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MAS to extend licences to 'non-bank players' and allow up to 5 digital banks

SINGAPORE — Singapore will issue up to five new digital bank licences in a major move to liberalise the banking industry here, paving the way for fintech companies to become fully fledged banks.

The changes were announced by Monetary Authority of Singapore chairman and Senior Minister Tharman Shanmugaratnam at the Association of Banks in Singapore's 46th Annual Dinner at Raffles City Convention Centre on Friday, June 28, 2019.

The changes were announced by Monetary Authority of Singapore chairman and Senior Minister Tharman Shanmugaratnam at the Association of Banks in Singapore's 46th Annual Dinner at Raffles City Convention Centre on Friday, June 28, 2019.

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SINGAPORE — Singapore will issue up to five new digital bank licences in a major move to liberalise the banking industry here, paving the way for fintech companies to become fully fledged banks.

Out of the five licence holders, up to two will be able to become digital full banks, as long as the companies are based in Singapore and are controlled by Singaporeans. These banks will be able to serve retail customers, the Monetary Authority of Singapore (MAS) said in a statement on Friday (June 28).

The remaining three can become digital wholesale banks, which will be able to serve small and medium enterprises and other non-retail segments, and are open to foreign companies as long as they are locally incorporated.

These wholesale banks are not allowed to take deposits from retail customers, except for fixed deposits of at least S$250,000, and must have a minimum paid-up capital of S$100 million.

The changes were announced by MAS chairman and Senior Minister Tharman Shanmugaratnam at the Association of Banks in Singapore's (ABS) 46th Annual Dinner at Raffles City Convention Centre, which saw the ABS chairmanship pass from DBS Bank chief executive Piyush Gupta to OCBC Bank chief executive Samuel Tsien.

Digital banks can operate without any physical branch or teller machines, and do not need to have a history in the banking business to apply.

The three local banks — DBS, OCBC and UOB — can already establish digital banks under the existing Internet banking framework introduced in 2000 and hence do not need to apply for these new licences.

Applications for these licences are slated to begin from August, said the MAS. To become a digital full bank, these companies must be Singaporean — they must have a headquarters here and are controlled by Singaporeans, such as through majority shareholding.

Foreign companies can be eligible only if they form a joint venture with a local company, and a Singaporean must have management control over this venture.

MAS said that applicants must have a track record in an existing business within the technology or e-commerce fields, and must be able to “provide clear value propositions on how it can serve existing unmet or underserved needs”. This means that their business models must be different from what existing banks already have.

GRAB MIGHT CONSIDER WORKING ‘WITH SUITABLE PARTNERS’

The decision to restrict full digital banks to Singaporean-led businesses is due to the need to retain “strong local anchors” and trust in the banking system, said Mr Tharman.

But at the same time, new digital entrants to the banking scene would introduce new ideas, business models and management that would spur greater competition and innovation in finance, he added.

“As we embark on this new phase, however, it is worth reminding ourselves of our real purposes in finance. Innovation in finance is not an end in itself. And competition in finance has to be more than a zero sum game,” Mr Tharman said.

Grab has confirmed that it is studying the new licence and said it might also consider working with suitable partners.

In response to TODAY, Grab Financial Group senior managing director Reuben Lai said: “This is a great development for consumers in Singapore and we are pleased and excited to hear about MAS’ announcement regarding the digibank framework.

“We will study the digibank licensing requirements closely, and are keeping an open mind as we assess how best to pursue this, including whether to work with suitable partners.”

Responding to media queries, the local banks welcomed the new licences, highlighting how they have been building up their digital capabilities over past years.

Last year, DBS clinched the world’s best digital bank title by Euromoney.

DBS CEO Gupta said: "We welcome new market entrants as they will create further energy in the market, benefiting consumers at the end of the day. With our digital transformation efforts well underway, Singapore banks can today hold our own.

It is also heartening that MAS is committed to creating a level playing field and is proceeding thoughtfully with the liberalisation."

Mr Wee Ee Cheong, UOB chief executive, said: “Banking will continue to be shaped by how financial service providers ensure customers’ interests are not only anticipated, met and protected, but that their experiences are also differentiated.”

OCBC’s Mr Tsien said: “We are excited at the possibilities that the new virtual banking licence may open up for us. We will study the new framework closely to see how a virtual bank will complement our current businesses.”

Singapore’s move follows similar decisions by other global banking authorities to allow virtual banks to operate in their respective countries.

In March, the Hong Kong Monetary Authority sparked a fervour among fintech giants when it granted no more than eight virtual bank licences to fintech giants like China’s Ant Financial, PingAn Insurance Group and Tencent, as well as Hong Kong-based Infinium and Insight Fintech.

Other Asian economies have allowed such banks for far longer. Japan has permitted branchless banks since the late 1990s, allowing its first online bank Japan Net Bank to operate since 2000. China’s digital banks, such as WeBank and MyBank, are a more recent phenomenon.

Mr Tharman’s announcement follows a month of deliberation by the MAS over the pros and cons of granting banking licences to “digital-only banks with non-bank parentage”, which reportedly piqued the interest of fintech players like Grab.

Related topics

digital banks no ATM Tharman Shanmugaratnam banking virtual bank

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