International Finance

IF EXCLUSIVE: Singapore digital banks: Compete or collaborate?

Singapore Digital Banking, Digital Banking in Singapore, InstaREM
With a digital banking licence, Singapore’s fintech startup InstaReM plans to change the dynamics of banking customer experience

The Monetary Authority of Singapore (MAS) on June 28 announced that it will issue up to five new digital banking licences. This move by Singapore’s apex bank, seems to be in line with the digital banking push being seen in Asia, as it follows the issuing of similar banking licences by Hong Kong and Taiwan, in the recent past.

Tharman Shanmugaratnam, Chairman at MAS, was cited in its media release as saying that the move would allow for more liberalisation across Singapore’s banking sector. He had further indicated that this would help the island state-city’s banking sector, to continue to be resilient, competitive, and vibrant.

What do the new digital banking licences mean for startups? How will they challenge established brick and mortar banks in Singapore such as DBS and OCBC?

InstaReM, the Singapore-headquartered fintech startup, that offers digital cross-border money transfers, is one of the companies that is applying for the licence. Speaking to International Finance, Prajit Nanu, founder at InstaReM, said “We will be applying for the digital wholesale banking licence when the MAS invites applications in August. It will be the MAS who will decide which applicants get the licences and when. We are optimistic about the licence on the back of our experience and credentials.”

Nanu went on to credit MAS for the move and said it would have a positive impact for Singapore. “As a market with a fairly well-developed local ecosystem, we believe the entry of digital banks can be the beginning of a new phase in banking in Singapore. We feel that allowing the setting up of digital banking entities will foster innovative ideas, products, and business models that would encourage fair competition, reduce existing inefficiencies in the banking system and improve financial inclusion,” he said.

He further added that digital banks would benefit not just the new tech-savvy generation of consumers but also regular consumers and various segments such as migrant workers and SMEs that are currently underserved by traditional banks.
Sam Kok Weng, Financial Services Leader at PwC Singapore, too hailed MAS’s move saying it would allow for more liberalisation in the sector. He added that this would further help to reinforce Singapore as a financial centre.

So, while the move is being seen as a positive by many, several media reports have questioned how the three largest local banks in Singapore, namely, DBS, OCBC and UOB would adapt or change themselves to compete with the new-age digital banks.

In this regards, OCBC Bank’s Group Chief Executive Officer, Samuel Tsien told International Finance, “We are excited at the possibilities that the new virtual banking licence may open up for us. We will study the new framework closely to see how a virtual bank will complement our current businesses.”

Meanwhile, a DBS spokesperson told International Finance, “We welcome new market entrants as they will create further energy in the market, benefitting consumers at the end of the day. With our digital transformation efforts well underway, Singapore banks can today hold our own. It is also heartening that MAS is committed to creating a level playing field and is proceeding thoughtfully with the liberalisation.”

PwC’s Weng however opined that while the move would increase competition in the sector, it was unlikely that the existing banks were at a disadvantage. “More licencees in any regulated sector will naturally increase competition. However, existing players have themselves been undergoing their journey of digitisation and innovation in the past few years so there are limited obvious and immediate retail customers needs that are not currently served,” he told International Finance.

With regards to the other side of the coin, that is, how new entrants would take on the existing banking giants, InstaReM’s founder said, they would look at a combination of reasonable costs of service and superior banking experience to take on these banks.

“Assuming we manage to acquire the wholesale digital banking licence, I would like to say that our differentiator will be a combination of reasonable costs of service and superior banking experience for customers, who in our case, will be businesses.”

He added that certain aspects of the existing local banks were not flexible and this was where they would act. “Traditional banks are experts in serving SMEs locally, but their offerings lag once the businesses start to expand across borders. At the root of the problem are the banks’ core banking systems that support transactions and retrieve customers’ banking data, and stringent requirements attached to existing products for small businesses – both of which are not flexible. We are looking to make a difference there.”

He further said that customer experience was extremely essential and InstaReM’s strength in the same would give it a winning edge. “I strongly believe that as a business cannot win the trust of the customers by undercutting the competition – what makes the real difference is the overall experience and we will aim to redefine the customer experience with our fintech-based innovative offerings.”

“Having started as a consumer-focused digital remittance service, InstaReM has expanded its bouquet of services, now targeting the SME segment by addressing traditional international payments-related pain points for this vital segment. We will focus on a frictionless banking experience for the SMEs looking to grow within Singapore and beyond. Our ultimate long-term aim would be to be the (most) preferred bank for businesses of all types – small and big,” he explained.

When asked if apart from competing, there were opportunities for the new banks to collaborate with the existing local banks, Nanu replied in the positive. He said that considering they have expertise in transactions, but not in the lending business, they would consider partnerships to create a superior lending experience in their existing technology stack. He further opined that traditional banks, too, would consider partnerships with true-blue fintechs like theirs to strengthen their business processes. “Such collaborations will foster innovation and create new possibilities for Singapore’s banking sector,” he said.

Nanu concluded by saying that InstaReM would be applying for the digital wholesale banking licence in August. And considering that banking was a natural extension for them as it was already providing similar services, they were looking forward to integrating their operations backward with the licence from MAS.

So, all-in-all, whether MAS’s new digital licences will make banking in Singapore more competitive or allow for opportunities to collaborate between traditional and new-age digital banks, it seems but fair to say that the move will allow for more liberalisation in the sector in a way it benefits a larger section of the population.

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