy
This includes the world’s leading Singaporean gaming tech company Razer, which has already stated that its commitment to expanding into digital financial services remains unchanged, although it will obviously have to look to different countries to launch.
There are several neighboring countries that are intensively experimenting with digital banking, with the Philippines, Vietnam, Japan, South Korea and Thailand already welcoming major players in digital banking to the market. Malaysia will also start accepting applications for its digital banking licenses soon, with up to five to be awarded next year.
A bank employee counts US dollar bills at a branch in Hanoi, Vietnam, on May 16, 2016. (Photo: REUTERS / Kham)
An example of a Singapore-based company looking further afield is DigiBankASIA, a Singapore-based fintech that last month announced the launch of a new UNO full-spectrum digital bank in the Philippines.
The Philippines was selected because more than two-thirds of the population does not have access to banking services, despite the high penetration rate of both mobile phone and Internet use.
The potential in Southeast Asia could be huge. More than 70 percent of adults in Southeast Asia lack access to banking services. Of course, companies may have to comply with the regulations and frameworks of each country before gaining access to the market.
GREATER COMPETITION AND FINANCIAL INCLUSION
Other transformative regulatory changes announced by MAS include opening direct access to real-time payment plumbing to non-bank financial institutions, which will allow non-bank entities to offer payment services at the same speed as banks.
READ: Comment: Lessons from Estonia, the most digitally advanced nation in the world
It will also launch an open banking portal, currently known as Financial Planning Digital Services (FPDS) so that clients 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 enhancing their capabilities in order to compete in this new era of fintech. They must review how they currently serve their customers and respond to what their customers want and need.
Monetary Authority of Singapore (MAS) building in Singapore. (Photo: AFP / Roslan Rahman)
After all, they have to compete not only with new digital banks but also with technology companies.
According to DBS analyst Rui Wen Lim, “developments in open banking will have a much greater impact on the traditional banking sector than digital banks in the medium term,” industry media reported in an October article.
READ: Comment: Singapore’s New Growth Strategy for Tomorrow Involves Attracting 500 Global Tech Leaders Today
As traditional banks advance digital transformation to compete with digital banks and with more technology companies revolutionizing banking, consumers will find themselves at the center of an innovative, lower-cost, and customer-centric banking system.
That’s good news.
Myles Bertrand is the Managing Director of Mambu Asia Pacific. He has been building and improving fintech businesses at APAC for over 20 years and leads the Mambu APAC team from its headquarters in Singapore.
