GXS Bank, Anext Bank and Green Link Digital Bank opened their virtual doors for business this year, about two years after the Monetary Authority of Singapore gave the green light to digital banks in a move to liberalise the financial industry. — Reuters
SINGAPORE: Singapore’s digital banks are mostly up and running, but newcomers face plenty of challenges in trying to establish a secure foothold in the financial sector, say observers.
Such banks will have to overcome hurdles like fierce competition from incumbent players and customers’ resistance to change.
Three contenders have already thrown their hats into the ring, with a fourth seemingly putting its launch on hold.
GXS Bank, Anext Bank and Green Link Digital Bank opened their virtual doors for business this year, about two years after the Monetary Authority of Singapore (MAS) gave the green light to digital banks in a move to liberalise the financial industry.
These banks do not have physical branches, and their customers bank purely online.
MAS expected the banks to start operations in early 2022 and cater especially to underserved businesses and individuals.
These include firms that lack data for lenders to assess their creditworthiness and self-employed people facing cash flow issues, according to observers and players.
GXS, an entity backed by Grab and Singtel, is a digital full bank and can serve retail and corporate customers.
It launched a savings account in August that is by invitation only.
The Straits Times (ST) understands that part of the reason for this is a restricted phase imposed by MAS that aims to minimise the impact of initial operational issues and allow the banks to fine-tune their business before catering to the broader public.
These banks must cap their aggregate deposits at US$50mil (RM219mil), excluding wholesale deposits, if they have a paid-up capital of at least US$100mil (RM438mil), and restrict their depositor base in their first one to two years of operation.
GXS chief executive Charles Wong told ST that one-third of the bank’s invitation list is reserved for consumers such as platform workers, home business owners, and those in the early stages of their careers.
“The remaining two-thirds are an equal split between employees and customers of our ecosystem partners, Grab and Singtel,” he added.
“Another key focus for us next year is tackling the pain points that hinder Singaporeans, especially those in the underserved segment, from accessing credit.”
Meanwhile, tech giant Sea has largely been quiet about its Singapore digital bank MariBank. It recently said its digibanks are still in “a very nascent stage”. It has a licence in Malaysia under a consortium and its eCommerce platform Shopee operates SeaBank in Indonesia.
“We have started some pilot programmes for MariBank, where we’ve opened up limited features to employees,” said senior executive Minju Song at Sea’s latest earnings call.
The company has reportedly cut about 10% of its workforce in the past six months and shut down operations in several markets to trim costs.
The new banks certainly will not have it easy. DBS Group Research analyst Lim Rui Wen noted that traditional banks have increased interest rates on their flagship savings accounts and fixed deposits, and there are other high-yielding alternative instruments in the market.
Digital banks also have to deal with competition from other players, including Trust Bank, which operates only online, but does not compete on an equal footing with the other new entrants.
Traditional lendersIt is backed by industry heavyweights Standard Chartered and FairPrice Group, and it has a full bank license, allowing it to operate similarly to traditional lenders.
Trust has launched products such as a savings account and credit card and gained over 300,000 users in its first two months.
Its perks, such as free rice, helped attract customers, with more than 200,000 online reward redemptions in the same period.
Lim said digital banks will have to go beyond offering promotional rebates and high deposit rates to attract and retain customers.
The tech sector’s headwinds might also affect them in terms of potential funding, with the banks being pressed for a faster path to profitability by investors, she added.
Anton Ruddenklau, partner and head of financial services at KPMG in Singapore, said customers are generally reluctant to switch from their existing banks to a new player for activities such as making deposits and taking loans.
This is why digital banks globally have found it hard to turn a profit even as they gain consumer awareness, he said.
“People leave most of the profitable products with their existing bank, and they just use the digital bank as a glorified e-wallet or credit card,” he added.
It takes around seven years for the world’s top 10% of digital banks to break even, according to KPMG’s research.
Singapore’s small market does not help either, said Ruddenklau.
But he added that digital banks will use Singapore to establish themselves and reach their real prize in South-East Asia, where there are more customers and opportunities to cater to different segments such as mass retail and affluent clients.
Paul Sommerin, partner and Asia-Pacific digital and technology leader at management consultancy Capco, said new entrants tend to want to launch the perfect bank when they actually need to build a reputation and trust.
“Overall, a disciplined approach that focuses just on building what people will buy is a key priority,” he said.
Singapore is well banked, but there is a gap around mature and decentralised financial products, especially for the fast-growing small and medium-sized enterprise (SME) market, he added.
Digital wholesale bank Anext started offering a dual-currency deposit account in August that gives businesses daily interest. ST understands that about 70% of the account’s customers are microbusinesses, and the rest are small enterprises.
The bank has also launched a programme where partners such as eCommerce marketplaces and other fintech firms can offer Anext’s financial services on their platforms to SME clients with cross-border operations.
Green Link Digital Bank likewise offers businesses products such as fixed deposits, term loans, and supply chain financing.
Cross-border payments
Unlike digital full banks, these banks do not have to go through a restricted phase where there is a cap on aggregate deposits.
Rohit Narang, managing director for Asia-Pacific at cross-border payments company Currencycloud, said players can reach the market faster by integrating banking services offered by others into their own platforms.
“This means avoiding the hefty cost of developing apps in-house and freeing up resources for more pressing tasks, like enhancing the customer experience.”
Digital banks can also seize opportunities in areas such as supply chain payments and buy now, pay later options on marketplaces for businesses, said Narang.
“A digital bank anchoring the payment value chain is a confidence booster for international buyers and sellers as it gives them greater peace of mind about the legitimacy of their e-transactions.” — The Straits Times/ANN
