StanChart keeping option open on Singapore digital bank licence

Singapore

STANDARD Chartered Bank - one of the four foreign banks with a significant retail presence in Singapore - has left the door open on whether it would apply for the digital banking licence in Singapore, its second-largest market after Hong Kong.

If it does take the plunge, it would take a page out of its playbook in Hong Kong, where it joined hands with non-banking partners to target the millennial market, and defend its standing as an incumbent by taking on a new digital skin.

The bank is also part of a consortium which received a virtual banking licence in Taiwan in July this year. It has a 5 per cent stake in Line Bank, an upcoming web-only bank led by Line Financial Taiwan, which is linked to the popular Line messaging app.

"Our experience in these markets will serve us well as we continue to explore the best digital model for our clients in Singapore," said a StanChart spokesperson, when asked by The Business Times if the bank is planning to apply for the digital banking licences to be offered by the Singapore regulator.

Banks and non-bank entrants have been in talks over the past few months on forming various consortia to take up a digital banking licence here.

Applications are now open for up to five digital banking licences in Singapore, which will comprise just up to two digital full-bank licences, and up to three digital wholesale bank licences. A digital full-bank licence would allow the entity to take retail deposits.

The guessing game comes as StanChart is not able to apply to set up a digital-only-bank subsidiary with a lower paid-up capital of S$100 million under the existing Internet-only Bank (IOB) framework in Singapore.

Since 2000, Singapore-incorporated banking groups have been allowed to set up digital-only bank subsidiaries under the IOB.

But for foreign banks, this IOB framework only applies to qualifying full banks (QFBs) that originate from countries that have a free trade agreement (FTA) signed with Singapore. This is because it is only under an FTA that the Monetary Authority of Singapore (MAS) will issue a separate full bank licence that is required for a QFB to operate a digital-only bank subsidiary.

All in, there are now nine QFBs, and these QFBs are allowed to operate in more locations than non-QFBs. Of the nine, four - Citibank, Maybank, StanChart and HSBC - have locally incorporated at the minimum their retail businesses as required by MAS.

Among them, only Citibank is a QFB that is also backed by an FTA. The Singapore-US FTA - which took effect in 2004 - allows Citibank to open an unlimited number of branches in Singapore, which was, at a time before the advent of digital banking, a clear competitive advantage. It can also set up a digital-only bank unit under the IOB framework.

Both options are not open to StanChart at this point as there is still no FTA between Singapore and the UK.

It would also not be eligible for the digital full bank licence, unless it ties up with a local partner to set up the proposed digital bank, and the digital bank meets the Singaporean-controlled criterion.

The digital wholesale bank is not subject to the Singaporean-controlled criterion, so foreign banks like StanChart can choose to apply for the licence on their own.

Maybank - also said to be considering a digital bank here - faces the same issue, as there is no FTA between Singapore and Malaysia.

The three Singapore banks - DBS, UOB and OCBC - hold a 54 per cent combined market share by assets, according to a McKinsey report, with analysts noting that Singapore's latest digital liberalisation is more likely to hurt the remaining players' market share than that of the trio.

This comes as the incumbents have been investing substantially in their digital capabilities to be well ahead of the curve, analysts have said.

Amid this, Singapore banks such as DBS and UOB have also already set up standalone digital banks to expand into markets outside of Singapore. UOB's digital bank offering - TMRW - which is aimed for now at millennials, is an attempt to create a new unit to find better ways to mine transactional data. While banks have a massive load of data, there have been challenges to analyse the data correctly and efficiently on older systems.

An incumbent player may look to build a mobile-only bank from scratch that runs on cloud technology in a bid to abandon baggage from legacy data, and run better analyses on fresh data that is cleaned and sorted from the onset using better technology available today.

There are also new customer networks for banks to tap through partnerships with non-bank entities. In Hong Kong, StanChart is partnering with information and communications technology company PCCW, while in Taiwan, it is hoping to gain traction among Taiwanese customers who are active users of chats and stickers via the Line app.

StanChart group CEO Bill Winters was quoted in a South China Morning Post report in March saying that the bank plans to use its virtual banking offering in Hong Kong to target mass market customers and millennials.

In Singapore, MAS expects to award the licences in mid-2020, with the new digital banks to start operations by the middle of 2021.

Various players that have indicated interest in the digital banking licence in Singapore include ride-hailing unicorn Grab, telco Singtel, mainboard-listed fintech firm iFast Corporation, peer-to-peer lender Validus Capital, e-wallet player Liquid Group, and gaming hardware manufacturer Razer.

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