Source | Zhixiang Network (ID:passagegroup)
Compile the | Xie Xiaodan
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21 applicants, 4 winners.
If you follow the Monetary Authority of Singapore (MAS) digital banking licensing competition at the end of 2020, you will remember the mood at that time. There were strong proposals, competition, and consortiums eager to get their coveted licenses. They compete for a Digital Total Banking (DFB) license and a Digital Wholesale Banking (DWB) license. The Grab-Singtel Consortium (GXS) and Sea received the former, while Ant Group and a consortium of Greenland Financial Holdings Group, Hong Kong Linklogis and Beijing Co-operative Chuangcheng received the latter.
However, a year and a half later, no licensed institution has launched its digital bank, or even announced a launch schedule.
They are not silent, on the contrary, they are trying to get local banking experts to join, and this is not easy.
Grab, for example, aggressively recruits and has established leadership positions in various digital banking functions such as fraud operations, operational risk, customer experience, and threat detection and monitoring. At the same time, Sea and Ant Financial are mainly recruiting engineers, analysts, experts and managers.
But recruiting local talent is tough in itself. Not only is there a shortage of tech talent, but China's tech giants often attract talent with bigger salaries. There are also barriers to hiring international talent, especially in Singapore. Singapore has been gradually tightening the standards for Employment Pass (EPs). With effect from 1 September 2022, the minimum qualifying wage threshold for employment passes will be raised from S$4,500 to S$5,000 and the corresponding figures for the financial services sector will be raised from S$5,000 to S$5,500.
Even if the team leader joins, the project cannot begin work. How will these digital banks fill talent gaps in a timely manner before they launch?
"If you're hiring for a key role, like a compliance executive, hopefully they'll take on that role six months to a year before digital banking actually starts to make sure everything goes smoothly." Zennon Kapron, director of fintech research and consultancy Kapronasia, said, "Obviously, to run a digital bank, you need this person and that person, but bringing these people together is a challenge. "
Even if they ensure that people are in place with generous salaries, there are other upfront costs when building a digital bank that would otherwise be "asset-light." According to the Monetary Authority of Singapore, a functional digital bank needs to have at least S$1.5 billion (US$1.12 billion) of paid-in capital to operate.
While both Grab and Sea declined to comment on the status of their digital banking launch, saying they had nothing to share. But Ant Group, which was recently acquiring a majority stake in Singapore's payments platform 2C2P, said it was on the right track.
"Singapore is one of the world's most tech-rich financial services hubs, and we look forward to joining partners and talented people in making financial services more accessible and serving the needs of SMEs." Ant Group said to The Ken. For example, Ant Group's latest acquisition of 2C2P is expected to bring together Its merchants and Ant Group's cross-border payment solution Alipay+.
A fintech executive familiar with digital banking said the four banks are currently seeking to launch in August.
Although the Monetary Authority of Singapore told The Ken that they are expected to launch in 2022, it has not yet confirmed when it will be launched. "The actual start-up will depend on the time it takes for each bank to implement the necessary personnel, frameworks, systems, policies and procedures to meet all relevant requirements and licensing prerequisites." The Monetary Authority of Singapore has been closely tracking their progress and assessing the quality of their implementation. A spokesman for the Monetary Authority of Singapore said.
Kapron estimates that compliance checks also take time, and that "any pre-launch checks for MAS are fairly comprehensive."
Still, the fintech executive expects companies like GXS and Sea, as well as Trust Bank, a fifth licensed institution likely to launch in July, to enter the e-wallet and card market first. A simple reason may be that 98% of Singapore's population already has a bank account, leaving little room for digital banks to become the bank of choice. According to PwC's survey, 99% of Singapore customers keep their current primary bank account even if they open a digital bank account.
"What is the fintech market gap in Singapore and what are they going to offer to attract customers? This could be a problem for digital banks to try to figure out their value. Kaprun said.
