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DIGITAL BANKS

Singapore's digibank push draws 21 bids

Two-thirds of applications seek wholesale licences; most bids put in by consortia

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A total of 21 digital bank applications - 14 for wholesale licences and seven for full bank licences - were submitted to the Monetary Authority of Singapore (MAS), the regulator said on Tuesday.

Singapore

A TOTAL of 21 digital bank applications - 14 for wholesale licences and seven for full bank licences - were submitted to the Monetary Authority of Singapore (MAS), the regulator said on Tuesday.

MAS said the new digital bank licences have attracted strong interest from a diverse group of applicants, which it did not name. They include e-commerce firms, technology and telecommunication companies, fintech - such as crowd-funding platforms and payment services providers - as well as financial institutions. The majority of applicants are consortia, MAS said, without naming the entities.

MAS is issuing up to five digital banking licences by June this year - up to two full-bank licences that permit retail banking, and up to three for wholesale banking. The new digital banks are expected to start their operations by the middle of 2021. This liberalisation move - the biggest for the financial sector here since 1999 - was first announced by the MAS in June last year. Applications closed on Dec 31, 2019.

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Applicants that have made public their interest include Ant Financial, Grab, Singtel, Razer, a consortium linked to OSIM founder Ron Sim, Temasek-linked supply chain finance firm Sheng Ye Capital, and just on Tuesday, a consortium led by Hong Kong's AMTD Group, as well as Sea Group going at it alone.

Hong Kong received 29 applications for virtual banks and awarded eight licences in the end, although the applications are not directly comparable due to differing capital requirements, among other things. Of the eight licensed virtual banks in Hong Kong, seven are set up by Chinese companies.

Varun Mittal, global emerging markets fintech leader at EY, told The Business Times that the number of applications received by MAS is a "good indicator" that a diverse set of players is keen to address unmet and unserved customer needs.

"We see an emerging trend of 'FinLife', the coming together of financial services and lifestyle to enable seamless customer experience and innovative financial products," said Mr Mittal.

That being said, he noted that the long-term sustainability and viability of new digital banks is a key area to watch: "Globally, a large proportion of them have yet to become profitable. In the event of an economic downturn, the new digital banks could face operational challenges."

Singapore's two digital full bank licensees will operate at the first stage as a restricted bank. This restricted digital full bank will have an initial paid-up capital of S$15 million.

Aggregate deposits will be capped at S$50 million at that point, and individual deposits will be capped at S$75,000. Such a digital bank - at its restricted stage - can offer only simple credit and investment products.

Once MAS deems that the restricted digital full bank performs to show, among other things, good quality of loans and a well-managed business, the restricted digital full bank will be graduated to a full functioning digital bank by the regulator.

No timeline has been set by MAS, though the regulator generally expects a digital full bank to be fully functioning within three to five years from the start of its business.

A graduated digital full bank must meet the minimum paid-up capital requirement of S$1.5 billion. The deposit cap, which is applied only to restricted digital full banks, will be removed.

The graduated digital full bank will continue to face the same liquidity requirements as existing banks in Singapore.

A digital full bank, in taking in retail deposits, must be anchored in Singapore, controlled by Singaporeans and headquartered in Singapore.

The digital wholesale bank licence - which allows the successful licensee to serve SMEs and other non-retail segments - requires a capital requirement of S$100 million and allows foreign entities to take a majority stake.

Digital banking aspirants in Singapore must show a path towards profitability, providing a five-year financial projection of the proposed digital bank. Even if the break-even point is not within the first five years, the applicant should indicate when it expects to break even.

Singapore's approach has been focused on tapping unmet needs. MAS has said that in introducing competition, the Singapore regulators also want to ensure that the Singapore banks - which collectively hold a market share of more than 50 per cent here - remain "strong local anchors".

Applicants must also show a "clear value proposition" to meet underserved needs using technology. Among other requirements, at least one entity - which holds a 20 per cent stake - in a consortium should hold a minimum three-year track record in operating an existing technology or e-commerce business.

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