DBS confident in fending off digital challengers

Singapore

DBS is "relatively confident" about taking on digital bank challengers, as it is fairly advanced in terms of its digital capabilities and solutions on the back of its headstart, said CEO Piyush Gupta at its second quarter results briefing on Monday.

But he warned that these new players must compete on the premise of making an "acceptable return on equity" instead of distorting pricing and trying to drive monopolistic behaviour. This is something that both the Monetary Authority of Singapore (MAS) and the Hong Kong Monetary Authority are trying to guard against, he noted.

"What the regulators are very keen on ensuring is that this industry does not go the way of e-commerce, where people endlessly burn money with no profitability objective in sight," said Mr Gupta.

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 Singapore in years. This follows the footsteps of Hong Kong, where the regulator granted eight digital banking licences in May this year.

In Singapore, the five new digital-bank licences will comprise up to two digital full-bank licences that will allow for deposits from retail customers, and up to three digital wholesale bank licences that will allow licensees to serve small and medium-sized enterprises (SMEs) and other non-retail segments.

Mr Gupta believes that the bank can hold up against these competitors, as he pointed out that DBS - as well as the other Singapore banks - has spent the last few years digitalising and creating competitive value propositions.

According to him, DBS's digital banking in Singapore is "very complete", as it is able to come up with product offerings that are competitive compared to the rest of the world.

It is hard to say what alternative value propositions that potential digital bank challengers will come up with, he said. This is because Singapore is widely established to be a heavily banked country without material financial inclusion issues. He also flagged that the availability of credit to SMEs in Singapore is "extraordinarily high". He listed merchants, small mom-and-pop stores, and micro SMEs as some niche, potentially underserved segments in the Singapore market that the new digital banks could target.

However, as Singapore is a small market, it is unclear how much profits can be made from these pockets as they do not give a lot of room to grow and operate, he noted.

In the unsecured lending market, Mr Gupta suggested that moneylending could be a potential space that the new digital players could compete in, even as he noted that MAS has strict guidelines on this front.

But he also warned that it is a high-risk segment, citing examples of companies abroad with such a credit model that saw their delinquency rates "go through the roof".

With Singapore banks already well ahead of the curve in digital banking, the advent of digital players is "likely to be more meaningful" in markets where the incumbent banks have not been able to digitalise or create compelling value propositions, he added.

DBS currently has two digital banks in Indonesia and India, with Taiwan and Vietnam slated to be next in line.

The bank will also be refreshing its digital offerings in Hong Kong towards the end of the year - a move which he sees as an opportunity to "change the game" in that market.

The list of non-bank challengers that have expressed interest in applying for the digital banking licence in Singapore has been growing. The latest is Mainboard-listed fintech firm iFast Corporation, which announced that it "is in talks with potential partners for the upcoming application". Others said to be considering include peer-to-peer lender Validus Capital, e-wallet player Liquid Group, gaming hardware manufacturer Razer, telco Singtel and Singapore-headquartered unicorn Grab.

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