MAS studying whether to allow virtual banks here

The Monetary Authority of Singapore (MAS) building in Shenton Way, on March 29, 2017.
The Monetary Authority of Singapore (MAS) building in Shenton Way, on March 29, 2017. PHOTO: ST FILE

A digital-only bank - no branches, no tellers, no queues - is a step closer to opening here.

The Monetary Authority of Singapore (MAS) said yesterday that it is studying whether such a financial institution can operate here.

A spokesman said established banks are "not alone in harnessing digitalisation".

"Technology and other non-bank firms have been making large digital strides, and they have brought substantive value to their customers in doing so," he added.

"We have been engaging relevant stakeholders to ascertain the unique value that such entrants could bring to our banking landscape, and understand how potential risks will be managed and contained."

The comments come after DBS chief executive Piyush Gupta told Bloomberg that Singapore could possibly issue virtual banking licences after the Hong Kong authorities began dishing them out in March.

"I see no reason why (Singapore) would not," he had said.

His comments fuelled talk that the emergence of this new breed of financial institution could shake up the established banks here.

But Mr Gupta downplayed their potential impact on the local lenders, which have also been upgrading their digital capabilities.

OCBC Bank CEO Samuel Tsien said virtual banks must have regional aspirations in order to succeed in the small domestic market here.

"Almost every Singapore resident is well-banked," he noted.

"Incumbent financial institutions like OCBC are already investing significantly in technology and entering into partnerships to build strong digital capabilities to respond to customer expectations and improve performances," said Mr Tsien.

Dr Dennis Khoo, United Overseas Bank's head of group retail digital, said there is more to banking than just technology alone, and fintech firms must have risk management and regulatory compliance elements in place before they can offer banking services.

But when virtual banks are "inevitably" allowed here, financial experts told The Straits Times that the implications on the banking landscape could be huge, considering that these digital-only players are typically more cost-efficient than established ones.

A new digital bank could generate $100 of income from a cost base of $30 compared with $44 for DBS, Mr Gupta told an annual shareholder meeting last month.

Associate Professor Lee Boon Keng, who heads the Centre for Applied Financial Education at Nanyang Technological University, said fintech has solved many of the structured inefficiencies in the traditional banking system, including bypassing the high transaction fees charged by banks.

"If Singapore banks do not seek to become more competitive by becoming more digitally savvy, they will not be able to stack up against the competition (when they arrive)," said Prof Lee.

The factor that decides whether a virtual bank succeeds here is customer trust - something local banks have earned over many decades and will be hard for these new banks to overcome, said Singapore University of Technology and Design senior finance lecturer Douglas Streeter Rolph.

"What could be interesting to watch is the next move of companies that have gained the trust of Singaporeans," he said, referring to fintech companies such as Grab and Alibaba.

A version of this article appeared in the print edition of The Straits Times on May 08, 2019, with the headline 'MAS studying whether to allow virtual banks here'. Subscribe