Who is leading Singapore's digital banking race?

Written by || March 03 2020

Singapore has 21 applicants for just five digital banking licenses. There are going to be many more losers than winners in this race. Speculation about the likely winners is reaching a feverish pitch ahead of the Monetary Authority of Singapore's (MAS) expected announcement of the winners. The decision is expected by June.

MAS has made clear that it has little interest in large-scale disruption of the financial-services sector. The regulator certainly wants to boost competition and the quality of digital-banking services in the city-state, but in a steady, incremental manner. Evolution is necessary. Revolution is not. With that in mind, the MAS designed the application process to ensure that only firms with ample capitalization and strong potential for profitability would meet the licensing criterion.

The biggest prizes will be the two digital full banking licenses (DFB), which allow the holders to accept deposits from both retail and non-retail customers. The three digital wholesale banking (DWB) licenses only permit the holders to take deposits from SMEs and other non-retail customers.

The Grab-Singtel consortium is a front-runner in the race for a DFB. Besides the strong fundamentals of both companies, their consortium has ample cash to meet the minimum capital requirements of S$1.5 billion. In fact, Grab recently received US$850 million from investors to fund development of its fintech business. $700 million of that came from Japan's Mitsubishi UFJ Financial Group. Teaming up with MUFG will support Grab's efforts to develop lending, insurance, and wealth management products.

Both Grab and Singtel are Singapore-based but have a presence in most of Southeast Asia's key economies. They are positioned to use the city-state as a springboard to develop digital banking throughout the region. In that endeavor, they may well be able to support financial-inclusion initiatives. Back home in Singapore, 98% of the population over the age of 25 already has a bank account according to Allianz Global Wealth, so financial inclusion is less of an imperative than tapping demand for digital banking services among the young and affluent consumer segments.

Another strong contender for a digital banking license is NYSE-listed and Tencent-backed Sea Limited, a leader in Southeast Asia e-commerce. Sea could borrow a page out of Alibaba's book and tap its e-commerce business to zero in on digital lending opportunities. Alibaba's fintech arm Ant Financial has become one of China's largest online lenders thanks in part to its troves of user data accumulated by the e-commerce platforms Taobao and TMall.

Sea's e-commerce business Shopee is not as large as Alibaba's, but it is geographically more diverse. Shopee is one of the leading e-commerce platforms in its home market of Singapore as well as Indonesia, Vietnam, Thailand, Malaysia, and the Philippines. That provides the company with an ideal pathway into region-wide digital banking.

Sea also has a fintech arm, SeaMoney, offering e-wallet services, payments processing, and microlending. In a January statement, Sea CEO Forrest Li said that the company's e-commerce, gaming and fintech businesses provide "unrivaled insight into the needs and wants of millennials and SMEs across the region."

Sea has "the technology, infrastructure, data analytics capabilities, and management experience to design and scale Singapore’s first full digital bank," Li added.