Singapore sets tough conditions for aspiring digital banks

Winner of digital banking licences will be announced in mid-2020.

Gardens by the Bay, illuminated at night, Singapore. Via 东方IC. Gardens by the Bay, illuminated at night, Singapore. Via 东方IC.

This article first appeared on Nikkei Asian Review. It’s republished here as part of 36Kr’s ongoing partnership with Nikkei. 36Kr is KrASIA’s parent company.

SINGAPORE (Nikkei Markets) — Singapore said on Thursday that it will begin accepting applications for up to five new digital bank licences, beginning the process of selecting players keen to make inroads into the city-state’s lucrative banking market.

The Monetary Authority of Singapore said interested parties have until 31 December 2019 to submit their applications, and that the winners will be selected in mid-2020. Successful bidders will then have 12 months to meet the requirements set by MAS before commencing business in mid-2021.

MAS’s announcement comes two months after its chairman Tharman Shanmugaratnam said the authority will issue up to two digital full bank licences and three digital wholesale bank licences, following in the footsteps of rival Asian financial centre Hong Kong which has already issued eight virtual banking licences.

“The new digital bank licences, which will be extended to non-bank players, will ensure that Singapore’s banking sector continues to be resilient, competitive and vibrant,” MAS said.

Companies that have expressed interest in Singapore’s digital banking licences include local ride-hailing giant Grab as well as Malaysia’s Maybank. There have also been reports that Singapore Telecommunications and Oversea-Chinese Banking Corp. might join forces to bid for a licence.

“We are studying the eligibility criteria closely and remain interested in the opportunity,” Singtel said in an email.

MAS said that digital full banks will be allowed to take deposits from and provide a wide range of financial services to retail and non-retail customer segments, while digital wholesale banks will be permitted to serve small and medium-sized enterprises and other non-retail segments.

These new digital banks are in addition to any digital banks that Singapore banking groups may already establish under the existing regulatory framework, the authority said.

MAS also said applicants must provide five-year financial projections for the proposed digital bank that show a path towards profitability.

“The assumptions of the financial projection must be reviewed by an external and independent expert,” it added.

Singapore’s requirements appear tougher than those set by Hong Kong. For example, applicants for the digital full bank licence must be anchored in Singapore, controlled by Singaporeans and be headquartered in the city-state, meaning that big digital players from countries like China will have to find local partners if they hope to tap the retail market.

Companies seeking the digital full bank licence must eventually have a minimum paid-up capital of 1.5 billion Singapore dollars (USD 1.08 billion), although the starting amount will be a much lower SGD 15 million.

Hong Kong did not make a distinction between retail and wholesale, and winners of its virtual bank licences include companies whose ultimate parent are headquartered elsewhere.

Singapore does, however, offer capital market licences that allow financial technology start-ups to provide financial services such as payments and loans to SMEs.

Like in Hong Kong, companies seeking a digital banking licence in Singapore must also explain how they exit the market in an orderly manner.

–Kevin Lim