Ban on lending by e-wallet firms will benefit local banks: Moody's

Local banks will benefit from the impending move by the Monetary Authority of Singapore (MAS) to bar larger electronic wallet operators from lending their wallet funds, according to Moody's, a credit ratings agency.
Local banks will benefit from the impending move by the Monetary Authority of Singapore (MAS) to bar larger electronic wallet operators from lending their wallet funds, according to Moody's, a credit ratings agency.PHOTO: ST FILE

Move will also keep firms' growth and risks in check

Local banks will benefit from the impending move by the Monetary Authority of Singapore (MAS) to bar larger electronic wallet operators from lending their wallet funds, according to Moody's, a credit ratings agency.

The legal requirements that MAS is seeking to impose are "credit positive" for deposit-taking banks, including OCBC Bank, United Overseas Bank and DBS Bank, Moody's said in a report yesterday.

"The regulatory barrier will protect incumbent banks' lending margins and support revenue streams amid growing competition from fintech players," said its analysts.

The regulation and oversight of e-wallet operators will also keep their business growth and associated risks in check, benefiting the stability of the financial sector, the report added.

Earlier this month, The Business Times reported that larger e-wallet operators here will be required to ring-fence their wallet funds under the new Payment Services Bill, slated to come into force next year.

The move is expected to apply to operators with an average daily electronic money float of over $5 million. They will have to fully secure and safeguard the funds.

Mr Ravi Menon, MAS' managing director, said the move is to prevent payment start-ups from straying into shadow banking .

The Moody's report added that the restrictions will help Singapore avoid the aggressive lending practices that new fintech players could potentially adopt since they face lighter regulation compared with banks.

"The restrictions will also maintain the high regulatory standards expected of deposit-taking and lending institutions such as commercial banks and finance companies, including capital and liquidity requirements and risk management practices," Moody's analysts said.

It will also allow fintech companies to "compete rigorously to remain viable in Singapore's rapidly growing but fragmented electronic payments space", they added.

Mr Menon had said: "We want to achieve a level playing field from the perspective of risk."

He noted, however, that MAS will not compromise on cyber security and anti-money laundering standards but will calibrate the rules according to the scale of the fintechs' operations.

Singapore FinTech Association president Chia Hock Lai said: "The impact will be minimal as it only affects the large payment fintech, which are far fewer in numbers.

"(The proposed laws are) a good balance against the kind of systemic risk that shadow banking would entail."

A version of this article appeared in the print edition of The Straits Times on October 16, 2018, with the headline 'Ban on lending by e-wallet firms will benefit local banks: Moody's'. Print Edition | Subscribe