But the more reason digital banks are to be aggressive, the more they will hurt the existing payments ecosystem. As the fintech executive put it, "This has the potential to stifle participants in e-wallets, who will face serious challenges." ”
dark horse
The executive said digital banks are also expected to consider introducing a short-term form of financing, buy first and pay later (BNPL). As the PwC survey points out, when competing with traditional banks, their best bet is to replace their customers' secondary bank accounts, rather than tier ones. In addition, Grab PayLater and Shopee PayLater are becoming increasingly popular among consumers.
On Grab's fourth-quarter 2021 earnings call last month, President Ming Maa said that total payments in 2021 were $12.1 billion, up 37 percent year-over-year, "And we saw good growth for products like BNPL, with TPV (total processing) in the fourth quarter five times higher than the previous year." ”
At the moment, Grab is busy providing business loans and cash advances to partners.
"We really see digital banking as another very central part of our strategy... There will be a lot of very attractive cross-selling opportunities, both within our super app and between us and our partners in each country. Maa said on the phone.
At the same time, Sea has been actively promoting its e-wallet ShopeePay in offline stores, which can also be used on its e-commerce website Shopee. Sea has been offering massive discounts and up to 50% cashback.
"Sea has a good consumer base, is generally younger, and can collect gaming and shopping data. Sea's data is more insightful than Grab's because it's granular at both the transactional and behavioral levels. Cart data alone can give sellers and buyers a better understanding. Arvind Sankaran, a board member of Hong Kong-based fintech venture capital firm AFG Partners, said. He added that both gaming and online shopping have been hugely boosted during the pandemic, making the volume, duplication and relevance of data a huge advantage.
Sankaran is betting on Sea because of its "strong data analytics capabilities" that can lead to smart financial solutions.
Although both GXS and Sea will face strong competition from the StanChart-NTUC alliance. Shortly after announcing the four licensed institutions, Standard Chartered Bank Singapore was granted an additional official banking licence based on its deep-seated Foreign Banking (SRFB) privileges, paving the way for its establishment of an all-digital bank. The following year, the bank formed a joint venture with the National Congress of Trade Unions (NTUC) to launch a purely digital bank, trust banking. "As we approach a public offering later in 2022, we will share further details," a spokesman for the Trust Bank told The Ken.
As the beloved son of an international bank and the corporate division of the country's largest government-affiliated union, NTUC, Trust Bank enjoys an enviable status. StanChart already operates digital bank Mox (co-owned with telecom companies PCCW and HK Telecom) and online travel agency trip.com in Hong Kong. As Kapron points out, "You can apply the same dataset, the same knowledge, the same learning in multiple places." ”
Singapore is also Standard Chartered's second largest market after Hong Kong. The bank also has close ties to the Singapore government, which has become the largest shareholder of the company through its sovereign wealth fund, Temasek Holdings. Its SRFB status gives StanChart significant advantages, such as lower paid-up capital and more business premises, which currently stands at 50.
NTUC Income, on the other hand, is a major provider of life, health, travel and motor insurance in Singapore and offers savings, investment and retirement plans for Singaporeans with insufficient bank deposits. "They already have 1 million unionists in Singapore. They already have a large insurance company. They have enough user base to take advantage of, depending on how they take advantage of it. Varun Mittal, a fintech expert and author of Singapore: A Fintech Nation, said.
The Trust Bank operates under an official banking licence granted to Standard Chartered by the Monetary Authority of Singapore. This license is not limited by DFB and DWB licenses.
GXS and Sea DFB, on the other hand, are subject to MAS rules. "To mitigate the risks of untested business models and minimize risk for retail depositors, digital bank-wide will begin operations in the form of a restricted DFB before becoming a fully operational DFB." A spokesman for the Monetary Authority of Singapore said.
They will be restricted to one entity, as well as not be able to access ATM networks. They can only offer simple credit and investment products in the first year, and are limited by the cap on total deposits in the first few years of operation.
