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'Banking is necessary; banks are not'

ON June 28, 2019, at the 46th annual dinner of The Association of Banks in Singapore, Senior Minister Tharman Shanmugaratnam announced that up to five new digital bank licences will be issued by the Monetary Authority of Singapore (MAS). The announcement is a significant one in light of three other milestones.

First, the Bank for International Settlement (BIS) has just made known it picked Singapore to host one of its three Innovation Hub centres. The speed at which new digital banking products emerges requires global coordination on how technology should be leveraged while ensuring monetary stability. The Hub will thus "identify and develop in-depth insights into critical trends in technology affecting central banking".

Second, the announcement closely follows Hong Kong's approval for eight digital banks over the span of three months. Market commentators have been keenly watching Singapore's own decision, and, more specifically, the conditions of its response.

And third, the timing of the announcement coincides with the G-20 Summit in Osaka, Japan, where 24 signatories adopted the Osaka Track's concept of "Data Free Flow with Trust" to promote cross-border data exchange and digital governance.

With world leaders attaining broad consensus on digital rules to maximise the borderless digital economy and address security and data privacy concerns, Singapore has burst onto the digital banking stage at the best possible time.


"Banking is necessary; banks are not" - this frequently quoted statement made by Microsoft founder Bill Gates in 1994 became a mantra for the first wave of fintech.

More than two decades later, companies like AliPay, WeChat, mPesa and many others have brought cashless convenience for millions of underbanked in the developing world.

In doing so, these challengers have demonstrated that if customers trust an entity enough to handle their money, then they are willing to forego the conventional definition of banks and banking. All the innovation and convenience on offer would be for nought if the trust of the masses were missing.

Facebook for one, has been grappling with how governments and the public perceives its handling of trust. The tech giant's introduction of Libra was almost immediately met with concerns from multiple jurisdictions including Singapore.

Moving forward, if Facebook wants to operate Libra here, it has to be compliant with, for instance, the new Trusted Data Sharing Framework. Meant to increase trust in the local digital economy by facilitating data-sharing guidelines for organisations, the framework was introduced also on June 28, by Senior Minister of State for Communications and Information and Transport Janil Puthucheary at Innovfest Unbound, the flagship conference of Singapore's Smart Nation Innovations Week.

Libra is technically a 'stablecoin', a form of cryptocurrency or digital cash designed with minimal price volatility to make it attractive for regular transaction use. However, being built on a private blockchain network means Libra is controlled by the 28 founding member-companies ranging from Uber to MasterCard. This runs counter to those who take a purist approach and favour public, permissionless blockchains such as Bitcoin or Ethereum.

If Libra can be successfully rolled out with regulatory compliance, it is hard to overstate its merits of providing financial access to people outside the banking system, many of whom are in the developing regions of Asia.

Singapore's new digital banking scheme will bring competition to and stimulate innovation in a market that is otherwise a walled garden, slow to adopt new technology.

One of the most exciting aspects of these new-age banks is that their genesis does not have to be in "banking". Household names such as Singtel, Grab, and Razer - market leaders in their own right but not conventional brick-and-mortar bank brands - are already undertaking feasibility studies to participate in the licence scheme.

As with all technology-led innovations, this is about striking a balance. How digital banks monetise their services while earning trust from the ground up will come to represent a watershed moment in the digital economy.

  • The writer is managing director of ConsenSys Singapore. He was recently on a blockchain panel at Innovfest Unbound 2019.