Singapore ushers ASEAN into new digital banking era (Nikkei Asia)

It was the week when the “Switzerland of Asia” mixed a dash of Silicon Valley into its tropical version of Zurich.

From Microsoft CEO Satya Nadella to Google CEO Sundar Pichai, Singapore attracted top tech leaders to a weeklong “financial technology” event designed to underline that digitization is integral to the city-state’s vision of its future as a banking center.

“Fintech is one key area we are growing so that Singapore can continue to develop as a global financial hub,” said Heng Swee Keat, Singapore’s deputy prime minister and finance minister, on Monday, the first day of the Singapore Fintech Festival.

But the most important piece of choreography came virtually, on the eve of the event, when Singapore finalized the long-expected award of digital banking licenses to four operators with most of their roots firmly in the tech sector.

In picking Sea, Ant Group and a consortium between Grab and Singapore Telecommunications as three of the license winners, Singapore is — almost literally — preparing to bank on some of the region’s biggest tech names.

“The issuing of digital banking licenses marks a significant milestone in Singapore’s banking sector,” said Paul Ng, financial services lead for Southeast Asia at Accenture. “We expect the speed of innovation of the new digital banks to strengthen Singapore’s position as a leading financial hub in the region.”

Digital bank license winners Grab and Ant Group already have an e-payment presence in Singapore.
Photo by: Kentaro Iwamoto/Nikkei Asia

The awards show Singapore wants to stay ahead of the chasing pack as an innovative financial hub. They are also a big test of whether companies that have won over consumers in areas from gaming to ride-hailing can convert their vast customer databases and undoubted tech expertise into tools to compete head-on with long-established and powerful “regular” banks.

Furthermore, the progress made in Singapore will be scrutinized in other countries preparing to open their banking sectors to virtual lenders, such as Malaysia and the Philippines. With the COVID-19 pandemic accelerating digitization, Southeast Asia is expected to enter a new era of finance, with digital banks transforming a region that now excludes many people and businesses from financial services.

China is likely to take an intense interest in Southeast Asia’s digital banks. Companies such as Ant Group have a grip on swathes of China’s payment and consumer finance market, but the country’s authorities are starting to flex their muscles. Last month regulators kiboshed Ant’s plan for what would have been the world’s biggest initial public offering by unveiling a flurry of new regulations.

Jefferies’ Singapore-based analyst Krishna Guha told Nikkei Asia that Chinese companies may seek digital bank licenses in other Southeast Asian countries as well, due to “tighter home regulation and stiff competition, plus they may also want to capitalize upon regional e-commerce as well as trade, investment and wealth-related flows.” He pointed out that companies like Ant already have a presence in the region in e-commerce and digital payments.

A digital bank refers to a bank that operates online only and does not have physical branches. That allows it to keep costs low and offer competitive financial services, such as higher interest rates for deposits and lower rates for loans.

Using data and technology, a bank may also be able to create more personalized products and services, with customers making transactions on their smartphones. Their vast database of consumer spending habits should help digital lenders carry out the sort of credit analysis and customer assessment that has been the preserve of traditional banks.

Back in June 2019, the Monetary Authority of Singapore, the central bank, announced the digital banking framework, saying the entry of new players would “add diversity and help strengthen Singapore’s banking system in the digital economy of the future.”

It was a natural move for Singapore to liberalize the banking sector, as its rival Hong Kong and some European countries had already allowed fintech startups to become digital banks — accepting deposits rather than being payment processors. Hong Kong granted eight digital banking licenses last year, with seven of the recipients already launching services.

But Singapore has arguably gone further than many other jurisdictions in giving licenses to established regional tech names that already have huge customer bases built on non-finance consumer services — perhaps suggesting they will be powerful disrupters of the finance industry.

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Nikkei Asia

11 December 2020

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