Value-packed neobank offerings will push traditional digitalized banks to up the ante, with fierce competition hopefully benefiting savvy APAC digital customers.
The Monetary Authority of Singapore (MAS) recently announced its selection of four digital banks: two Digital Full Banks (DFB) and two Digital Wholesale Banks (DWBs).
The DFBs awarded licenses are a consortium comprising Grab Holding Inc. and Singapore Telecommunications Ltd, and an entity wholly-owned by Sea Ltd.
One DWB consists of a consortium comprising Greenland Financial Holdings Group Co. Ltd, Linklogis Hong Kong Ltd, and Beijing Co-operative Equity Investment Fund Management Co. Ltd. The other DWB is an entity wholly-owned by Ant Group Co. Ltd.
MAS expects the new digital banks to commence operations from early 2022. Notably, the government authority had previously announced that it would award banking licenses for up to two DFBs and up to three DWBs from among a total of 14 eligible applications. Applications were assessed on the following criteria:
- Value proposition of business model; incorporation of innovative use of technology to serve customer needs and reach under-served segments
- Ability to manage a prudent and sustainable digital banking business
- Growth prospects and other contributions to Singapore’s financial center
Selection rationale
MAS also took into consideration the eligible applicants’ reviews of the business plans and assumptions underpinning their financial projections arising from the impact of the COVID-19 pandemic.
The two selected DFB applicants were clearly stronger than the other eligible DFB applicants. As for the DWBs, the two selected applicants met MAS’ expectations and were assessed to be demonstrably stronger across the criteria notwithstanding the general high quality of the eligible applicants. MAS has thus decided to award banking licenses to two DWBs. As the DWBs are a pilot program, MAS will review whether to grant more of such licenses in the future.
According to Ravi Menon, Managing Director, MAS: “(We) applied a rigorous, merit-based process to select a strong slate of digital banks. We expect them to thrive alongside the incumbent banks and raise the industry’s bar in delivering quality financial services, particularly for currently underserved businesses and individuals. They will further strengthen Singapore’s financial sector for the digital economy of the future.”
The advent of digital banking in Singapore is one of six megatrends expected for the near future.
Market-share expectations
Analysts predict that digital banks will clinch around 60% of the APAC market by 2025. That could be when around 100 new financial institutions will be competing with traditional banks that have also become highly-digitalized.
According to CEO and founder of Backbase, Jouk Pleiter, the pandemic has triggered the accelerated digitization of financial services across the region. Consumers and small business owners alike expect their banks to truly step up their digital game and provide 100% seamless digital capabilities, any time, any place. “Looking beyond (the pandemic), banks and neobanks have to elevate their digital-first capabilities to effectively enable hyper-personalization for customers.”
Meanwhile, central banks in the region are assessing and exploring digital national currencies (CBDCs) to foster financial inclusion and modernize the global payments ecosystems. Presumably, Facebook had shocked policymakers with its announcement of its plan to create its own cryptocurrency Diem.
According to the Head of Blockchain, Digital Assets and Data Policy at the World Economic Forum, Sheila Warren: “Collaborations between the public and private sectors in the exploration of CBDCs can help such banks understand better the range of technology possibilities and capabilities available. Central banks can benefit from support in exploring the option set available to them with respect to CBDCs, as well as (in) gaining insight into what opportunities may be forthcoming.”
For Japan, where the majority (73%) of non-digital banking consumers are likely to stick to the status quo, digital banking may have its allure cut out. For the Philippines, the pain points of Know-Your-Customer regulations in digital banking are a hurdle. This is exacerbated by complexities, cost of authentication and low priority to customer experience.
Recently, as a sign of traditional banks’ efforts to compete, one of Australia’s largest banks pulled off an ambitious loyalty program to show off perks that neobanks will likely not have the resources to dangle in front of their clientele. This kind of CX intensification will likely ramp up throughout the rest of the region.
Finally, the endemic economic prospects of India have actually raised hopes that digital banking can spell relief for the underbanked or unincluded population.
