The Straits Times says

Digital banks can break new ground

Last week, the Monetary Authority of Singapore (MAS) confirmed it is studying whether to license digital-only banks in Singapore. If it gives the green light, this would be a game changer for the banking industry as well as consumers of financial services. Digital-only banks, also known as virtual banks, would deliver banking services via the Internet and would not need physical branches. Nor would they necessarily be owned by existing financial institutions. They could also be partnerships between, for instance, fintechs and non-financial corporations. Such entities already operate in the United States, Europe, the Middle East, China, Japan and Korea. Hong Kong has licensed eight virtual banks, some of them linked to China's tech giants, Alibaba and Tencent, which have already revolutionised financial services on the mainland and accelerated the shift to a less cash-intensive economy.

In its deliberations, the MAS has many issues to consider. One is whether Singapore would benefit from adding several new digital banks when the population is already well covered by existing institutions. Judging from the experience elsewhere, the answer to this would be a qualified "yes". Digital banks have the potential to reduce costs in the delivery of financial services, and to offer better rates, lower fees as well as easier-to-use services to consumers. They can also improve financial inclusion by catering to under-served segments, which may include businesses. They would also spur traditional banks to innovate, and some of them could potentially expand beyond Singapore.

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A version of this article appeared in the print edition of The Straits Times on May 17, 2019, with the headline 'Digital banks can break new ground'. Print Edition | Subscribe