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Singapore embraces fintech to stay ahead

MAS sees technology as the future of financial services, and is also looking for its first fintech unicorn.

Several technological trends had also converged and were interacting with one another, Mr Menon noted, with financial services being unbundled, and as new players stepped in to offer services once reserved for traditional institutions.

LET it be known that Singapore knows how to get things done.

In just about two years, the city-state has proven to be a force to be reckoned with in this fintech space. The country now boasts of about 400 fintechs, including unicorn firm TransferWise, and welcomed more than 20 global financial institutions setting up their innovation labs to test out new ideas.

Singapore is also hosting the world's largest fintech festival for the second time this week, building on the mindshare that the city-state has gained in recent times, said Ravi Menon, managing director of the Monetary Authority of Singapore (MAS) in an interview with The Business Times.

Singapore's move into fintech came as MAS noted that technology and innovation were increasingly going to be the source of growth in creating jobs and value. Several technological trends had also converged and were interacting with one another, Mr Menon noted, with financial services being unbundled, and as new players stepped in to offer services once reserved for traditional institutions.

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"It was based on an assessment that technology was going to be the future of financial services, and that if we were to keep our place as one of the leading international financial centres, we would need to make a concerted effort to promote innovation and harness technology."


For Mr Menon, the fintech buzz is part of a broader plan to build the spirit of experimentation in Singapore - a verve the financial sector and the economy needs a lot more of.

A simple case study can be found in the area of electronic payments. While the technology is getting better, the transaction speed may still be lagging. In this case, the risk of failure here is the large number of complaints. But Mr Menon argued that if Singapore does not try and continue to improve the technology, progress would be elusive.

"We need to be patient. We also need to understand that not all experiments will succeed. It's something that the financial sector and the economy as a whole needs a lot more of: a spirit of experimentation."

And with various forms of new innovation, MAS will have to play its balancing role as both the promoter of the financial sector, as well as the regulator, calibrating risk measures as these fintechs mature.

Mr Menon said that MAS would look to tighten requirements on cybersecurity for financial institutions such as banks. MAS will also soon relax requirements for the regulatory sandbox.

"If we were a pure regulator and did not have a developmental role, there is a risk we could become quite aloof from the industry," said Mr Menon.

"Cloud computing is a good example. MAS was initially lukewarm. We were not against it, but we just said, 'it's just another kind of outsourcing arrangement'. But cloud computing is not a regular outsourcing arrangement. Some of its key benefits would have been unavailable if some of the regulations had not been adjusted to account for the fact that this was a different way of achieving the same objective of outsourcing. We would never have figured that out if we had not spoken directly to the cloud-service players."


In the area of retail payments, Singapore is speaking with some of its Asean neighbours, including Thailand, that have an equivalent of a real-time retail payments network (in Singapore, that's known as the Fast And Secure Transfers, or FAST) to try to connect. This would make e-commerce, and possibly person-to-person transfers for migrant workers, much easier, said Mr Menon.

MAS will also build on its collaboration with the International Finance Corporation, a member of the World Bank Group. They are working to build up the Asean Financial Innovation Network, which could become a place where smaller lenders from South-east Asia can link up with fintechs to get cheaper solutions to reach the unbanked.

Singapore's efforts to establish cross-border ties extend beyond Asean.

MAS has completed its first experiment on using blockchain for interbank payments in Singapore, showing that such payments can be done without MAS as a central party, and that netting of payments can be done without having to give up on transactional privacy.

"The killer app is really to go cross-border. If we can make a blockchain-based system support payments from one country to another, that could be potentially transformative in bringing costs down," said Mr Menon.

In late October, MAS inked a fintech partnership with its counterpart in Hong Kong, with the partners committing to work on a strategic project on trade finance cross-border infrastructure based on blockchain technology. Such technology may reduce risks of fraud in invoice financing, and can cut down the onerous paperwork that has led to inefficiency.


Singapore has also signed several fintech agreements from all around the world, and has spurred the banks to go digital - a task that Mr Menon thinks lenders have taken to swimmingly.

"The level of understanding that the CEOs of major banks have of fintech and technology developments has grown significantly. Three years ago, few bank CEOs or senior management globally would have been able to speak intelligently about big data or blockchains. But they've really honed up in recent years."

MAS encourages collaborations between fintechs and financial institutions, as smaller startups use more agile technology to fix some deep plumbing issues plaguing traditional banks and insurers.

But Mr Menon added that MAS is happy to have fintechs grow up without being integrated into banks, too.

"We're open to both collaboration and competition. We facilitate that competition by having a regulatory approach that is risk proportionate. We facilitate collaboration by trying to bring them together. We don't see it as a choice between the fintech startups and the banks," said Mr Menon.

As MAS crosses the boxes off its to-do list in rapid succession, it also sees one big unfulfilled wish that would pin Singapore again on the world map.

"It would be really nice if we can have a fintech unicorn emerge from Singapore. The difficulty for fintechs in small countries like Singapore, Israel, even in the UK, is that the market is small. A fintech in China or the United States can grow to a huge size, concentrating on a very well-known geography," said Mr Menon.

"At the same time, technology has however changed the limitations of size. If you look at what Sea, Grab, and Razer have done, they have used technology to transcend our physical limitations and gain access to larger markets, in a far more efficient way."