Digital banking is accelerating in Singapore as deregulation encourages tech companies like Grab to enter the market in hopes of attracting younger customers and small businesses.
While this is expected to foster banking competition, retail virtual banks have yet to bring their operations fully online because of lingering regulatory restrictions. Meanwhile, incumbents like Standard Chartered are digitizing their services at an accelerating pace.
GXS, a digital bank majority owned by Grab, operator of Southeast Asia’s ubiquitous superapp, has expanded services since opening in September. GXS’s app hardly looks like a banking app. With its black and purple color scheme, it has more of a music-streaming vibe.
The app updates GXS account holders with daily reports on how much interest their deposits have accrued. While a regular savings account offers 0.08% interest, time deposits, opened for specific purposes such as travel or layaway purchases, earn 3.48%. GXS hopes to increase user engagement by letting customers see the interest they earn every day.
“We are a bank created by digital natives for digital natives,” CEO Charles Wong told Nikkei Asia. GXS is targeting so-called gig economy workers like those who deliver meals or give commuters rides via the Grab app. The bank also looks to lure those just starting out in their careers. There are no minimum balance or account maintenance fees.
Grab owns 60% of GXS, with Singapore telco Singtel holding the rest. The partners have a combined local customer base of more than 3 million and can gather reams of data that will tell it what their account holders like to eat, where they commute, and how much they use their mobile phones. GXS executives believe that by analyzing this data, the bank can offer timely small loans, insurance products, and other financial services.
Deregulation has made it possible for nonbank companies such as Grab to enter Singapore’s virtual lending market. In June 2019, the Monetary Authority of Singapore (MAS) announced the creation of two licenses, including a digital full banking license, which allows holders to serve individuals and other customers. It also announced a digital wholesale banking license, with plans to issue up to five of the new licenses in total.
The Singaporean central bank was responding to similar moves by other Asian countries. In South Korea, internet giant Kakao got into banking in 2017, and Hong Kong issued digital banking licenses in 2019.
“We must take advantage of these opportunities that digital finance brings,” MAS Chairman Tharman Shanmugaratnam said, “and not be overtaken by the wave of changes taking place globally.”
Interests were high during the four-month filing period, 21 companies and groups, including foreign entities such as Chinese mobile phone maker Xiaomi, submitted applications for digital banking licenses in Singapore. Another Chinese tech giant, ByteDance, owner of the TikTok video-sharing app, was reportedly among the applicants.
In the end, the Grab-Singtel consortium and Singaporean e-commerce player Sea were granted digital full banking licenses. But despite high hopes, neither has made much of a splash in the nascent market. GXS provides services to selected Grab and Singtel clients, while Sea is rolling out on an invite-only basis. Neither has disclosed precise customer numbers.
Lingering regulations aimed at ensuring digital banks’ financial stability are behind the slow rollout. For retail customers, one regulation caps initial deposits at SGD 5,000 (USD 3,772) per account. The government has yet to announce when full-scale services will be permitted.
In the meantime, Standard Chartered, one of the U.K.’s largest banks, has begun operating a digital bank called Trust Bank, which has attracted more than 400,000 users in four months. Trust Bank was founded with FairPrice Group, operator of Singapore’s biggest supermarket chain.
“Banks have to transform themselves from being just a bank to becoming part of an ecosystem,” Dwaipayan Sadhu, CEO of Trust Bank, told Nikkei. Trust offers deposit accounts, credit cards and insurance policies through an app. Customers can earn loyalty points and coupons from partner brands.
Freed from the expense of operating physical outlets, the digital bank can lower the cost of winning customers and share the savings with them in the form of higher interest on their deposits, Sadhu said.
Trust obtained a license that allows it to offer services similar to those of conventional banks. It developed a core banking system, which resides on a cloud platform, jointly with Thought Machine, a British unicorn that counts JPMorgan Chase as a shareholder.
Meanwhile, Ant Group, the fintech affiliate of Chinese tech giant Alibaba Group Holding, obtained a digital wholesale license, which allows it to conduct transactions for corporations. Ant’s digital-only Anext Bank allows companies registered in Singapore to open an online corporate account in an instant, even from overseas, a first in the city-state, the bank says.
“We are clear on our mission to accelerate financial inclusion through technology-driven innovation,” Anext CEO Toh Su Mei told Nikkei, adding that the bank intends “to better serve the underserved SMEs [small and medium-size enterprises] not just in Singapore but also across the region.”
The bank’s online loan service, which will become fully available by June, does not require application forms for unsecured loans of less than SG$30,000 with a cap of SG$300,000. The service instead sifts through data provided by credit information organizations, with customer permission, and deposits approved loans almost immediately upon receiving an application.
In one estimate, about 80% of Asia’s cross-border e-commerce services are operated by small to medium-size enterprises, many of which lack ready access to financial services. In a 2020 survey by Visa, 88% of SMEs in Singapore said they planned to make at least some of their transactions digitally.
But it remains to be seen how much of a share digital banks can take. Singapore is said to be overbanked as it is, with 98% of the adult population already account holders. Globally, there are about 250 digital-only banks. According to Moody’s Investors Service, their combined banking assets represent 0.4% of those of existing banks.
“We can expect the retail banking market to grow” in Singapore, Jan Ondrus, associate professor of information systems at ESSEC Business School Asia-Pacific, told Nikkei. “The new digital banks will not replace the traditional ones but complement their offerings, at least in the early days.”
In the medium to long term, digital banks are expected to utilize their technology in other markets in Southeast Asia, where, unlike in Singapore, many residents remain unbanked or underserved. Moves to issue digital banking licenses are afoot in Malaysia, the Philippines and Thailand. Grab plans to open digital banks in Indonesia and Malaysia this year.
“We have in place a regional technology architecture, including our core banking system, which our digital banks in Malaysia and Indonesia can tap or repurpose,” GXS’s Wong said, describing a setup that will keep costs low as Grab opens banks in more countries.
Still, a bumpy road lies ahead for tech companies struggling with their core businesses. Sea has cut staff, and Grab has frozen employee recruitment. Both are operating in the red and have less scope to invest heavily into new services now than when they filed for their digital banking licenses in Singapore.
“Digital banks have not had the time to develop these capabilities yet and face the uphill battle of tackling customer aversion to change,” he added.