Cracking the code to digital banking success

Today, as a leading financial hub in Asia, Singapore jumped into the digital banking fray and the timing is just right.
8 December 2020

Cracking the code to digital banking success. Source: Shutterstock

  • Hong Kong and Britain have adopted digital banking. Now, Singapore could learn and adopt relevant strategies.
  • Singapore’s move comes after the European Central Bank, Hong Kong, and Taiwan started to issue digital banking licenses between 2018 and 2019.

Digital banks are catalyzing change across the global banking sector with their keen focus on hyper-personalization, adoption of new technologies, and willingness to embrace new business models. Singapore has jumped into the fray behind Britain and Hong Kong, and the timing is just right. 

The Lion City’s location in Southeast Asia has made it a launchpad for many companies to start offering services in the lucrative fast-growing market. The region of 655 million people is one of the few places globally where US and Chinese tech companies compete openly for influence.  

To recall, just last week the Monetary Authority of Singapore (MAS) granted digital bank licenses to four non-lenders, seventeen months after the island nation first announced its intention to do so. The consortium comprising Grab and Singtel as well as Sea have been issued digital full bank licenses. 

Meanwhile, Ant and another consortium comprising Greenland Financial Holdings, Linklogis Hong Kong, and Beijing Co-operative Equity Investment Fund Management have been given digital wholesale bank licenses. 

MAS initially announced plans to issue up to five digital bank licenses as part of efforts to add market diversity, giving non-bank organizations the ability to offer digital banking services. In total it had received 21 applicants

Full bank licensees would be allowed to offer financial services and take deposits from retail customers, while wholesale bank licensees would serve small and midsize businesses (SMBs) and other non-retail segments. 

Only companies headquartered in Singapore and controlled by Singaporeans were eligible to apply for digital full bank licenses. Foreign companies keen to join the ranks had to form a joint venture with a local company, with the joint venture entity headquartered in Singapore and controlled by Singaporeans. 

MAS said all applicants were evaluated based on their business model value proposition and “innovative use” of technology to serve customers, ability to manage a sustainable digital banking business, as well as their growth prospects and contributions to Singapore’s financial industry.

What are digital banks?

Unlike traditional banks, digital banks, or virtual banks, offer the same banking services as incumbent players – except they operate entirely without bricks and mortar branches. In brief, consumers and businesses can skip the hassle of standing in line at branches as all banking needs can be performed entirely on their smartphones or computers.

Today, as a leading financial hub in Asia, Singapore is playing a key role in financing the region’s growth. Hence, the island nation has jumped into the fray and the timing is just right. The country is positioning itself to capture the ASEAN potential, given nearly half the people and many small businesses in the region remain unbanked.

Counterparts and lessons

Singapore’s decision to open doors to digital-only banks comes close on the heels of the Hong Kong Monetary Authority who has issued eight digital banking licenses last year. Taiwan’s Financial Supervisory Commission followed suit with three digital banking licenses recently and we saw the European Central Bank start to issue digital banking licenses in late 2018 as well. Additionally, neo banks in Australia have been on the rise. 

The Hong Kong Monetary Authority issued eight digital banking licenses last year, including four which were awarded in May to the likes of Alibaba, PingAn, and Xiaomi – all firms from mainland China. A report by PWC said some lessons learned from the Hong Kong experience for Singapore to learn to include identifying target customers and value propositions on top of customer protection and financial inclusion. 

Besides that, PWC reckons there must be robust technology and outsourcing risk management in place whereby proper governance and stakeholder management is ensured with the outsourced service providers. In terms of risk control, the organization must recognize and follow sound practices of compliance including anti-money laundering and countering of financing terrorism. 

Britain, on the other hand, boasts one of the world’s most active digital banking sectors, and some of the industry’s more popular upcoming names such as Revolut and Monzo. According to an Accenture study, digital banks operating in Britain now have more than 13 million customers across Europe, a figure expected to leap to 35 million this year.

Based on our experience assisting digital banking license applicants globally, one thing is clear: the winning formula is one that is an impactful mix of business strategy, innovation, new technologies, data management, and appropriate risks and control frameworks, led by experienced management teams with strong financial strength and commitment,” PWC report stated.