Asked if the Monetary Authority of Singapore has plans to ease restrictions on digital banks in the near future, the spokesperson said, "Restricted digital banks will phase out the cap on total deposits." ”
But first, they need to prove themselves first and find out the gap in Singapore's existing banking sector.
Target small and medium-sized customers
What kind of gap?
GXS, for example, sees an opportunity to serve young PMETs who are short on time, temporary workers with flexible incomes, and msMEs with limited access to financing from banks.
Small businesses and those working in the casual worker economy can indeed benefit from digital banking. For example, to qualify for a credit card, an individual must achieve a certain annual income, which most temporary workers tend not to meet. "Compared to Singapore's retail sector, I am more optimistic about the situation on the SME side, especially since there is a real need for better SME-focused financial services." Kapron said. According to a study by Visa, unserved SMEs are looking to digital banks to provide more services.
While digital banks can bridge these gaps, they can also try to offer consumers higher banking services, better interest rates, promotions, and make customers consider switching services. "Since there is no physical footprint, the cost of the products and services they provide should, in theory, be much lower. They should be able to give back some of these cost savings to customers at a lower price or better return. Kapron said.
But it also means burning money. Grab cut its reward earning rate because "they don't have the ability to continue subsidizing." "The same thing will happen with these digital banks." Another fintech executive, who spoke on condition of anonymity, said.
According to the same PwC survey, Singapore customers expect their digital banks to also offer non-financial services such as integrated e-commerce platforms, financial education and lifestyle services such as health, wellness and travel. That's the advantage these digital banks already have, they're super apps with a range of services from lifestyle to ride-hailing services to embedded finance.
But they can't provide it all with banking. "The question is how many products they want to launch. If they launch too few products, that's a problem. If they take too long to launch too many products, it is also a problem. "Everybody is trying to figure it out." While they all have some sort of payment product, they need to consider more than just payments. ”
And traditional banks are not far from realizing their digital dreams.
They have been stepping up their digital efforts and accelerating further by the pandemic. DBS has shifted to "phygital", i.e. physical and digital strategy, while UOB launched digital bank TMRW in 2019, an application that offers a full suite of banking solutions, which will merge with mobile app UOB Mighty as part of UOB's S$500 million ($366 million) digital initiative. "I think people underestimate the ability of traditional banks to improve their value proposition to stay competitive." Kapron said.
Speak with experience
For now, it looks like DWB does have a chance to lead the race against digital banking.
Players from China, Ant Group and Greenland Financial Holdings, are looking for opportunities to grow outside of China, while Singapore's digital bank license offers another possibility.
Ant Group already operates a digital bank or traditional bank outside of Singapore. This brings experience and data about bank operations, giving digital banks an edge in deploying technologies and business models that have previously proven successful.
Ant Group has extensive experience in China, with its mobile payment platform Alipay having more than 1 billion active users worldwide.
During the Singapore FinTech Festival 2021, Singapore-based payments company NETS announced that Ant Group's cross-border payment solution Alipay+ will be integrated into its merchant portal, enabling local businesses to accept payments from regional e-wallets. Alipay+ also provides digital marketing solutions for merchants, and 2C2P transactions will only reinforce this proposition by giving Ant Group access to NETS' extensive merchant network, which is mainly made up of small and medium-sized enterprises to which Ant Group can provide digital banking services.
Greenland Financial Holdings also has a base camp - supply chain finance. Its consortium partner Linklogis is a major supply chain financial technology company in China.
"Greenfield may actually bring something interesting to SMEs, they have a need for trade finance, and a lot of them actually source raw materials from the region and then export them." Greenfields may actually have good value-added solutions. Sankaran said.
Whether it's serving SMEs or individuals, Singapore is still a tough nut to crack for aspiring digital banks. Under the close supervision of the Monetary Authority of Singapore, there was no time to recruit people for key positions, and it was not long before getting admission vouchers and experience began to become irrelevant.
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