Singapore fully embraces fintech and leverage it to establish virtual banks to explore untapped business segments. Source: Shutterstock

Singapore fully embraces fintech and leverage it to establish virtual banks to explore untapped business segments. Source: Shutterstock

Digital-only banks may set the tone for Singapore’s future of finance

IT IS A critical time for the financial sectors throughout Asia as fintech grows in importance and prominence.

In Indonesia, fintech has been deemed as a significant disruptor of the banking segment while in Hong Kong and China, fintech seems to have boomed successfully despite the trade war.

Singapore, too, has been quick to acknowledge these momentous developments and has since directed initiatives towards embracing fintech as a complementary component in advancing banking to establish itself as a global fintech hub.

This comes alongside a heightening need to tap into the digital economy and reach the underserved consumers – the underbanked and unbanked.

As a result, the Monetary Authority of Singapore (MAS), taking the role as a financial regulator, has issued digital-only bank licenses to further empower the integration of fintech and banking in a fast-paced digital economy.

The first of its kind in the country, there are reportedly a total of three wholesale bank licenses and two full bank licenses being offered. MAS has announced that applications are being rounded up this month.

Wholesale banks will be serving SMEs and other non-retail segments which is rewarding for both the licensees and the enterprises.

As noted in a digital economy study, SMEs also make up an untapped opportunity given their increasing market size but remain ineligible for loans due to poor access to affordable credit.

On the other hand, full banks can receive deposits from retail customers – extending financial services to those who are underserved.

This is fairly significant because two in five adults in Singapore are underbanked or unbanked, but through digital-only banks advances, this segment can now contribute to the digital economy.

As these are digital-only banks, they only exist in a virtual setting without the need for physical branches and tellers; thus reducing a great deal of operational cost and allowing them to offer higher interest rates on savings.

Licensees only need to have one physical operation grounds in the country but their services will not be accessible through automated teller machines (ATMs).

Nevertheless, customers of virtual banks can obtain cashback services through electronic funds transfer at retail merchants’ point-of-sale terminals.

Customers also perform transactions online and engage with these virtual banks via phone calls, online chat, and e-mail. Applicants must present a three-year – or more – worth of business experience track record in fields of technology or e-commerce.

While other criteria apply, applicants do not necessarily need to have an established record in banking. The country has been very proactive about its aspirations and has since, pushed businesses to innovate beyond the limits of their industries.

Singaporeans can expect to see these virtual banks to be open for business by 2021 with successful applicants set to be revealed during the middle of this year.

Moving forward, it is vital that regulators outline the functions and benefits of virtual banks to consumers to ensure that a clear understanding of these business premises is established.

Albeit, one can expect that with this latest advance, Singapore’s banking sector will develop greater resilience and gain a competitive edge over its global peers.