The MAS’s recent announcement that it was accepting applications for digital banking licenses was met with enthusiasm in the market. The variety of firms types reported to considering making an application is striking despite the cautious approach being adopted by the Singapore regulator.
On the 29 August 2019, the MAS began to accept applications for new digital bank licences from firms including non-bank players. Up to two licences will be issued to digital full banks, which will be allowed to take deposits from and provide a wide range of financial services to both retail and non-retail customer segments, and up to three digital wholesale bank licences which will be permitted to serve SMEs and other non-retail segments.
The term ‘digital bank’ generally refers to banking entities that operate without brick and mortar branches. Singapore’s reason for going into the digital banking space is to enable these banks to reach a wider segment of customers, lower their costs and potentially automate much of the blockages slowing down typical banking operation. The license is specifically being implemented to help serve underserved segments of the general population, like small businesses.
Singapore’s announcement also comes as Hong Kong recently handed out eight virtual bank licences. The MAS is clearly keen to remain competitive as a Fintech hub, as well as invigorating their domestic banking sector.
Applying for a new digital banking licence in Singapore: what you need to know
Local banks need not re-apply for a Digital Banking Licence
The MAS have clarified that local banks already licenced in Singapore can begin to launch their own digital bank without the need to apply for a separate licence. This “new” licence will be an add-on to the bank’s already approved full banking licence and will continue to be regulated under existing internet banking regulation introduced in 2000.
Two types of Digital Banking Licence
Digital full bank licences
These allow licensees to provide a wide range of financial services and take deposits from retail customers. They will operate as a restricted bank and must have an initial paid-up capital of S$15 million with aggregate deposits capped at S$50 million. Individual deposits will be capped at S$75,000.
Digital wholesale bank licences
These allow licensees to serve SMEs and other non-retail segments. These banks cannot take deposits from individuals (except for fixed deposits at least SG$250,000) but they are free to open and maintain business deposit accounts for SMEs and other businesses.
Getting a Licence in Two Stages
Stage One is the Restricted Digital Full Bank in which the bank can only offer simple credit and investment products. MAS will cap the amount of deposits allowed, and they are not allowed to offer complex investment products, like structured notes, derivatives, and proprietary trading. Deposit and business restrictions will slowly be relaxed once the digital bank has proven that they can manage the risks involved, and if they are delivering on its value proposition.
In Stage Two, once a proven track record of the above is achieved and the Bank are confirmed to not pose any significant supervisory concerns, the MAS will approve a full licence to the Bank. It is at this stage that the deposit caps are lifted, but they have to meet the minimum SG$1.5 billion capital.
Note: The Banks will not be given a set deadlines to graduate into Stage Two. Instead, the MAS will look at whether they have a viable plan to meet the requirements of a full digital bank.
Banks to be based in Singapore
A full digital banking license is only open to companies headquartered in Singapore, and controlled by Singaporeans. Foreign companies are still eligible if they form a joint venture with a local company, and the local firm holds management control over the joint entity.
Companies need to have a track record of operating an existing business in their respective technology or e-commerce fields.
Licences that pose a potential threat would not be approved
The MAS will reject any bank which will engage in value-destructive competition to gain market share. Value-destructive competition is defined as when an established sector that has a lot of value is replaced, and loses value. An example is when the entry and popularity of ride-hailing companies such as Grab, destroys the value of the taxi industry.
The reason is that the MAS is focusing on companies that add value to the existing ecosystem rather than disruptors, as MAS does not want to compromise the position of local banks, which holds a significant market share.
As of the date of this article, ride-hailing firm Grab and Standard Chartered are ready to jump on the band wagon with the latter having already joined forces with non-banking partners to win a digital banking licence in Hong Kong, where it is more dominant in serving affluent customers.
Prior to the MAS official announcement, Razer Inc, a global gaming hardware manufacturing company expressed interest in applying to expand their services. Razer Inc was established in 2005 in San Diego, California by Singaporean entrepreneur Min-Liang Tan and Robert Krakoff, who have since branched into the Fintech space. It now processes billions of dollars in digital payments and its Razer Pay e-wallet is one of the largest in Malaysia, with the Singapore app coming soon.
Outside Singapore, China’s largest insurer Ping An Insurance’s fintech unit, OneConnect, is looking to apply for a digital wholesale bank license for the upcoming digital banking regime, which allows it to provide banking services to small and medium-sized businesses on the island. The Company is said to be reaching out to organizations who are interested in virtual banking solutions and that it sees massive opportunities in the new virtual banking space that reaches out to the under-served segment in Singapore.
Bovill has a wide experience of working with new banks and other innovative financial services firms internationally, as well as a deep knowledge of MAS regulation. Get in touch to find out more.