By Alexander Jones, International Banker
Singapore is home to one of the most advanced financial-services industries in the world, with a survey by the Monetary Authority of Singapore (MAS) in 2020 revealing that more than 98 percent of the city-state’s adult residents had bank accounts. And with the first four applicants receiving their digital-banking licences from the regulator in the same year, Singapore triggered a major evolution of its banking sector by officially opening it up to digital-only financial services. Since then, the race for digital-banking supremacy within the affluent city-state has only intensified.
In contrast to the traditional banking giants, such as DBS Bank, UOB (United Overseas Bank) and OCBC (Oversea-Chinese Banking Corporation), which have sizeable physical banking presences throughout Singapore in the form of branches and automated teller machines (ATMs), the footprints of these new digital banks are entirely confined to the online realm. In December 2020, MAS announced its selection of the four successful applicants granted licences to operate banks strictly digitally, evenly split into two categories:
- The digital full bank (DFB), which provides financial services to a broad cross-section of Singaporean banking customers, including retail customers. DFB licences were granted to GXS Bank (a consortium backed by Southeast Asia’s super-app Grab, which holds 60 percent ownership, and Singapore Telecommunications [Singtel], at 40 percent ownership); and MariBank (wholly owned by Singapore tech giant Sea Group).
- The digital wholesale bank (DWB), which concentrates its financial offerings on serving Singapore’s SME (small and medium-sized enterprises) community. MAS granted DWB licences to Green Link Digital Bank (GLDB) (a consortium comprising Shanghai-based real-estate firm Greenland Financial Holdings, blockchain trade-finance company Linklogis Hong Kong and Beijing Co-operative Equity Investment Fund Management) and ANEXT Bank (wholly owned by Ant Group).
Since then, a fifth digital lender, Trust Bank, has entered the fold, launched in September 2022 by Standard Chartered and the leading Singaporean supermarket chain NTUC FairPrice. And given that Standard Chartered was designated by MAS in 2020 as Singapore’s first Significantly Rooted Foreign Bank (SRFB) entity—which enabled it to obtain an additional full banking licence to set up its digital-banking subsidiary—Trust Bank did not have to undergo the reportedly grueling application process to receive its digital-banking licence, unlike the four banks before it.
What is clear from the five licences approved thus far is that MAS strongly prefers those lenders with demonstrable evidence of existing capitalisation rather than opting for more anonymous fintech (financial technology) startups that are struggling for cash. Indeed, of the approved five, three have the backing of established big tech companies; another is an offshoot of one of the world’s biggest financial institutions; and one is supported by major Chinese corporate players—clearly demonstrating the limited appetite Singaporean regulators have for excessive risks during this early phase of development.
Nonetheless, that doesn’t mean that all five banks chosen by MAS are clones of each other. Indeed, their varied backgrounds have been key to each digital lender focusing on specific and differentiated market segments. GXS Bank, for example, represents Grab’s foray into financial services, with the super-app aiming to leverage the digital bank to accelerate its path to profitability and reduce its outstanding-debt position. Some of the notable features of the bank include not having a minimum-deposit requirement and interest accruing daily on deposits up to $5,000. Also, customers can access the bank’s features within the Grab ecosystem, such that they can access banking services from the same app with which they order food delivery and book rides.
“What’s important for us is to look at what we can do across our ecosystem,” Charles Wong, the chief executive officer of GXS, told Bloomberg News, adding that both main backers, Grab and Singapore Telecommunications, have more than three million customers combined. Wong also confirmed that other banking offerings would soon be added to the app, catering to retail customers and small businesses, including products for lending, savings, insurance and investments.
Trust Bank, meanwhile, is aiming to leverage the strong existing presence in Singapore commanded by its backer, Standard Chartered Bank, which could potentially enable it to access a daily market of around one million customers. This relationship also allows customers to withdraw cash from both Trust and Standard Chartered ATMs. And with NTUC FairPrice as its other major backer, Trust aims to bring savings and rewards to its customers to help them save on daily living expenses. “While it is common in the market today to offer high-ticket and big rewards which are either complex to understand or have a poor experience, Trust offers simple, easy-to-understand rewards which are always tangible, which help bring down the cost of living and importantly, are in real-time,” Dwaipayan Sadhu, chief executive officer of Trust Bank, told CNBC in February.
But while such offerings should appeal to customers, there have already been some surprising signs among Singaporeans of fading interest in digital banks, according to a survey published on April 11 on customer satisfaction across six key sectors in the service industry—finance, insurance, tourism, retail, land transport, and food and beverage—by Singapore Management University’s Institute of Service Excellence (ISE). The research, which surveyed 4,700 local consumers between October and January, revealed that customers were largely less willing to try digital banks compared to last year, particularly those aged 18 to 34 and those 60 and above.
Analysts suggest that customers are mostly satisfied with their traditional lenders, so they don’t see much need to make wholesale switches to digital newcomers. Indeed, the ISE study results also found that physical banking services remain important to Singaporeans, even though 75.5 percent of banking customers recently used digital channels. Of all the banks, DBS led the survey in customer satisfaction with 75.9 points, followed by Citibank with 75.1 points, and both OCBC and UOB with 75 points, while customers responded most positively to those banks that had their best interests at heart and those that had products and services available when their customers wanted them.
According to ISE’s executive director, Neeta Lachmandas, banks have also taken important steps to boost their digital-banking security, which may also have bolstered positive sentiments among customers, thus explaining their comparatively lacklustre interest in new digital-only banks. “News reports have indicated that the digital banks were not a game changer. That could be one of the reasons (for the decline in willingness to try these banks),” added Lachmandas, who nonetheless suggested that it remains too early to come to concrete conclusions about Singapore’s digital-banking prospects. “Our traditional banks also have pretty strong digital products…. I think the next few years will start to cement the role that the different parts of the banking ecosystem will play.” But Lachmandas did acknowledge that customers are showing more specific interest in current and savings accounts at digital banks.
Customers may also continue to be more motivated to turn to digital banks after such incidents as the digital-banking outage DBS experienced in late March—its second such disruption in less than two years—which the regulator considered “unacceptable”. “The Monetary Authority of Singapore takes seriously the reliability of banks’ critical IT systems and has asked the country’s biggest lender to conduct a thorough investigation and submit its findings,” MAS stated after the outage, which lasted around 10 hours. “DBS has fallen short of MAS’ expectations to maintain high system availability and ensure its IT systems are recovered expeditiously. MAS will take the commensurate supervisory actions after gathering the necessary facts.”
But whether this new generation of digital lenders can make sufficient inroads into the incumbents’ market share does not seem particularly likely, especially as customers in Singapore are already well served by a set of financial institutions with long and proven track records. Looking at it from a global perspective, moreover, digital banks would have to perform nothing short of a miracle to achieve any significant market penetration. According to Moody’s Investors Service, the roughly 250 digital-only banks currently operating around the world have total assets representing a mere 0.4 percent of those of traditional banks.
But perhaps dethroning Singapore’s traditional lenders should not be the ultimate goal for these digital upstarts. Rather, they can exist to not only dilute the high market concentration commanded by Singapore’s “big 3” but also provide customers with secondary alternatives and more choices in offerings. Should they be able to exploit specific market niches, it will only prove healthier for overall industry competition and perhaps even spur the largest physical lenders to rethink their own approaches to digital banking. “We can expect the retail banking market to grow” in Singapore, Jan Ondrus, associate professor of information systems at ESSEC Business School Asia-Pacific, recently told Nikkei. “The new digital banks will not replace the traditional ones but complement their offerings, at least in the early days.”