THE "real prize" for Singapore's upcoming five challenger digital banks is the Asean market, where half of the population is underbanked and incumbent banks are still catching up, according to a recent report by Maybank Kim Eng.

Digital banking offerings developed and tested in Singapore will have a competitive advantage in regional economies, on the back of the city-state's regulatory, capital and technology ecosystem, said analyst Thilan Wickramasinghe.

In the report, he noted that banking penetration in Asean remains low while incomes have been growing rapidly. Banking systems in most Asean countries are also still catching up in terms of regulatory best practices, even as the younger demographics are increasingly using digital payments for transactions.

"These provide a strong opportunity for disruption from challenger digital banks in these markets, in our view," he wrote.

The Monetary Authority of Singapore (MAS) had earlier announced in end-June that it will issue up to five new licences to digital banks and begin taking applications from August, in one of the biggest liberalisation steps taken by the city-state in years.

The five new digital-bank licences will comprise up to two digital full-bank licences, and up to three digital wholesale bank licences.

According to Mr Wickramasinghe, consortiums made up of firms with access to customer behavioural data, artificial intelligence (AI)-driven credit analytics, and a strong Asean footprint will have a better chance of landing these licenses.

MAS had specified that applicants have to provide a clear value proposition on how they can serve unmet or underserved needs; Mr Wickramasinghe believes that this means segments such as young Millennials, small and medium-sized enterprises (SMEs) that are on the smaller side, and startups.

 "We believe that the real opportunities for digital banks lie not in competing for market share in the existing market, but through broadening the overall marketplace," he said.

While digital banks could certainly benefit the under-served in Singapore, it is ultimately about "winning Asean", added the analyst.

A separate report by S&P Global also flagged that the emerging markets in the Asia-Pacific are a "playing field of opportunities" for virtual banks.

Similarly, analysts noted that emerging markets in the Asia-Pacific are home to vast numbers of underbanked consumers, which provides opportunities for virtual banks to gain a foothold and scale up their business models.

A young demographic pool, greater openness towards adopting new and innovative technologies in banking services, and increasing consumerism provide tailwinds for the success of virtual banks, added the analysts.