MAS spells out criteria for new digital bank licences

Value proposition, track record among factors to be assessed

The Monetary Authority of Singapore is accepting applications for the new digital bank licences until Dec 31, 2019. PHOTO: REUTERS

At least one of the parties in a group applying for Singapore's new digital bank licences must have a track record of three or more years operating a business in the technology or e-commerce field.

Such a party must also hold at least 20 per cent of the total issued shares in the proposed digital bank or control at least 20 per cent of its voting power.

These are among several criteria spelt out yesterday by the Monetary Authority of Singapore (MAS), as it announced it is now accepting applications for the new licences until Dec 31.

Successful applicants will be unveiled in mid-2020, and are expected to start business by mid-2021, the regulator added.

It will be issuing up to two licences for digital full banks, which can take retail deposits, and three for digital wholesale banks, which take deposits from small and medium-sized enterprises (SMEs) and other non-retail segments.

Applicants will be assessed for their value proposition, incorporating the innovative use of technology to serve customer needs and reaching under-served segments of the market here, differentiating them from existing banks.

Analysts said this could mean market segments such as young millennials, SMEs and start-ups.

Other factors include applicants' ability to manage a "prudent and sustainable digital banking business", as well as their growth prospects and contributions, such as jobs they will bring here.

  • MAS clears doubts

  • Q Will applicants with existing banks as shareholders have an advantage?

    A Not necessarily, but the Monetary Authority of Singapore (MAS) will consider the credibility and strength of the applicants' shareholders, and the strategic value they may bring to the table.

    Q Can foreign companies apply for a digital full bank licence?

    A They must form a joint venture with at least one local company, and the venture must meet the requirements of being anchored in Singapore, controlled by Singaporeans and headquartered here.

    Q How can customers benefit?

    A Digital banks should operate more nimbly using new technology with a lower cost structure. For example, they could potentially offer deposit accounts without having a minimum deposit amount or fall-below fees.

    Digital banks with access to more wide-ranging data sources can adopt different means of credit risk assessment also, to lend to under-served segments such as the young and micro enterprises.

    Q Why do applicants need to submit an exit plan?

    A This is to facilitate an orderly wind-up of their banking business, if need be, to protect non-bank depositors, mitigate the risk of untested business models and minimise costs to the financial system in the event of a failure. The plan should have clear trigger points on when it may have to be used, such as with significant losses, or where the business model is no longer viable.

    Q Can a digital full bank be full-functioning from the onset if it can meet the $1.5 billion minimum paid-up capital?

    A No. As these banks will have access to retail deposits, the phased approach is aimed at minimising risks to retail depositors, and mitigating the risks of untested business models. In the restricted phase, the MAS will assess the bank's performance, such as the strength of its internal controls and compliance track record.

    Seow Bei Yi

"The applicant must provide a five-year financial projection of the proposed digital bank, which must show a path towards profitability," the MAS added.

Applications for full-bank licences are open to parties anchored and headquartered in Singapore on top of being controlled by Singaporeans, while a digital wholesale bank applicant can be controlled by Singaporeans or foreign entities.

The digital banks will be subject to the same regulatory requirements as existing banks, including rules relating to technology risks, money laundering and terrorism financing, said the MAS.

Ever since it was announced in June, the move to offer digital bank licences has sparked talk of collaboration among new entrants to the sector, non-banking players and traditional lenders.

Several companies have signalled their interest, including listed firms Razer and Singtel, as well as ride-hailing firm Grab.

At least five e-wallet operators, including start-ups Liquid Group and MatchMove Pay, are considering applying as well, while local lender OCBC is reportedly in talks with firms including Singtel over taking a minority stake in any virtual banking joint venture.

Applicants will face tight curbs once they get the green light.

A digital full bank will operate under restrictions for one to two years.

It can start operations with a minimum paid-up capital of $15 million and total deposits will be capped at $50 million. Deposits by an individual will be limited to $75,000, and it can only solicit deposits from a limited scope of customers - such as shareholders and existing customers of its parent entity.

A bank in this initial phase can only operate overseas bank branches or subsidiaries in no more than two other markets.

Within three to five years of starting up, it will be expected to be fully functioning and have a minimum paid-up capital of $1.5 billion.

Maybank Kim Eng economist Chua Hak Bin noted that the minimum paid-up capital may be low to begin with, but is "demanding" eventually, being the same capital requirement as a regular bank.

"Any firm will really have to be committed to the long haul... they will incur a huge amount of cost in the first two to three years," he said. "The biggest challenges are trying to project five years down in an area which is facing a lot of disruption, in a market that is already very saturated, and to want to scale up in a region where banking is a tightly regulated space."


Join ST's Telegram channel and get the latest breaking news delivered to you.

A version of this article appeared in the print edition of The Straits Times on August 30, 2019, with the headline MAS spells out criteria for new digital bank licences. Subscribe