E-wallet operators set sights on digital banking space

Singapore

E-WALLET operators in Singapore are eyeing a future as a digital bank as opportunities in the business-to-business space come to the fore.

The Business Times understands that at least five e-wallet operators in Singapore - startups Liquid Group, Xfers and MatchMove Pay among them - are seriously evaluating whether to go after the digital bank licence once applications open in August.

Mobile payments solution provider FOMO Pay is also eyeing the licence, its co-founder, Zack Yang, told BT. FOMO Pay, while not a stored value facility, provides merchants with payment processing and collection services for various mobile payment methods such as GrabPay and WeChat Pay.

Publicly-listed firms Razer, which operates Razer Pay, and Singtel, which operates mobile wallet Singtel Dash, have said that they are studying the feasibility of applying for a digital bank licence.

The Monetary Authority of Singapore (MAS) on June 28 announced that it will issue up to five of such licences, comprising up to two digital full bank licences and up to three digital wholesale bank licences.

E-wallet operators' interest in digital banking reflects how many of them have expanded beyond consumer payments to offering a range of financial services targeting both individuals and businesses.

Liquid Group, which is part of a consortium of partners exploring digital wholesale banking, began with a mobile payments app called Liquid Pay. Chief executive and founder Jeremy Tan said the startup soon realised the extent of the gaps in the mobile payments ecosystem that encompassed not just consumers, but merchants, organisations and banks as well.

The company has since turned its attention to developing an infrastructure that allows a user to make mobile payments overseas using their preferred app, as long as the app is integrated into Liquid's platform. This is a similar concept to how travellers can make purchases overseas using their credit cards. The group has announced tie-ups with banks in Hong Kong and Indonesia.

Liquid's expertise is in payments processing, which is what it brings to the table in terms of capabilities suiting a digital bank, said Mr Tan, while stopping short of revealing specific details. He said the consortium that Liquid is a part of include fintech firms and financial institutions.

This follows the trend seen when Hong Kong opened its doors to virtual banks in March. Among the holders of the eight virtual banking licences are joint ventures (JVs) between top technology companies and financial institutions. This includes a JV between Tencent, the Industrial and Commercial Bank of China (ICBC) and Hong Kong Exchanges and Clearing (HKEX).

Fintech firms often have an edge in developing the technology needed to deliver services more efficiently, while capturing and analysing consumer data. But when it comes to actually operating a bank, that's where financial institutions can help to fill the gap, pointed out Zennon Kapron, director of research and consultancy firm Kapronasia. Their expertise ranges from compliance to understanding risk management practices, he said.

Digital banks in Singapore will be subject to the same capital requirements as local banks. This means that they need to keep a specific amount of capital against loans assessed on a risk-weighed basis, in order to buffer against loan losses.

As e-wallet operators transition from being stored value facilities to also being able to take deposits, one attractive draw will be the ability to do lending. Samson Leo, a co-founder of Xfers in charge of legal and strategy, said: "In Singapore, while SME (small and medium enterprise) loans and micro business loans are well supported by Enterprise Singapore's backing, we note some businesses still falling through the cracks such that they have to turn to alternative crowd funding platforms for quicker credit scoring and approvals."

He added that the digital bank route opens up further opportunities to increase financial inclusion in emerging economies in South-east Asia, granting access to savings accounts, digital payments, consumer loans and home loans.

Xfers operates a fintech payment platform for any digital business that wants to collect, store or send money. It is one of five entities to have received approval from MAS as a holder of a Widely Accepted Stored Value Facility (WASVF), allowing the Xfers Wallet to hold more than S$30 million of users' and merchants' stored value, which it will be fully liable for.

The startup is leaning towards the digital wholesale bank licence, which will allow it to serve SMEs and other non-retail segments. It is currently in talks with partners and investors about whether the digital bank regime will be a good fit.

For FOMO Pay, the licence opens up opportunities to serve more merchants currently underbanked and unbanked, while giving them an easier e-KYC (know-your-customer) and a digital onboarding experience without going through the hassle of visiting physical branches and submitting physical documents.

"FOMO has been developing the fintech AI (artificial intelligence) technology to address these issues. With the digital banking licence, our technology could be extended to more banking product use cases, save manpower for repeated work and thereby increase productivity," said Mr Yang, who is also chief operating officer.

FOMO Pay, which is currently engaged with regulators regarding the licence, has 7,000 merchants in Singapore on its platform and has worked with Changi Airport, Marina Bay Sands and StarHub.

As digital banking becomes a fixture in the finance landscape, it could change the way that physical touchpoints are being approached. Since MAS announced the digital bank initiative, Singapore startup soCash, which turns shops into "ATMs" for banks like DBS, has gotten enquiries from firms thinking of applying for the licence.

Besides allowing users to withdraw cash at shops using a mobile app, soCash's services can extend to enabling the shops in its network to perform functions ranging from account opening, loan processing and KYC using bank APIs (application programming interface).

"Most banking products are 'push products' and that's why banks always have a large sales force for roadshows. So imagine having 'permanent roadshows' in thousands of shops," said Hari Sivan, chief executive of soCash. So far, the startup has gotten enquiries from "three big guns and a few wallets", he said.

Other companies known to be eyeing the digital bank licence include Grab, peer-to-peer lending platform Validus Capital and remittance startup InstaReM.