Singtel-Grab and Ant among successful bidders for Singapore digital bank licence

By Lee Kah Whye
Singapore, December 7 : The Monetary Authority of Singapore (MAS), the nation's central bank, recently announced the winners of Singapore's much coveted digital bank licences.
After markets closed on Friday, December 4, news came that after an almost year long assessment period, MAS has awarded two full banking licences to the Grab-Singtel consortium and digital powerhouse Sea, whereas two wholesale banking licences went to Jack Ma's Ant Group and a consortium formed by Greenland Financial Holdings, Linklogis Hong Kong, and Beijing Co-operative Equity Investment Fund Management.
Initially, the winners were expected to be announced in June 2020 but the decision was delayed due to COVID-19.
A total of 21 interested parties represented by about 50 firms submitted bids for the digital bank licenses with 7 expressing interest in the full banking licence and 14 in the wholesale licence.
This was whittled down to 14 in June. Instead of the expected five (two retail and three wholesale), four licences were eventually awarded last week. These neobanks will operate as standalone entities and do not need to collaborate with existing licenced banks.
Based on publicly available information, no Indian company was part of the Singapore digital bank bidding process.
The full retail digital bank licence enables the bank to serve both retail and corporate customers. The bank with this licence will be able to offer typical financial account services like deposits, loans, debit and credit cards, payments, and investments. But all transactions will have to be done online and the digital bank will not have a physical branch or ATM. It is different from a traditional bank having digital banking services via its website or an app.
The issuing of these digital bank licences is Singapore's broadest liberalisation of the finance sector in 20 years and takes place on the heels of Hong Kong's award of eight online licences last year. However, Singapore's rules are stricter. Retail digital banks must be headquartered in Singapore and controlled by Singaporeans and have SGD1.5 billion (USD1.12 billion) in paid-up capital.
A digital wholesale bank can only serve companies and services are targeted at small and medium sized enterprises (SMEs). They are not subject to the same stringent requirements.
The winners were judged on the value proposition and business model, the sustainability of their digital banking business - they have to demonstrate an ability to become profitable, innovative use of technology, and contribution to Singapore's position as a financial centre.
The purpose of offering the digital banking licence is to address the needs of the under-served groups in Singapore like entrepreneurs, small firms, startups, the self-employed including those in the gig economy, and millennials. It is anticipated that with the launch of the digital banks, these target groups will enjoy lower banking costs and higher rates on deposits. It is also expected that with increased competition and innovation, the incumbent banks will step up to the challenge posed by the newcomers which in turn result in a transformed financial services landscape.
The successful applicants hope to use a combination of data, technology, and innovative products to win a slice of the lucrative financial market in Singapore which according to Reuters has over USD3 trillion in total assets under management and over 150 deposit-taking institutions.
MAS expects that the new digital banks will start operating from early 2022. The selected parties must still meet all relevant prudential requirements and licensing pre-conditions before MAS grants them their final banking licenses.
The central bank noted that the two selected digital full bank applicants were "clearly stronger" than the rest. As for the digital wholesale banks, the two that won met expectations and were "assessed to be demonstrably stronger across the criteria notwithstanding the general high quality of the eligible applicants."
Ravi Menon, managing director of MAS, said that the financial regulator applied a "rigorous, merit-based process" to select a strong slate of digital banks. "We expect them to thrive alongside the incumbent banks and raise the industry's bar in delivering quality financial services, particularly for currently underserved businesses and individuals," he said.
The Grab-Singtel consortium in which Grab will have a 60 per cent stake will be led by former Citibank Singapore retail banking head Charles Wong. It will set up a dedicated team and fill around 200 roles by end of 2021.
Singtel sees its bid for a digital banking licence as a push for reinvention. CEO of Sintel's international business Arthur Lang told Singapore's Business Times in November that "it's not an experiment, this is the real deal."
Its partner, Softbank backed Grab is the foremost ride-hailing app in Southeast Asia and has ventured into food delivery as well as mobile payments. The unicorn is valued at about USD15 billion.
Singapore-based Sea is listed on the NYSE and has a market capitalisation of USD90 billion and owns popular online shopping platform, Shopee which is present in 7 Asian markets of Singapore, TaiwanMalaysia, Thailand, Indonesia, Vietnam, the Philippines plus Brazil. It also runsonline gaming company Garena and digital payments service provider SeaMoney.
Its China-born Singaporean founder and CEO Forrest Li, said, "we are honoured to be selected by the Monetary Authority of Singapore for the award of a digital full bank license and to have the opportunity to offer digital banking services addressing the underserved financial needs of young consumers and SMEs in Singapore."
Greenland Financial is the investment arm of Chinese real estate developer and state-owned enterprise Greenland Group. It previously stated that it intends to build a digital bank that will tap China's financial technology to serve SMEs in Singapore.
Analysts do not expect that the new entrants will materially impact the three existing Singapore banks, namely DBS, UOB and OCBC.
The advantage these new digital banks have over the traditional banks is their tech capabilities, low-cost base and their ability to bypass legacy processes and systems. However, the incumbent banks have deep pockets and have already invested in digital capabilities and will make it difficult for newcomers.
Varun Mittal, who heads the emerging markets fintech business at consultancy EY, was quoted by Reuters as saying, "Singapore is a gateway to Southeast Asia. Today's winners will also look to seek upcoming digital bank licenses in Malaysia and the Philippines to create regional powerhouses for bringing fintech and lifestyle together."