Digital Bank Licensing in Singapore | DesFran

Digital Bank Licensing in Singapore

The banking and finance industry of Singapore is amongst the most innovative sectors in the world-renowned for its espousal of cutting-edge financial technologies while sustaining robust legislative policies. Working towards the country-wide initiative of a Smart Nation, Singapore’s finance industry stands its ground as a resolute contender in the technological arena. Digital bank licensing is the Monetary Authority of Singapore’s (MAS) latest concept to keep the finance industry updated and adept at providing for the progressively tech-savvy consumers.  

In June this year, MAS released that it will issue as many as five new digital banking licences in total and would begin inviting applications two months later. Digital bank licensing is one of the largest steps taken by the city-state as yet to liberalise the banking industry and lower entry barriers for non-conventional applicants. Authorities propose that the decision for digital banks licensing will give Singapore an edge and allow her to stay competitive and vibrant in an increasingly digitised environment [MAS]. 

Australia’s openness towards Neobanks (direct banks fully reliant on personal mobile applications and computers) is an illustration of the global banking industry’s shift to being more technology-focused and inclusive. (Read more about Australia’s Neobank initiatives here.)

However, ratings agency Moody’s expressed concerns that digital bank licensing will put smaller banks and lending corporations at a disadvantage; hence defeating the goal of having a more competitive and inclusive sector [CNBC]. DesFran highlights the digital banks and its likely impacts on various stakeholders within the industry.   

MAS Licences for Digital Banks 

MAS’ licensing of five exclusive digital banks will be segregated into two different categories and orientate themselves towards vastly distinct communities. These licences are in addition to another MAS policy created in 2000 which permits banking groups to initiate their digital banking subsidiaries. Three wholesale licences will cater to small and medium-sized enterprises (SMEs) and other non-retail segments; whereas the remaining two full bank licences will afford a myriad of financial services and support deposits from retail customers. 

There are currently no restrictions on the former, but the latter of the two will only be applicable to companies headquartered and supervised by Singaporeans, or joint ventures between Singaporean and foreign firms. These licences will collaboratively cater to under-served populations and aid in digital and financial inclusion. 

Advantages of Digital Banks Over Traditional Banks

Consumers are often concerned with security assurance issues which keep them from exploring digital banking. Transactions through digital banking platforms are, however, well-developed, secure and encrypted. Digital banks have the ability to offer attractive benefits unattainable through traditional financial intermediaries. The advantages of digital banks include:

  • Reduced costs from digital bank operations provide higher interest rates or annual percentage yields (APYs)
  • Little to no service fee
  • The removal of physical infrastructure alleviates hindrances encountered during conventional banking, improving banking experience 
  • No long waiting times compared to traditional banking
  • Speed and simplicity of transactions optimise digital banking experience

Bain and Company’s 2018 survey found that banking experience, combined with the speed of transactions, to be one of the most defining aspects affecting customer loyalty. Traditional banks fall behind direct banks on these. As non-traditional banking systems enter the market, it also generates more incentive for traditional banks to innovate and improve in order to retain market share, or remain competitive. 

Digital Banks Disrupting the Lending Business

Belonging to the ranks of those underserved by the finance industry such as foreign workers and the digitised millennial generation, SMEs are a group that could benefit the most from reinforced financial infrastructure due to the increased availability of loans and support. A strong financial backing accompanied with a good credit score is the minimum requirement for an SME to be granted a loan by dependable financial institutions. Yet due to the rigidity of the rules and the cumbersome application paperwork, SMEs without the required credentials face time-consuming challenges in obtaining the required funding to grow and develop their business.

Digital banks use data to make more informed decisions about a company’s credibility. An acclaimed institution that have built a banking businesses for SMEs include WeBank by Alibaba. This has reformed the way SMEs seek loans as the application process is now streamlined and friendly. Digital banking, part of the FinTech revolution, will allow banks to establish commercial niches and facilitate financial inclusion within the greater population. 

As the leading corporate service provider, DesFran’s wide range of corporate service solutions and clear knowledge and understanding of Singapore’s finance industry and regulations can streamline your transition into the local banking scene. Contact DesFran today.


Singapore Gets First SGD-Backed Stablecoins,

Virtual banks could be bad news for small lenders in Singapore, Moody’s says,

Stablecoins in Singapore: Challenges and Opportunities,

Singapore to issue up to five new licences to digital banks,

Media Release, Monetary Authority of Singapore

About the Authors

Joyce Sun is Strategic Communications and Research Intern at DesFran. Joyce enjoys learning as she writes financial news blurbs and editorials involving financial regulatory developments due to her keen interests in equities and finance-related topics. She is a final year honours student at the National University of Singapore hoping to pursue a career in the finance industry, and to continue developing her knowledge in investments.

Terence Tay is Strategic Communications and Research Executive at DesFran. Terence has more than six years of experience in the banking industry, with keen interest in wealth and customer relations management. Having committed more than 15 years in the entertainment and performing arts scene in Singapore, Terence wishes to develop himself further in both the finance and communications realms by pursing career and academic opportunities related to strategic and business communications. Terence holds a Bachelor’s degree in Management and Human Resource Management, and will be studying Master of Science in Communication Management at the Singapore Management University in 2020.