Singapore’s Evolving Digital Banking Industry: What Digital Banking Licenses Mean For The Country
Singapore has a mature banking sector, like most of the developed countries in the world. Technological advancements have been disrupting many industries, and the banking industry is not exempt from such Changes.
The latest wave of change to hit Singapore’s banking industry involves the provision of exclusively online digital banking solutions. The country’s government has expressed interest in supporting fintech companies that will offer such services. Tharman Shanmugaratnam, the Chairman of the Monetary Authority of Singapore (MAS) announced on in July this year that the government would issue out five digital banking licenses.
Will fintech startups become a threat to traditional banks?
The licenses will allow non-bank fintech companies to provide digital-only banking services in Singapore’s banking industry. This means that they will compete directly with traditional banking institutions. The five licenses highlight the growing acceptance of online banking services, especially by the younger generations.
Online-only banking services have been gaining traction because they are easily accessible through internet-enabled mobile devices such as smartphones. This makes them appealing since they can be accessed from anywhere, as long as there is internet access. However, this rapid adoption might be a threat to traditional banking.
The influx of digital banking fintech companies in the Singapore banking sector means that there will be more competition. Traditional banking institutions will thus find themselves with a smaller share of the market. However, this does not necessarily mean that they will be phased out. Online banking mainly focuses on micro-transactions, and so traditional banks will still have the advantage of major transactions.
Entering the Singapore banking market will obviously not be free of friction because operating on the internet opens up more risk to cybercrime. Convincing potential customers about the safety of online-banking might, therefore, be difficult.
Who will be awarded the digital banking licenses?
As noted, the Singapore government wants to give the five digital banking licenses to non-bank fintech companies. So far quite a number of fintech firms have applied for the licenses. Below are some of the companies that have expressed interest.
- Razer- If you are interested in the gaming industry or gaming PCs, then the chances are that you have come across this company. Razer manufacturers gaming hardware, including gaming laptops and, is quite popular. Less known is that Razer has a fintech division that has been expanding rapidly in the Asian region, courtesy of the Razer Pay digital wallet. Chief Strategy Officer, Limeng Lee, stated that Razer would apply for one of the five licenses as it gain momentum in Singapore’s financial industry.
- Grab- This ride-hailing company was actively looking for an opportunity to tap into the financial industry’s massive potential in South East Asia even before MAS announced the licenses. The company is reportedly preparing to file for a digital banking license in Singapore, and this will allow it to operate like a fintech with online-only banking services in the country.
- Validus Capital- This company provides a financial platform that mainly targets small and medium-sized enterprises (SMEs). This means that it already has significant knowledge as a lender and it is reportedly interested in securing a digital banking license. Its CEO and co-founder, Ajit Raikar, stated that his company is pushing for digital innovations in the country. He also added that the company would submit its application for a digital license.
- InstaREM- This is a fintech startup that mainly focuses on cross-border remittance. It already announced that it would apply for one of the digital banking licenses. It has also been holding talks with its lending partners about the possibility of forming a joint venture. Its CEO, Prajit Nanu, stated that having lending capabilities will be one of the factors that the government will likely consider when awarding digital banking licenses.
Fintech penetration in the Singapore market
There has been a clear surge in the consumption of fintech services in Singapore over the past few years. A recent study revealed that the number of fintech consumers in Singapore surged from 23% in 2017 to 67% in 2019. This means Singapore’s fintech growth is higher than the global average rate of fintech adoption, which currently stands at 64%. It is also higher than the average rate of fintech growth in the Asia Pacific region, which is estimated at 63%.
Singapore is currently in the league of countries that have been rapidly embracing fintech services. India and China are the current global leaders as far as fintech adoption is concerned with their fintech adoption rate above 85%.
Experts forecast that Singapore’s rate of fintech services adoption will continue to rise, especially now that the government has demonstrated significant support. This also means that the government is willing to provide regulatory support for the fintech industry in the country, a move that will play a vital role in encouraging the adoption of digital banking.
Why fintech has huge potential in Singapore
Digital banking services that will be offered by fintech companies in Singapore might play a big role in facilitating transactions in the country. Thus allowing small businesses to function efficiently. China’s WeChat Pay and Kenya’s Mpesa mobile money transfer service are examples of how fintech solutions rapidly transform the financial landscape, by facilitating fluidity in terms of payments.
Singapore’s business segment largely consists of small businesses that have direct access to consumers. These businesses represent a massive opportunity for innovation and thus offering a great target for startups that want to venture into Singapore’s financial technology industry. Singapore is also a great place to test their product before they roll it out to the larger South East Asia region.
Digital banking through fintech might be the ideal solution towards facilitating the availability of banking services in areas that are underserved by traditional banks. This means that fintech firms can tap into a niche market and help to facilitate a more efficient flow of money and resources in the country. Digital banking services will not only help to deliver faster banking services but also potentially improve cross-border remittance.