Singapore opens up to make finance accessible

Singapore

SINGAPORE has thought deeply about how it would make finance more accessible with the help of technology, with these plans set in place before Covid-19 swept through the globe.

Then the world was confronted with a Black Swan of the times.

And while a global pandemic this year has been crippling in many ways, it has also accelerated digital adoption in an unprecedented way.

This would set an important scene for Singapore's digital banking push - something that, to be clear, incumbents have greatly improved on in recent times. But with the ongoing digital acceleration, there is opportunity to fill underserved gaps.

"I think the new dimension that is being brought here is non-traditional, non-financial players who operate in different sectors, but with very large data sets and the ability to crunch that data," said Ravi Menon, managing director of the Monetary Authority of Singapore (MAS).

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"Can they apply those capabilities to the financial services sector, in particular to reach out to underserved segments of the market?"

The question was so posed to challenger banks.

On Friday, the Grab-Singtel consortium and consumer Internet company Sea bagged the two coveted Singapore digital full-bank licences.

The two digital wholesale bank licences were clinched by Ant Group, and a consortium comprising China's Greenland Financial Holdings, Linklogis Hong Kong, and Beijing Co-operative Equity Investment Fund Management.

One goal in having digital-only retail banks is for them to come up with attractive solutions to nudge individuals into taking charge of their financial health.

"We must empower individuals to be able to plan for their own finances. We hope the digital banks will make their offerings in a way that empowers a larger segment of the population to attain a higher level of financial well-being," said Mr Menon.

The comparison is with fitness-related apps that monitor a user's activities through the day.

"Today, we have a lot of apps on our mobile devices that track our health, how many steps we take, how much water we drink, how many hours we sleep, even the quality of our sleep," he added.

"But we don't have something like that to track our financial health. We need something that is intuitive, that keeps track of our financial well-being, and prompts us to do the right thing."

And this approach can go some way to encourage those on the lower-rungs of the income ladder to be active in planning their finances.

Mr Menon noted that in many cases, those who are financially excluded in the low-income strata may have not set aside enough savings, and have been ensnared in a vicious circle of debt.

With better digital planning tools, where comparisons can be made within a customer's income group, such "nudges" can go some way to encourage better financial prudence.

"Daily nudges done in a delightful, engaging way can help to shape behaviour," he said.

Adding on to the introduction of digital banks - Singapore's biggest financial liberalisation since 1999 - is the plan to allow Singapore customers to have a single view of what they own and owe across major banks.

The service would allow consumers to consent to sharing their consolidated financial data with traditional financial institutions, as well as with non-banking entities.

It grants customers more ease in comparing products and services for better financial planning. With better information, they can then switch between competing offers.

Common gateway

Such a liberalisation is inspired by the "Open Banking" idea in Europe. Beyond Singapore, it has yet to take off concretely.

In Singapore, the approach is to have a common gateway for application programming interfaces, which form the building blocks of the infrastructure bringing this service together.

The result is to provide Singapore consumers with a seamless, consolidated view of their assets and liabilities.

This service will be opened up to all regulated financial institutions - including digital banks - but excludes Big Tech firms that are not regulated wholly as financial firms.

While data-driven tech firms would be quick and ready to jump on that opportunity to study data, the service must come with a certain reciprocity for the consumer, Mr Menon pointed out. Taking these two together, digital banks and the incumbents will compete hard on winning over the customers.

"What we're saying is that personal financial information belongs to the customer, the customer can give consent to bring his own information together, and ask a regulated service provider to provide advice. With the entry of non-banks, banks are going to fight very hard for the financial planning business," said Mr Menon.

"Digital banks will add fairly stiff competition, but we are confident that our banks can take that competition and do better than they are doing now."

Mr Menon pointed out that today, Singaporeans are more comfortable with digital banking. "The digital banks are entering the scene with a lot more Singaporeans now comfortable to operate on digital channels. In that sense, I think the landscape is more conducive for them because we are more digitally ready," said Mr Menon.

These challenger banks will emerge just as digital exclusion is narrowing too. Financial service players have had to simplify their offerings in the midst of safe-distancing arrangements to bring on more of these excluded segments of the population, Mr Menon said.

But while this means that digital and financial inclusion has been expanded, the remaining non-digital group will find it difficult to adapt because it has now become more difficult to customise offerings to them.

"We need to now work extra hard on that group," said Mr Menon, adding that the entire industry - including digital banks - will add to that effort. This includes "hand-holding" players such as hawkers to adopt digital solutions such as e-payments and electronic invoices.

The recent developments also speak to gaps in corporate banking that digital banks could address.

"If you're an SME and you want a $20,000 working capital, that is possible. The banks know how to do this. (But if) you are a micro-enterprise, and you need $200 overnight to make an urgent payment to your supplier - that is difficult for the banks to do. It's easier to borrow $20,000 than to borrow $200 overnight," said Mr Menon.

"But we've seen examples in China, where some of these non-financial players using large data sets that they know about the individuals, are able to make a quick credit assessment within minutes and extend that $200 overnight. And they do get the money back. They earn a small interest. So it is profitable, it is sustainable. And that is the kind of thing that you'd like to see here with very specific segments of the population."

Singapore's move to push forward with digital banks comes even as the Chinese authorities are rightly reining in the growth of shadow banking in the country.

Having a digital bank framework draws non-traditional tech players expanding into financial services into the regulatory ambit, and holds them to the same high regulatory standards held for banks.

"Financial stability has become an overriding priority in China, and those of us who had been concerned with the growth of shadow banking in China are relieved by China's moves to strengthen regulation," said Mr Menon.

"If you conduct a similar financial activity, and it poses a similar risk, then you must be subject to similar rules, which is how we are approaching the digital banks. They will be held to the same high standards as we hold the banks - no compromise there."

The third plank of Singapore's financial liberalisation strategy is in opening up access to the payment rails once held sacred by only the banking industry.

MAS this month said eligible non-bank financial institutions will, from February 2021, have direct access to the banking system's real-time retail payments infrastructure. This will give non-bank players that are major payment institutions under the Payment Services Act, access to payment rails for them to offer PayNow services.

This levels the playing field for non-bank e-wallet players that meet the necessary risk-management standards to secure network access, said Mr Menon.

Direct access to the FAST network removes the cost and friction involved for bank e-wallet providers to go through the banking system.

The Business Times earlier reported that typical e-payment processing costs are between 1 and 2 per cent, according to one e-wallet player. With PayNow, savings could be at least 1 per cent per transaction.

"Our point is that the payments network is like a utility that exists to serve all customers. Whether you choose a bank app, or a non-bank wallet, you should be equally served by that network. But we will hold all players on the network to the same standard," said Mr Menon.

"Non-bank access to FAST is also an added dimension of competition. It's not very comfortable for the banks, but they realise they can't exclude the non-banks."