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Singapore digs deep to bring true financial liberalisation

The chief architect at MAS nudging the financial sector into the digital future sees a pervasive and deep transformation today.

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"I think by bringing the two (technology, financing) onto one common platform, we will have a lot more cross-pollination of ideas..."' - Ravi Menon, MAS managing director

SINGAPORE is opening up the financial sector, taking the industry on a steady sail into the digital age.

In an interview with The Business Times, managing director of the Monetary Authority of Singapore (MAS) Ravi Menon pointed to the Republic's multi-faceted approach to financial liberalisation that goes beyond the big invitation cards handed out to fintechs since 2015 to set up in Singapore.

"The transformation and liberalisation that we're seeing in the banking system today is quite pervasive and deep," he said.

Already, the Singapore fintech scene itself is bustling. An Accenture report showed that fintech investments in Singapore rose to about S$1 billion in the first nine months, up nearly 70 per cent from a year ago.

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Today, more than 14 innovation labs have been set up, and more global financial institutions are setting up innovation and technology centres here to carry out experiments and pilots, as well as proofs of concept. "This is hugely satisfying," said Mr Menon.

The fintech industry has also provided jobs, with Singapore creating about 1,000 fintech jobs per year, over the last three to four years. Singapore started out with just about 50 fintech startups in 2015. Today, there are more than 600 startups in this space found here.

Singapore's earlier start in this regard in this region has, of course, spurred others to try to do the same. "Competition is good, so we welcome the growth of fintech elsewhere," said Mr Menon, calling it a "lonely prospect" otherwise.

But that's just the tip of the iceberg where Singapore's financial liberalisation is concerned, with Singapore's focus on "connectivity infrastructure" - a digital architecture required for a seamless digital economy to function, said Mr Menon.

Open Banking

This would work off a national digital identity. And along with that, Singapore should announce next year the details of a single platform for consumers to aggregate their financial information from various accounts across banks, insurance companies and brokerages.

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

This shift takes reference from a brand of liberalisation known as "Open Banking" in Europe, where consumers get a seamless, consolidated view of their assets and liabilities so they can plan for their sunset years - as Singaporeans now have the world's longest life expectancy at 84.8 years - and make more informed decisions about the best available choices for their financial status.

The banking industry and regulators are looking at using application programming interfaces - codes that enable computer applications to speak to one another - to slice and dice the data that can be shared with consumers because this data belongs to them, but to keep separate the data that cannot be shared on the platform because some of that is proprietary to the banks, said Mr Menon. He also pointed out that MyInfo - a consent-driven service that allows customers to authorise banks and other institutions to tap this central data repository to complete applications for products and services - is unique in the world.

With this, it is possible today in Singapore to open a bank account remotely through a digital platform - that is, without face-to-face interaction - while meeting the same stringent know-your-customer requirements.

Singapore is also working with more Asean partners to tie up their real-time payments network, and enable retail micropayments using mobile numbers on smartphones. If done well within the next four years or so, it would reap huge benefits for tourists, small businesses, and migrant workers who are sending money back home. "Singapore stands as a common nodal point for all these things," said Mr Menon.

Then, there is the eagerly anticipated licensing of new digital banks.

By the end of this year, the MAS will round up all the applications for digital banking licences; by the middle of next year, it will award up to two licences for a digital full bank (which will have access to cheap retail deposits) and up to three licences for a digital wholesale bank.

The digital banks are expected to start their operations by mid-2021.

But Singapore has taken a considered approach to inviting digital banks.

On top of having the same capital requirements and cybersecurity standards for these new entrants, the regulator has made clear that digital banks must target niche, untapped segments, and rely on technology to bring about innovation.

Most digital-only challenger banks in the UK remain loss-making, which indicates that they had undertaken a mere market-share grab amid a flush of very cheap venture-capital funding. "They're just eroding the share of the incumbents. It serves no social purpose," said Mr Menon.

As much as consumers are seeking a rebundling of financial services from a one-stop digital shop, most of them would still want a bank with a physical presence - an inclination that gives incumbent banks an existing edge over their digital-only challengers.

