Virtual transactions: A credit card holder paying bills through a smartphone. Trust Bank says there has been a strong response to its loans tied to the credit cards it issues.
SINGAPORE: Trust Bank will roll out more types of unsecured loans to customers in the coming months as the digital bank races towards its goal of being profitable by 2025.
This comes after the institution, which is backed by Standard Chartered Bank and FairPrice Group, launched what it calls Instant Loans for some of its Trust credit card holders in July. It is based on customers converting a portion of their available credit balance into cash, with interest rates starting from 3.4% a year.
The move into loans is a milestone for Singapore’s digital banks. Lenders mainly profit from the difference between the interest earned on loans and rates paid on deposits, together with fees from various products.
But digital lenders are still building up their deposits – a cheap source of funds for banks – and rely largely on their shareholders in the meantime.
Trust chief executive Dwaipayan Sadhu told The Straits Times that costs are manageable as his bank already profits on its deposits, which it invests in Singapore Treasury bills.
“While our interest rates are attractive, they are actually much lower than some of the headline rates offered by the others. As a result, our overall deposit funding cost is very affordable,” he said.
Trust’s peers GXS Bank and MariBank – Singapore’s two other digital banks that also cater to individuals – offer annual rates of between 2.38% and 2.88%. Incumbent lenders offer higher rates when customers fulfil criteria in areas such as saving, spending and investing.
Sadhu said Trust woos customers with a lack of hurdles for them to earn savings account rates – they get up to 2.5% a year on their first S$125,000 – and the ability to view these rates on the bank’s app.
“We also don’t have any fees. The third pillar is the rewards. Even on your debit card, you still have the ability to earn Linkpoints and access coupons and stamp cards that we offer,” he said, referring to the bank’s rewards system that is focused on FairPrice groceries and food.
The cost of acquiring customers is seven times lower for Trust than the market, said Sadhu.
He cited factors such as referrals by existing customers, which account for 70% of new clients, and the absence of high-value gifts commonly offered by other players.
“When you have a low cost of acquisition, that really puts you on the path to profitability much quicker. This gives us a lot of confidence for the future,” he said.
Trust aims to become Singapore’s fourth-largest retail bank by customer numbers by the end of 2024. It currently has over 600,000 customers, which translates to about 12% of Singapore’s adult population.
Deposit balances surpassed S$1bil as of May, with the amount growing strongly every month, said Sadhu.
Trust’s shareholders have invested a total of S$510mil in the bank, which is now looking to grow its loan book and fee income from insurance solutions offered on the app in partnership with Income Insurance.
Part of this involves making its Instant Loans available to all credit card customers in the coming months, with similar products in the pipeline.
Sadhu said: “Since July, we have seen very strong customer response for our unsecured loan, and our operational processes and risk management practices are working as per our expectations very well.
“We are now looking at expansion and in the next few months, we will be expanding to newer variants of unsecured loans.”
Tying the loan to the credit card limit enables a customer to have better control of his finances, he said, adding that the average limit is around S$17,000.
“You’re consolidating your spending and borrowing into one account, and you have only one repayment to manage.” — The Straits Times/ANN
