Singapore's SMEs may prove receptive to digital banks

Written by Kapronasia || November 11 2020

All too often, the digital banking conversation focuses on retail customers. It makes for a good story, tech-savvy millennials doing all their banking from the convenience of a smartphone. And the promise of achieving massive scale is alluring. But in Singapore, the retail banking market will be a tough nut to crack. 98% of Singaporeans already have a bank account, while DBS, UOB and OCBC are well prepared for digital challengers. The less glamorous but more promising market opportunity for digital banks lies with small and medium-sized enterprises.

SMEs play a vital role in the Singaporean economy, by some estimates contributing to nearly half of its GDP and employing two out of three Singaporeans, yet suffer from funding difficulties. Research by Funding Societies, a Singapore-headquartered SME digital financing platform, has found that SMEs receive just 22% of Singapore's bank loans. That results in an underserved financing gap of S$20 billion. 

A Visa study published in October suggests that digital banks could tap strong demand among Singapore's SMEs for services which better meet their needs. Visa's survey found that 88% of the city-state's SMEs would consider switching over some of their services to digital banks, citing a desire for control over their banking experiences and more attractive terms for corporate products.

Further, digital banks could capitalize on their technological edge, the survey found. 58% of respondents highlighted the attractiveness of 24/7 banking services offered by digital banks. 56% cited the ease of making digital payments and transfers.

The survey also found that respondents perceived digital banks to offer competitive foreign exchange services. 35% said that they would consider switching over to a digital bank to access better FX services. 

Among applicants for Singapore digital bank licenses, there are several especially well suited to serve SMEs. IPO woes aside, Ant Group has vast experience serving small corporate clients in China which it could draw on in Singapore. If the suspended IPO does not affect Ant too adversely, the Chinese firm will remain one of the strongest contenders for a digital wholesale bank license in Singapore, valid only to serve non-retail customers.

NYSE-listed Sea, which applied for a digital full bank license, could also cultivate a strong niche with SMEs by tapping demand from sellers on its e-commerce platform Shopee. Singapore's e-commerce sector is booming as business continues to shift online amid the pandemic. Total visits to Shopee's website in Singapore rose 82% to 10.9 million on a quarterly basis in the April-June period, making it the top e-commerce site in Singapore by site visits.