"There is a fair chance that there will be some upward pressure on interest rates, but the digital-only banks will not be able to serve the full customer base, because a good number of customers still prefer banks which are omni-channel," he said.

Fintechs will also soon be able to access the real-time payments network, in the same way that banks already do for payments, another key component of Singapore's liberalisation in this area.

Mr Menon pointed out that fintech's greatest contribution today is in making it possible for customers to customise solutions to their needs, rather than limiting consumers today to off-the-shelf products.

"The challenge to the banks is not trivial," he added, pointing to the impact of these liberalisation moves.

"We're only doing this because of two deep-seated convictions. One, it will serve the customer better. (The) initiatives will help bring about a higher quality of customer service. Second, we're confident that our banks, especially the local banks, will be able to withstand the competition and actually become even stronger and more innovative."

Agnostic technology

Singapore FinTech Festival has also been merged with the Singapore Week of Innovation and TeCHnology, or SWITCH for short, this year.

The SFF x SWITCH 2019 event reflects that "agnostic" nature of technology, noted Mr Menon, as the same technology can be applied across multiple sectors.

To add, when it comes to tech funding, some may invest more broadly in a certain form of technology, such as blockchain or artificial intelligence, which could be used both in finance, and other sectors such as logistics.

"So there are very natural synergies across technologies, across financing, and I think by bringing the two onto one common platform, we will have a lot more cross-pollination of ideas, hopefully a lot more deal-making that will help our startups, and a lot more idea-generation and buzz."

As it is, Singapore is more broadly looking at how it can explore a new form of globalisation. "At a time when traditional trade relationships are under strain, I think the opportunity ahead is to look at new ways of connectivity through digital means," said Mr Menon. "On digital connectivity, the world is at a very early stage, similar to the period before global trade liberalisation."

With that, Singapore is in early talks with like-minded partners to build secure data corridors through which data can move freely.

These potential collaborators tend to share a "similar DNA" with the Republic, meaning that they also have small populations, are open, inclusive and fairly technologically advanced, he added.

The countries that Singapore is exploring digital trade agreements with include Australia, New Zealand and Chile. Issues on the table are emerging areas such as artificial intelligence and digital identities.

"This is going to be the way of the future. If most of the commerce and economic activity is going to be conducted on digital platforms, that is where the next stage of liberalisation needs to take place. And that's where some countries are beginning to focus on, including Singapore," said Mr Menon.

Sustainable finance

This year's SFF x SWITCH 2019 will also tackle sustainable finance as a theme.

"We want the financial sector to be at the forefront of this change, to nudge the real economy in that direction," said Mr Menon. "We don't want a situation where the financial sector is lagging."

In greening the financial system, the move can mitigate threats as certain assets anchored in the old world of heavy fossil-fuel dependency will be rendered less valuable. Climate change may hurt these assets further. Meanwhile, technological advancements taking place in the area of renewables would change the costs and benefits of tapping on renewable energy, instead of traditional fossil fuels.

"There is a growing recognition that climate-related risks are going to be a more important consideration, going forward. So we need to build up financial institutions' capabilities to manage climate-related risks," said Mr Menon.

"This is going to be an area of deep flux. Some carbon-intensive assets are going to be stranded as carbon taxes rise or renewable technologies become more viable, while assets that are more environmentally friendly may gain in value."

Mr Menon acknowledged the risk of being too "dogmatic" over absolute standards on carbon emissions. "Our focus will be on how we can become greener over time, rather than aim for an absolute standard of green at the outset," he said.

As it is, MAS has rolled out a sustainable-bond grant scheme that subsidises the issuance of green, social and sustainability bonds in Singapore, with the scheme valid till May 31, 2023.

In the 2019 corporate debt market development report released by MAS in October, it said Singapore's green bond market is valued at more than S$6 billion today, reflecting a good mix of both local and foreign issuers.

And according to AsianBondsOnline, as reported by BT, the size of the local currency bond market surpassed S$420 billion in the first half of 2019, meaning green bonds currently make up just over one per cent of the market, a clear sign of potential growth for green bonds here.

"Green bonds are really a no-brainer," said Mr Menon. "But we need to think much further about how we can come up with innovative solutions that make it easier for businesses to invest in greener technologies."