Four entities were recently issued licenses to commence digital banking operations in Singapore, in a bold move to liberalise the financial industry and accelerate the rise of the digital economy. As one of the biggest technological disruptions seen by the financial services sector in decades, digital banking is expected to be a significant game-changer for retailers and consumers alike. We discuss the opportunities and risks below.
From passbooks to e-wallets – it is hard to believe that account statements were once accessible only on manually updated pocketbooks, when nowadays the transfer of funds is as easy as the tap of a smartphone. Over the years the Singapore banking industry has rapidly evolved to serve the needs of consumers and the growing economy, building a strong infrastructure to support international trade and investment. With the shift towards a digital economy, the sector has once again risen to the challenge.
On 4 December 2020, the Monetary Authority of Singapore (“MAS”) announced the award of four digital banking licenses which will allow non-bank players to make their first foray into the heavily regulated financial services space. The new licensees all are established players in the technology and e-commerce field, including a Grab-Singtel consortium and an entity owned by tech giant Sea Limited. According to MAS, these entities have provided a clear value proposition which incorporates the use of technology to deliver sustainable, innovative customer solutions, targeted to reach especially the underserved segments of the market. The new digital banks are expected to co-exist alongside traditional banks, providing customers with conventional banking services without being constrained by the need to operate physical premises.
With this announcement, Singapore joins the ranks of regional counterparts who have also set their sights on improving access to financial services for the underbanked and unbanked. Fully digital banks have already emerged in countries like the Philippines, Japan, South Korea, with Thailand and Malaysia moving quickly to catch up. And there is great potential for this region. A joint report by Google, Temasek and Bain & Company posits that the adoption of digital lifestyle services in Southeast Asia has been greatly facilitated by high smartphone penetration, providing parallel opportunities for the introduction of digital financial services [1]. Evidently, there is unprecedented potential for digital banks to grow.
Higher interest rates and returns from savings:
The advent of digital banking comes at an opportune moment in Singapore’s history, as the small island state moves towards the aim of becoming a Smart Nation. This development leverages precisely on the country’s strengths, combining its world-class digital infrastructure with its strategic position as a regional financial hub. As the bids have now closed, it remains to be seen how well the winners of the new digital banking license will translate their technology and sector expertise into tangible benefits for consumers.
This article is produced by our Singapore office, Bird & Bird ATMD LLP, and does not constitute legal advice. It is intended to provide general information only. Please contact our lawyers if you have any specific queries.
[1] Google, Temasek, Bain & Company. (2019). Fulfilling Its Promise: The future of Southeast Asia's digital financial services.
[2] Grab-Singtel consortium to set up a dedicated team by 2021 to build Singapore’s next-generation digital bank. (4 December 2020). Retrieved from Grab - Transport, Food Delivery and Payment Solutions: https://www.grab.com/sg/press/others/grab-singtel-consortium-to-set-up-a-dedicated-team-by-2021-to-build-singapores-next-generation-digital-bank/#:~:text=Grab%20and%20Singtel%20first%20formed,digital%20bank%20in%20early%202022.
[3] Sea Selected for the Award of Digital Full Bank License in Singapore. (4 December 2020). Retrieved from Sea | News : Sea Selected for the Award of Digital Full Bank License in Singapore
[4] PwC Digital Consumer Research. (2019). 2019 Consumer Digital Banking Survey. PwC.
[5] Monetary Authority of Singapore . (2021, January 26). Guidelines on Risk Management Practices - Technology Risk . Retrieved from Monetary Authority of Singapore : https://www.mas.gov.sg/-/media/MAS/Regulations-and-Financial-Stability/Regulatory-and-Supervisory-Framework/Risk-Management/TRM-Guidelines-18-January-2021.pdf