Digital banking set to take-off in Singapore

Dr Biz • December 21, 2020

Digital banking has been given the green light in Singapore, with four banks approved for licences in December. This is in response to the huge demand that exists for digital banking in the city-state, with a recent survey conducted by PwC revealing that 72% of Singaporeans aged between 18 and 39 are interested or very interested in digital banking services, with the more affluent 25-39 age group showing the most interest.

This potential has been a key factor in the Monetary Authority Authorities’ (MAS’s) decision to allow Sea Ltd. and a Grab-Singtel consortium full, market-wide digital banking licences and Chinese firms Ant Financial and a consortium headed by Greenland Financial Holdings limited wholesale licences to launch digital banks for SMEs. Expected to begin operations in 2022, these four firms will provide the first digital-only banking services in Singapore, which will mirror the services offered by traditional banks, but without physical premises.

Digital banking demand and potential

Banking is already big business throughout Asia, which has been the world’s largest regional market for a decade, according to McKinsey research. With pre-tax profits of more than USD $700 billion, Asia accounts for 37% of global banking profits. As incomes continue to rise throughout the region, by 2025 it is estimated that three quarters (75%) of all personal financial assets in the world will be in Asia. Perhaps unsurprisingly, the region is also leading in digital payments, with China alone accounting for approximately 45% of all digital payments in the world.

Currently valued at USD $8 trillion, the global digital banking market is expected to expand at a compound annual growth rate (CAGR) of 8%, putting it at $12 trillion by 2026. According to a study by Global Market Insights, Asia Pacific is expected to hold above 65% of the digital banking market by 2026 due to extensive digitization and developments in financial technologies. In addition to Singapore, banking institutes across India are also embracing digital banking solutions, with the expansive spending power of banks and a large population expected to fuel market growth.

Benefits for Singapore workers and SMEs

Singapore’s job sector is already seeing the benefits of the upcoming digital banking boom, with Grab-Singatel having already announced that it will look to fill around 200 roles by the end of 2021. Hires will include positions in product, data, technology, risk, finance, and compliance as the company prepares for the launch of its digital banks. Speaking to the Straits Times, MAS also indicated that it expects digital banks will hire a ‘sizable number of people’ in Singapore, including key roles in leadership and management, as well as sales and marketing, business development, compliance and human resources.

Small businesses are also likely to benefit from the two ‘wholesale licences’ granted to Ant Financial and Greenland Financial Holdings, which will enable them to provide banking services to SMEs and other non-retail customers. SMEs have frequently complained of inadequate and high cost funding from risk averse banks in the past, with a recent SME Finance Accessibility Survey and Research showing that only 39% of SMEs were eligible for business financing in 2019. The introduction of digital banking could therefore prove a huge boon to Singapore’s SMEs: a vital part of our economy.

Greater speed and efficiency

The speed and efficiency offered by digital banking could also prove to be a huge win for retail and business customers alike. More than 70% of PwC’s survey respondents reported at least one pain point with their current bank, with 42% singling out long queue times as a key grievance and 23% reporting long wait times when they call their banks’ hotlines. The introduction of fully digital services should make these issues a thing of the past. Without having physical premises and property to pay for, new providers will be able to plough far more investment into leading user experience platforms and customer services.

For business, the loan application process should be greatly improved. Currently, a loan application for a small business can take months from application to approval, however examples in other countries such as the UK and Europe suggest this could take as little as 15 minutes with a digital bank. This is because traditional loan applications require several human interactions at various different agencies to process them, whereas digital banks use artificial intelligence and data analytics to do the same job at greater speed with less human error.

The launch of digital banking in Singapore will mark a big shift toward a more fully digital economy, and a further step toward the government’s ambition for Singapore to become a ‘smart-nation’. It will likely have myriad benefits for consumers, workers and businesses alike, not least micro businesses that have in the past struggled to find the funding they need. For this segment of the economy, access to funding through a digital bank could make all the difference between surviving and thriving, or shutting its doors.

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