Singapore fintech firms eye bigger share of bank-dominated payment services

Fintech firms in Singapore are optimistic about their potential even as they face competition from banking institutions. PHOTO: THE BUSINESS TIMES

SINGAPORE – Singapore’s fintech firms are expanding their services and operations even as they face competition from the banking sector and experience a decrease in funding due to macroeconomic headwinds.

They expect to be able to benefit from a bigger demand for services such as payments and remittances from individuals and smaller businesses, which may not rely on banks for their global transactions.

In July, financial technology start-up Nium, which specialises in cross-border payments, opened its new global headquarters in Singapore, and announced that it is aiming to treble its local headcount to 300, from 90 employees now.

Earlier in August, Revolut became the first fintech provider in Singapore to introduce instant card transfers, enabling users to send money to recipients in over 80 countries around the clock using just the recipient’s name and 16-digit Mastercard or Visa card number. 

The growth efforts are taking place amid a fall in fintech funding in Singapore, with a report by professional services provider KPMG showing that it reached a three-year low in the first half of 2023.

Fintech firms in Singapore, particularly those that operate in the payments and remittances space, are optimistic about their potential even as they face competition from banking institutions, where most cross-border and large-scale transactions are handled. 

Payments is a broad term referring to the transfer of funds for various transactions, while remittance is specifically a cross-border money transfer, either between individuals or businesses.

Nium co-founder and chief operating officer Pratik Gandhi said global business-to-business transactions are estimated to exceed US$60 trillion (S$81 trillion), and are mostly processed by the banking sector.

He also noted that larger banks like HSBC and JPMorgan account for almost half of the global cross-border payments market, which is estimated to total between US$135 trillion and US$150 trillion.

“We estimate that the total processed volume by all fintech providers would be in the region of US$200 billion. The scale is very different compared with what banks handle,” he explained, adding that the bigger transactions of over US$500,000 will still continue to flow through banks for the foreseeable future. 

“Banks are not really interested in dealing with small-value flows as their cost and effort are similar for all transaction sizes, and they can roll out the red carpet for larger customers and flows.” 

The remittance market in Singapore, worth US$7.52 billion in 2020, is projected to reach US$12.53 billion by 2030, which would signify an estimated compound annual growth rate of 4.7 per cent from 2021 to 2030.

While it is not known how much of the remittance market is dominated by Singapore’s banking sector, payments remain one of the most resilient and top funded spaces in Singapore, attracting US$120 million across eight deals in the first half of 2023, according to KPMG. 

Ms Yu Mei Lay He, senior product manager at fintech company Wise, said traditional banks and their infrastructure are mostly built for domestic needs, which is why fintech providers in Singapore can still tap the demand for payments and remittances.

“Traditional ways of sending money abroad through a bank involves moving funds through intermediary banks across countries. This is slow and inefficient,” she said. 

Citing a Wise study which found that 88 per cent of Singapore’s micro, small and medium-sized enterprises find it difficult to run a global business due to challenges in international payments and banking, Ms Lay He said this is where fintech providers can help to make international money movement and management more efficient.

“Consumers and businesses in the region are very global, which makes solving payment issues here even more critical,” she added. 

Ms Ashley Thomas, head of strategy and operations at Revolut, noted that Singapore is a global financial hub, and a choice location for both expatriates and companies from around the world. This means that local fintech providers can cater to a broad spectrum of users. 

“This gives rise to an increase in demand for cross-border money transfers and remittance services not just from businesses but also from individuals,” she said.

Singapore remains a hotbed for fintech start-ups due to its connectivity to Asean, where fintech investments soared to US$4.3 billion in the first nine months of 2022, according to a report by PwC Singapore in July.

Another report, by PwC Singapore, the Singapore Fintech Association and UOB, found that Singapore had the highest number of fintech firms – 1,580 as at November 2022 – within the Asean-6 group of Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. Payments attracted the largest amount of funding in Asean – US$1.9 billion in the first nine months of 2022.

The Monetary Authority of Singapore (MAS) has rolled out a number of initiatives in recent years to support fintech players.

In 2020, it announced a $125 million package to support both financial institutions and fintech firms to strengthen their long-term capabilities, including workforce training and enhancing fintech firms’ access to digital platforms and tools.

MAS announced on Aug 7 the renewal of the Financial Sector Technology and Innovation Scheme, which will disburse up to $150 million in grants for projects.

For Mr Gandhi, Singapore is positioned to be an “unparalleled market” for fintech firms even as the city state remains a banking hub. “Singapore offers a well-defined regulatory framework, backed by the MAS, ensuring compliance and instilling trust in clients and partners,” he said.

“The country’s robust financial services industry and advanced technology ecosystem make it an ideal base for expansion.”

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