Singapore’s lending market is growing. There has been a surge in debt via credit cards, auto loans, and other forms of credit in recent years. But repayment has been an issue, especially for those using cards. According to data compiled by the Monetary Authority of Singapore, banks wrote off S$308.8 million worth of bad debt from credit cards in 2017, and then S$283.6 million from January to November in 2018.
Yet the city-state’s lenders offer a narrow scope of services, and credit cards remain the most convenient. Borrowers in Singapore have been seeking alternative sources of financing that offer, for instance, shorter processing times and collateral waivers.
To address this demand, Singapore’s Ministry of Law began its search in May last year for technology-driven solutions that fulfill unmet lending needs. It has awarded money lending licenses to companies that are testing out new business models.
KrASIA recently sat down with Edmund Sim—the founder of Credit Culture, one of the startups tapped by the Ministry of Law—to learn more about how financial technology firms can meet growing demands in the loan market. The following interview excerpt was edited for brevity and clarity.
What’s the advantage of using Credit Culture?
It is now the norm to use technology to make traditional banking services more convenient. We are seeing more financial institutions making great leaps in leveraging technology to make the loan process more efficient for their customers. Yet behind these promises for a quicker loan process, there tend to be many hidden caveats.
We can see this by considering some of the perks that banks offer, like fee removals or promotional rates. While they do make borrowing more affordable than before, these benefits aren’t applied consistently.
Credit Culture makes the lending process transparent for our customers. The terms and conditions of our loans are clear, so borrowers can make informed choices. Consumers can check their loan amortization schedule and all existing fees online.
More importantly, unlike banks, we do not charge an early settlement fee. Instead of penalizing consumers who pay off their loans early, we encourage them to do so, to better manage their debt and save on interest. And when there is a default, we do not charge late interest for overdue payments as this would cause borrowers who are already facing difficulties to incur more debt.
How are Credit Culture’s services different from those offered by banks?
Interest rates of credit cards provided by banks vary between 25% and 27% per annum. That’s really steep. Most of those in lower income brackets cannot access these loans. The growing amount of bad debt is another example of how exorbitant the rates are.
Our proprietary credit scoring engine pulls data from credible sources like MyInfo to access credit databases of both Singaporeans and permanent residents. It then determines an applicant’s creditworthiness. With this automated system, we are able to reduce the cost involved in a typical loan cycle—initiation, underwriting, and repayment—which we then pass on to consumers. As a matter of fact, we can offer loans to those who make less than S$20,000 per year.
Do you have any near-term plans for expansion beyond Singapore?
We chose to begin in Singapore for two main reasons.
Being in line with Singapore’s push to become a “smart nation” makes it easier for us. The Ministry of Law’s initiative is a good stepping stone for legal personal lending services offered to Singaporeans and permanent residents.
The other reason is that Singapore has a mature finance landscape. If you consider the credibility of data in our credit scoring system, not many countries in the region have as reliable a credit database as we do here.
For now, we want to stay focused and leverage on these factors to serve Singapore’s lending market. If it works, hopefully, we can replicate it in Hong Kong, a market that is also mature, but bigger.
Editor: Brady Ng