21 applications submitted for up to 5 Singapore digital bank licences: MAS

The Monetary Authority of Singapore is issuing up to five digital banking licences by the middle of this year - two full-bank licences that permit retail banking, and three for wholesale banking. PHOTO: ST FILE

SINGAPORE - The Monetary Authority of Singapore (MAS) said it has received "strong interest" in its move to open up the banking industry to new competition with 21 applications for up to five digital bank licences.

They comprise seven bids for up to two digital full bank licences that can serve both retail and corporate customers, and 14 for up to three wholesale bank licences that are limited to non-retail clients, the MAS said on Tuesday (Jan 7).

Successful applicants will be announced in June this year. The new digital banks are expected to start operating by the middle of 2021.

The MAS said the new digital bank licences had "attracted strong interest from a diverse group of applicants". They include e-commerce firms, technology and telecommunications companies, fintechs (such as crowd-funding platforms and payment services providers) and financial institutions.

"The majority of applicants are consortiums, with entities seeking to combine their individual strengths to enhance the digital bank's value proposition, it added.

While no names were released by MAS, several consortiums have gone public with their bids since applications closed at the end of 2019. They include a Grab-Singtel tie-up, one led by gaming company Razer, a group led by Osim founder Ron Sim's V3 Group which includes Temasek unit Heliconia, the Singapore Business Federation and property giant Far East Organization, as well as Chinese billionaire Jack Ma's Ant Financial.

The latest consortium to enter the race confirmed its bid for a wholesale bank license on Tuesday. Led by Hong Kong financial services provider AMTD Group, it includes Singapore's power grid operator SP Group, Chinese tech company Xiaomi's finance arm and crowdfunding platform Funding Societies. The consortium is targeting small and medium enterprises and entrepreneurs in South-east Asia and Greater China.

Associate Professor Lawrence Loh from the National University of Singapore said that the AMTD-led group and Ant Financial are two names which stand out among the wholesale bank licence applicants.

Noting that AMTD is one of the largest investment banks in Asia and Ant Financial's Alipay is one of two national wallets in China, he said that both of these players would be up and running from the get-go should their bids succeed.

MAS unveiled its biggest move in two decades to open up the banking sector in June last year.

Digital-only banks that can operate at lower costs and offer services that differ from traditional lenders are not new. In the Asia-Pacific region, Japan, South Korea as well as China already have digital banks in their markets. Last year, both Hong Kong and Taiwan issued digital bank licences and Malaysia is expected to open applications for such permits this year.

EY global emerging markets fintech leader Varun Mittal said that Singapore has received a very high number of applications with respect to the number of available licences, noting that 29 applications were made for eight licences in Hong Kong.

"While quantity of licences is not the sole metric we should look at, it is a good indicator that a diverse set of applicants are keen to address unmet and (underserved) customer needs," he said.

A digital bank offers banking services such as deposits, loans, debit and credit cards like a traditional bank, except that transactions are performed online and the bank does not have a physical branch.

It is different from digital banking, which refers to the online banking services that traditional banks offer to its customers now via the Internet or on mobile devices.

MAS reiterated on Tuesday that it will evaluate all eligible applications based on their value propositions including the innovative use of technology to serve customer needs, their ability to manage a prudent and sustainable digital banking business, and their contributions to Singapore's financial centre.

Its requirements for a digital full bank which can serve retail customers are more onerous than for a wholesale bank. Licencees must eventually meet the minimum paid-up capital requirement of $1.5 billion. It must be based in Singapore and be controlled by Singaporeans.

For a digital wholesale bank whose customers are limited to small and medium-sized enterprises and other non-retail segments, licencees need $100 million in capital and can be majority-owned by foreign entities.

All digital banking aspirants in Singapore must show a path towards profitability, and provide a five-year financial projection of the proposed digital bank. The applicant should also indicate when the proposed digital bank is expected to break even, even if the break-even point is not within the first five years.

Applicants must also show a "clear value proposition" to meet under-served needs using technology. Among other requirements, at least one entity - which holds a 20 per cent stake - in a consortium should hold a minimum three-year track record in operating an existing technology or e-commerce business.

EY's Mr Mittal noted that it is important to consider the long-term sustainability and viability of new digital banks, with a large proportion of digital banks globally yet to become profitable. In the event of an economic downturn, new digital banks could face operational challenges, he added.

"(But) the overall winner of this exercise (will) be end consumers and SMEs who will have a large pool of solutions and services provided to choose from," Mr Mittal said.

Prof Loh expects more applicants to step forward and announce their applications following MAS' statement on Tuesday.

"It is in applicants' interests to do so, because it shows your commitment. To the regulators, if you are announcing your application, it shows that you're really in the game. If you keep quiet, it shows that you're not sure," he said.

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