Last month, the Monetary Authority of Singapore disclosed that it is studying whether to permit digital-only banks - also known as virtual banks - to operate in Singapore, including those affiliated with non-banks such as the start-up Grab, which is reportedly planning to apply for a virtual banking licence. Opening the financial services market to virtual banks would be a landmark policy decision which could shake up the banking industry. There is a strong case for it, provided stringent safeguards are also put in place.
The case for virtual banks derives not only from the fact that competing financial centres, including Hong Kong, have gone ahead and licensed such entities, but also because from the evidence so far, virtual banks can both provide, as well as stimulate, innovation in the provision of financial services. For example, their digitally native platforms often offer a superior customer experience to those of traditional banks. Virtual banks can also bundle several services together with banking and, through the use of big data, reach previously "unbanked" consumers and businesses. Given their lower operational costs, they are also able to offer more attractive rates and lower fees.