Singapore opens up digital banking licences to non banks

The Monetary Authority of Singapore (MAS) plans to issue up to five new digital banking licenses, according to an announcement on Friday.

For the first time, non-banks are allowed to contest. The application process is expected to be open in August this year.

The government introduced internet banking framework in 2000. The new licenses will include two digital full bank licenses and three digital wholesale bank licenses.

Digital full bank licenses will allow licensees to provide a wide range of financial services and take deposits from retail customers; while digital wholesale bank licenses will allow licensees “to serve SMEs (small and medium-sized enterprises) and other non-retail segments”.

Digital full bank licenses will only open to companies headquartered in Singapore and controlled by Singaporeans. Foreigners wishing to participate must form joint ventures that fit the above requirements.

Digital wholesale bank licenses are open to all companies.

Senior Minister and Chairman of MAS Tharman Shanmugaratnam said at an event that starts with two full digital bank licenses was intended to not fragment the country’s small domestic retail banking segment.

Digital wholesale bank licenses are, in the meantime, to be issued as a pilot, with the possibility of more in the future.

Who will apply?

So far, two companies have expressed direct interest to apply. Grab, the super app giant headquartered in Singapore has been preparing since MAS first signaled the possibility a few weeks ago.

Another company is Hong Kong listed gaming hardware company, Razer. With a large base of loyal gaming fans, Razer has been trying to diversify into financial services. Razer Pay is already a popular wallet amongst games in Singapore and Malaysia – and other use cases are being added.

Although Garena’s AirPay has not been able to penetrate beyond its core gamer base, it could be a matter of timing. Razer’s attempts are interesting to watch.

Lessons from Hong Kong

Commentators often draw parallels between Singapore and Hong Kong. The latter announced digital banking licenses in February 2018, drawing a large number of tech companies to apply. Amongst the 50+ applicants, you see names (or JVs with the backing of) Ant Financial, Tencent, JD, Ping An, etc.

A large number of applications was probably a key factor delaying the licensing process. The final 8 licenses issued included the participation of Tencent, JD, Ant, Ping An, Xiaomi, Zhong An. The fintech battle that is being fought in China has in a way extended to Hong Kong.

Singapore is different

However, Singapore is, in this regard, quite different from Hong Kong.

First, Hong Kong does not have any big internet giant with strong use cases – therefore the participation of mainland Chinese internet companies are essential. In addition, many went to get the Hong Kong license not only for the Hong Kong banking market which is already over-saturated, but the much larger Guangdong-Hong Kong-Macao Greater Bay Area, and beyond.

The latter will heavily depend on the state policies from China – but the players seem to be optimistic as we speak.

Singapore has one internet giant – the super app Grab – that occupies multiple online and offline use cases. And through Grab’s open ecosystem approach, many other services and use cases are enabled through its super app. That gives the company a strong impetus to penetrate further into financial services. Rumors are they will spin off the financial services division and raise additional capital just for that.

Whether Grab will apply for the license on its own or take into consideration its existing partnership with UOB would be interesting to see. If their application is successful, it would give some psychological impact on the banking market in Singapore.

As of Razer, it needs a breakthrough to buoy its share price in the Hong Kong Stock Exchange. No matter how many loyal fans it commands, a pure hardware company is never as sexy as a financial play.

Although not to forget that MAS has a strong mandate to make sure the financial and banking markets in Singapore remain stable. This is not for major disruption, but a limited stimulus, to the banking sector.

“They will ensure that Singapore’s banking sector continues to be resilient, competitive and vibrant,” MAS Chairman Tharman said.