SINGAPORE - With many hats thrown in the ring, access to good data will determine who wins Singapore's digital bank race, brokerage Maybank Kim Eng said in a report out this week.
Without naming names, the Monetary Authority of Singapore on Tuesday announced it had received 21 digital banking applications for up to five licences that will be issued in June this year.
Apart from a solo bid by Shopee parent Sea, the nine publicly known applicants consist of consortiums whose members include e-commerce firms or technology and telecommunications companies, fintechs and financial institutions.
They are a tie-up between Grab and Singtel; Razer Youth Bank; Beyond; a group comprising iFast Group, Yillion Group, and Hande Group; an Ant Financial group; a consortium with Sheng Ye Capital, PhillipCapital, and Advance.AI; and one with AMTD, Xiaomi, SP Group, and Funding Societies.
The applicants are targeting groups they view as underbanked in Singapore - low income individuals, early income millennials, start-ups and micro-SMEs (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 Thilan Wickramasing in the report 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 said.
Existing digital banking players may have an added advantage of mature, better trained algorithms as they can potentially lower transaction costs versus those who will need to build from scratch, he added.
On the tie-up between Grab Holdings and Singtel, for example, which is gunning for a digital full bank licence, Mr Wickramasing said Singtel's more than 700 million regional customer base and Grab's access to over 120 million unique users provides a deep reservoir of data.
"Data privacy issues notwithstanding, their existing payment and financial services operations such as Dash, VIA, GrabPay and GrabIsure, together with customer behavioural data should provide significant big data and artificial intelligence-centric automation opportunities to lower transaction and customer acquisition costs," he said.
Some of the digital bank applicants have stated regional ambitions to use Singapore as a gateway to other Asean economies. Most are planning to leverage on existing product and service capabilities of consortium partners to develop cross-selling opportunities through these platforms - especially for wealth management and insurance products.
One such applicant is the consortium led by Hong Kong financial services group AMTD Group which is vying for a digital wholesale bank licence. The group also comprises peer-to-peer lending platform Funding Societies, Singapore leading utilities provider SP Group and Xiaomi Finance, owned by China's tech giant Xiaomi Corp with its expertise the Internet of Things.
AMTD already has a digital bank license with Xiaomi in Hong Kong, the analyst noted. It will have access to deep pools of data from its partners and valuable intellectual property from existing digital banking operations, said the analyst. It can also leverage consortium partners for cross-selling opportunities.
But even with aggressive growth, digital banks are unlikely to gain material market share in the medium term.
Running scenarios using digital banking growth in the past three years in the UK and taking into account MAS' cautious virtual bank framework, the brokerage estimates that in the three years from launch, the new digital banks will grab just 1.2 per cent of the Singapore dollar loan market.
