In this article
- What is a Digital Bank?
- Digital Full Bank License vs Digital Wholesale Bank
- What Are Examples of Digital Banks in Singapore?
- What Are the Driving Factors of Digital Banks?
- What Are the Benefits of Digital Banks for Consumers?
- What Are the Benefits of Digital Banks for SMEs?
- What Are the Challenges Faced by Digital Banks?
According to Google, Bain, and Temasek’s e-Conomy SEA 2021 report, digital consumption has become a way of life for Southeast Asia’s populations, and digital financial services are key enablers of this trend.
For renowned financial hub Singapore, in particular, the pandemic has accelerated the development of its financial services sector, especially in digital banking.
It joins the wave of new digital banks in Asia, with digital bank licenses issued in Hong Kong, China, South Korea, and Taiwan.
We look at the reasons driving the growth of Singapore’s digital banks in this article and why they’re here to stay.
What is a Digital Bank?
A digital bank is a bank that has been completely or partially digitised. This means that many or all of its operations are conducted through digital channels such as the internet and mobile apps.
A digital bank offers the same services as a traditional bank.
Digital Full Bank License vs Digital Wholesale Bank
The Monetary Authority of Singapore (MAS) awarded 4 digital banking licenses in 2020 – 2 Digital Full Bank licenses and 2 Digital Wholesale Bank licenses. How do they differ?
Here are their features:
|Type of License||Digital Full Bank (DFB) License||Digital Wholesale Bank (DWB) License|
|Deposit Requirements||No minimum deposit||No minimum deposit for businesses
Minimum deposit of at least S$250,000 for individuals
|Type of Customers||Meant to serve retail clients||Meant to serve small and medium enterprises (SMEs) and other non-retail customers|
|Product Offerings||Offers all types of simple credit and investment products||Limited to the proposed businesses stated in its application, but may seek approval to expand the business scope|
Although DFBs are allowed to provide the same services as traditional banks, they can only do so via a 2-stage process to reduce risks.
It will begin as a restricted DFB with limits on product offerings and deposits before moving to a fully functioning DFB after meeting milestones and passing assessments.
A DFB is expected to become fully functional within 3 and 5 years of operations.
What Are Examples of Digital Banks in Singapore?
Some examples of digital banks in Singapore are:
- Grab and Singtel’s GXS Bank (DFB)
- Sea Limited’s SeaMoney (DFB)
- NTUC and Standard Chartered’s Trust Bank (DFB)
- Ant Group-backed Anext Bank (DWB)
- Green Link Digital Bank (DWB) backed by Greenland Financial Holdings
Related Read: Singapore: The Digital Capital of Asia »
What Are the Driving Factors of Digital Banks in Singapore?
There are a few attractive reasons that drive companies to apply for digital bank licenses to set up their digital banks, including:
Greater Demand for Mobile and Digital Banking Alternatives
Consumer trends are shifting, and digital banks can leverage on these trends to capitalise on them. One trend is the increased demand for mobile and digital banking alternatives, as well as the innovative and relevant solutions they offer, as more people move online.
Thanks to digital banks’ lean models, they are also better positioned to come up with faster and better digital banking services to meet unmet customer needs.
Technology as an Enabler
It’s no surprise that technology has been an enabler for digital banks. Machine learning, artificial intelligence, big data, automation, and more have fueled the development of these banks.
These technologies allow digital banks to collect and process data on customer habits and preferences faster than traditional banks. It helps them offer more tailored services and products to their customers.
Digital banks also use the newest technologies to improve customer targeting to provide services to accurate customer segments. Ultimately, smart technology and data will provide digital banks with richer insights into customers’ needs to innovate solutions that meet these needs.
A Digitally Advanced Nation
According to the IMD’s World Digital Competitiveness Ranking 2022, Singapore ranks 4th globally, taking its spot beside other digitally advanced nations like Sweden and Switzerland.
This ranking measures the capacity and readiness of 63 economies around the world to implement and explore digital technologies. Singapore’s ranking shows that it is well-poised to shift to new technologies like digital banking.
What Are the Benefits of Digital Banks for Consumers?
Digital banks have been welcomed by eager consumers thanks to a slew of advantages they provide. Some of these benefits include:
One of a digital bank’s key selling points is its convenience. Customers can bank anytime, anywhere, with their smart devices and computers, as long as they have access to the internet.
Customers need not make a physical appearance as they do at traditional banks to get their problems solved. The convenience is particularly enticing to digitally savvy consumers who are already used to taking things online.
Digital banks put their customers at the heart of what they do.
Instead of the product and medium approach taken by traditional banks, digital banks strive to be more relevant to their customers’ daily lives and offer banking services that accomplish that.
They are willing to engage in partnerships with a network of partners to ensure a smooth experience for their customers.
More Competitive Interest Rates and Fees
Digital banks are in a favourable position to offer more competitive interest rates to customers.
The absence of expensive overhead fees from physical branches and offices means that they can pass on the monetary savings in the form of better rates to clients and lower service fees.
During economic instability and times of high inflation, customers may be attracted to these higher rates and fees instead of what traditional banks offer.
Most traditional banks in Singapore have minimum initial deposit amounts for a new digital bank account and minimum balance requirements. These may deter younger groups of customers who have limited funds to deposit.
Since DFBs have no minimum deposit requirements, they may be a preferred option for the youth and low-income segments.
What Are the Benefits of Digital Banks for SMEs?
Digital banks are also increasingly accepted by SMEs in Singapore. SMEs can leverage on digital banks to achieve a few objectives, including obtaining financing or banking solutions to manage their non-core business activities.
Digital banks don’t just offer low fees to individual customers, but to businesses like SMEs as well. Competition in the market also means that SMEs can choose a digital bank that best fits their financial needs, such as one with low costs and fees.
Related Read: 3 Steps to Set Up a New Business in Singapore »
Enhanced Access to Capital
Getting capital to carry out different business activities, such as funding daily operations, the purchase of new equipment, and even the payment of employee salaries, has always been one key concern businesses face.
Digital banks offer another opportunity for companies to secure capital to finance their businesses. This way, SMEs can get the financing they require to grow their businesses.
What Are the Challenges Faced by Digital Banks?
Enabling factors aside, Singapore’s digital banks also face several challenges that must overcome. Apart from having to deal with competition from traditional banks, here are some problems that they have to grapple with:
During the height of the COVID-19 pandemic, economic uncertainty led to prudence on the regulatory front. Singapore was not spared, and the government delayed licensing for about 5 months.
As digital banking continues to grow and mature, it will not be surprising to see the government tightening regulations as well, which may pose a problem for future entrants.
The Pressure to Scale
New digital banks must achieve significant customer volume to be financially viable, and they must be able to do it quickly. They may feel the pressure to do so, considering the competition from traditional banks and from other digital banks.
Silver Generation Adoption
Singapore is a fast-ageing society, no thanks to our low birth rates. There is the view that the elderly may not be able to adapt to new technologies like digital banks that are designed for the digitally savvy youth generation.
Instead of worrying about elderly adoption, digital banks should see the older generation as an opportunity for silver tech. Given our ageing society, it will soon become a necessity for businesses to design for seniors.
Artificial intelligence and technology can support digital banks in introducing more inclusive ways for the elderly to bank.
They can make their banking solutions more accessible to all users by making more inclusive designs, accounting for age, the degree of digital literacy, and cognitive abilities.
Digital Banks Are Set for Growth
Digital banks in Singapore are poised for growth. Although the sector is growing increasingly competitive, it remains a success that has seen massive adoption not just in the city-state, but across Asia as well.
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