The Monetary Authority of Singapore (MAS) must manage the tension between the need to allow innovation in finance and the need to preserve trust in its financial system as it pushes to develop the financial technology sector, said Deputy Prime Minister Tharman Shanmugaratnam.
He stressed that regulation should not be too onerous such that it suppresses companies' ability to experiment in the field of financial technology, or fintech.
"We must allow for this experimentation, but we must do it in a way that preserves trust and credibility in our financial system," DPM Tharman, who is also MAS chairman, told some 200 members of the New York fintech community at an event organised by MAS on Tuesday to draw key players in the field to Singapore.
To that end, he said Singapore will not regulate fintech firms like it does banks until they reach a "meaningful scale" that can cause broader risks to the system. The point was part of a broader picture he painted of the Singapore Government's approach to fintech.
MAS' managing director Ravi Menon later elaborated on what that approach means. Using online payment firm PayPal as an example, he said: "Do you want to regulate PayPal the way you regulate DBS or Standard Chartered? No. It would be far too onerous, it would kill the business model, they won't even come here. Do you need to regulate them? Yes."
He said regulations set a threshold below which companies have some freedom to experiment.
"Only when your volume of payments crosses that threshold, then you get drawn into the regulatory ambit," Mr Menon said.
Apart from trying to balance trust and innovation, Mr Tharman said MAS also had to manage the tension between disrupters - companies like PayPal that are taking over some traditional banking functions - and existing players. He said it is not yet clear at this early stage how that particular clash is going to play out.
MAS has made a strong push to develop the fintech ecosystem, in line with a broader effort to transform the Singapore economy into a more innovative one. It set up an in-house unit to promote the sector last year and has committed to invest S$225 million over five years in fintech.
Fintech covers everything from sites that offer loans like Lending Club to crowdfunding platforms like Indiegogo and online payment portals like WePay. Consulting firm Accenture estimated that investment in the sector jumped from US$4 billion in 2013 to more than US$12 billion a year later.
Asia is regarded as a promising region for fintech growth, especially given the large population that is still underserved by banks.
Mr Tharman said Singapore's ultimate goal was to change the way its financial system operates. "Our aim is not to see if we can be above other financial centres, but to push the envelope and transform finance, to encourage players to find new ways of doing the business, and in a way that makes more sense to the customer... Transforming finance to be more tailored to their needs, something that's, if possible, cheaper or more convenient and accessible to the customer."
Mr Tharman also launched the first Fintech Festival, to be held in Singapore in November. The festival will include fintech conferences and an international contest to develop new fintech solutions.
He is on a week-long visit to the United States and will attend the meetings of the International Monetary and Financial Committee later this week.