Access to good data 'key to winning digital bank licence'

(Clockwise from top left) Grab, Singtel, Razer, Sea, Beyond and Ant Financial are among a list of the contenders who have submitted their bids.
(Clockwise from top left) Grab, Singtel, Razer, Sea, Beyond and Ant Financial are among a list of the contenders who have submitted their bids.PHOTOS: ST FILE, NG SOR LUAN, RAZER/FACEBOOK, BEYOND CONSORTIUM, ANT FINANCIAL SERVICES GROUP/FACEBOOK, SEA LIMITED

Analyst says applicants must be able to mine data for insights, automated decision-making

With many hats thrown into the ring, access to good data will determine who wins Singapore's digital bank race, brokerage Maybank Kim Eng said this week.

The Monetary Authority of Singapore has 21 digital banking applications for up to five licences that will be issued in June.

Apart from a solo bid by Shopee parent Sea, the nine publicly known applicants so far consist of consortiums whose members include e-commerce firms or technology and telecoms companies, fintechs and financial institutions.

They include a tie-up between Grab and Singtel; Razer Youth Bank; a group comprising the iFast Yillion and Hande Groups; and an Ant Financial bidder.

The applicants are targeting groups that they view as underbanked - low-income individuals, early-income millennials, start-ups and micro small and medium-sized enterprises.

Incumbent banks, which bear the infrastructure and other costs of physical branches, have largely shunned these groups because such accounts are typically high volume but low yielding and higher risk.

MayBank Kim Eng's Thilan Wickramasinghe said a digital bank can substantially lower customer acquisition and transaction costs by automating processes such as credit checks, identifying and verifying client identity and account performance monitoring.

But this requires access to large volumes of data that can be processed for insights and automated decision-making.

"We believe the applicants with access to the highest-quality data are the most likely to be successful in scaling digital banks," he noted.

Existing digital banking players may have an added advantage of better trained algorithms as they can potentially lower transaction costs versus those who will need to build from scratch, he added.

Mr Wickramasinghe cited as an example the tie-up between Grab Holdings and Singtel, which is gunning for a digital full bank licence.

The applicants are targeting groups that they view as underbanked - low-income individuals, early-income millennials, start-ups and micro small and medium-sized enterprises.

Singtel's more than 700 million regional customers and Grab's access to 120 million unique users will provide a deep reservoir of data.

He said: "Data privacy issues notwithstanding, their existing payment and financial services operations - such as Dash, VIA, GrabPay and GrabInsure - together with customer behavioural data should provide significant big data and artificial intelligence-centric automation opportunities to lower transaction and customer acquisition costs."

Some of the digital bank applicants have stated regional ambitions to use Singapore as a gateway to other Asean economies. Most plan to leverage on existing product and service capabilities of their consortium partners to develop cross-selling opportunities through these platforms - especially for wealth management and insurance products.

A version of this article appeared in the print edition of The Straits Times on January 11, 2020, with the headline 'Access to good data 'key to winning digital bank licence''. Print Edition | Subscribe