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​Chinese tech giants bid to be among Singapore's new wave of digital banks

Published on: 25-Jan-2020

Made in China but hoping to leave their mark in
, technology giants from the mainland are hoping their digital prowess will make them key players in the city state’s plans to reinvent its digital banking space.

The Lion City’s central bank is issuing as many as five digital banking licences by June, with interested parties from China including Ant Financial, the country’s largest online payment operator; content platforms company ByteDance, and the financial arm of smartphone vendor Xiaomi.

Up to two licences will be full-bank permits that allow retail banking, and three will be wholesale ones, opening up to foreign banks an industry largely dominated by traditional domestic players such as DBS Bank and United Overseas Bank.

The embrace of digital banking reflects Singapore’s most extensive liberalisation of its banking sector since 1999, when it rolled out a five-year plan to spur innovation and increase competition, and would see online-only nonbank players offer services for the first time.

According to the Monetary Authority of Singapore (MAS), 14 applications have been made for the wholesale licences, while there are seven competing bids for the full-bank licences.

Full-bank licences allow deposits to be taken from retail customers, while wholesale licences are for those looking to cater to small- and medium sized enterprises (SMEs) and other non-retail segments.

Other Chinese firms that have thrown their hat in the ring include Yillion Group, which counts Hong Kong-listed food delivery operator Meituan Dianping as a major shareholder. It has teamed up with Chinese fintech company Hande Group and wealth management firm iFast, which is headquartered in Singapore.

A variety of consortiums are bidding for the full-bank licences, including a tie-up between ride-hailing company Grab and Singtel, Southeast Asia’s largest telecom company. There is also an alliance of Asian tycoons led by gaming firm Razer, which includes the Lim brothers who founded supermarket chain Sheng Siong.

The coming together of companies with varied expertise points to a “second wave of transformation” for the island nation’s banking space, suggests Lawrence Loh, associate professor at the National University of Singapore (NUS).

“We are not looking at the admission of new players but we are now talking about the entry of new types of players,” he said.

The penetration of Chinese players is inevitable given the opportunities Singapore offers, Loh said. “You can reach new markets and the unbanked. There has been talk about the gig economy, the millennials. These areas have been missed out by traditional banks.”

Boh Wai Fong, professor of information systems at Nanyang Business School (NBS), said these new players hoped to cater to the likes of lower-income individuals or start-ups that could not meet traditional banks’ credit requirements.

Some 38 per cent of adults in Singapore are underbanked, despite the city state being a mature financial market, according to a 2019 report by Bain & Company, Google and Singapore state investment arm Temasek.

They were not well served in financial services or have “unmet needs” such as having no access to credit cards or long-term savings products, the report said.

Singapore’s growing support for SMEs also meant more opportunities for digital banks, said Divyesh Vithlani, head of Accenture’s Financial Services in Southeast Asia.

He pointed out that the city state was on track to double the number of local enterprises with revenues of over S$100 million (US$74 million) to about 1,000 in the next decade.

Despite its small size, Singapore’s strict banking regulations are also seen as lending credibility to firms that operate there, according to Boh from NBS.

“[This legitimacy] allows them to then go into the regional market,” she said. “There are definitely more of these kinds of underserved people in the Southeast Asian market that fit their target market.”

Parag Ekbote, head of business development at Oracle Financial Services, said this was why it made sense for Chinese firms to break into the Singaporean market.

“They are stepping in because for them, Singapore is a window into the larger Southeast Asia region,” he said, adding that operations in the Lion City and Hong Kong were “templates” that firms could replicate easily in any part of Asia.

Chinese companies typically had a head start given their mastery of the fintech space, Accenture’s Vithlani said, with many of these firms being front runners when it came to the adoption of mobile payments and the use of artificial intelligence. “Chinese players also have the balance sheet, the scale, the innovation, and the track record to take significant market share over time.”

Loh of NUS surmised that the monetary authority’s underlying thrust when it called for applications was to expose the current players to new technology, which could give the Chinese contenders an edge.

Sumit Agarwal, vice-dean of research at NUS Business School, agreed – though he said trust among clients would receive equal weight from the regulator.

On one hand, this meant tech companies would be more agile in developing their systems. “They are also not traditional minded. They are not always thinking like the big banks do, and are not stuck in that old mindset,” he said.

But on the other hand, he added, Chinese companies would not be as competitive on the trust front as traditional banks, as they are known for their tech capabilities while banks have been building trust among its customers for decades. “And until they can build that trust, they don’t own customers,” Agarwal said.

New entrants to the banking sector will have to work hard to attract customers who would first consider the more established players for their needs, according to Boh from NBS.

For example, ZA Bank – Hong Kong’s first digital-only bank, co-owned by mainland online insurer ZhongAn Online P&C Insurance and Sinolink Group – earlier this month announced that it would offer a 6 per cent rate to select clients for three-month deposits, compared with other banks’ 1.9 per cent to 2.3 per cent.

This is one way digital banks could compete, but it would be unsustainable in the long run, said Boh, who expects a “whole frenzy of companies trying to attract new customers” when the licences are awarded.

However, she added that tech companies can compete by offering a seamless “day-to-day personalised experience” for businesses and individuals.

This could range from a complete health and well-being package that bundled medical appointments, insurance and financing – or one that analysed their spending and offered effective money management, suggested Accenture’s Vithlani.

A recent global survey by the consulting company revealed that 60 per cent of consumers increasingly wanted “integrated” and “fully personalised” offerings, and 85 per cent said they were willing to share data in return for advice and deals.

When it comes to personalised service, Agarwal of NUS said it would be easier for Singapore-based companies to use the data they had collected over the years.

“For example, Singtel has data on people’s mobile usage. They know exactly which website I am visiting, how many texts I am sending,” he said, adding that this meant the telecom company would be able to learn about user behaviour.

Chinese companies however were not strong in this area, Agarwal said, meaning they would have to make up this data deficit by having strong analytical skills.

An exception to this is the consortium made up of Xiaomi, Hong Kong financial services group AMTD, Singapore state-owned power grid operator SP Group and digital financing platform Funding Societies, which can tap on the energy firm’s data on people’s consumption habits.

Agarwal added that there could also be opposition to the use of data by Chinese firms, given the recent backlash to the way tech firms such as Tencent Holdings handled personal data.

Boh of NBS said the Singapore government should think twice before awarding all three wholesale licences to Chinese companies. “It will definitely increase the level of competition here but you wouldn’t want [the local banking sector] to be swallowed up by [Chinese firms].”

She added that to survive in the island nation, Chinese tech giants needed to acknowledge that the Singapore market was a different playing field to the huge one they were used to.

“They need to be willing to do things that do not have the scale, meaning if they invest in this technology, they might not be able to get the reach they can get in China,” she said.

Some Chinese firms are seeking to collaborate and coexist with firms already in Singapore’s digital bank ecosystem. Ant Financial – the fintech affiliate of
Group Holding, which owns the South China Morning Post – said it was looking forward to working with “all participants” in the city state’s financial services industry if it was awarded a wholesale licence.

A source close to the matter told the Post that Ant Financial would look to cater to small businesses that are “already merchants in the Alibaba ecosystem”, including online retail service AliExpress.

“A lot of them are currently not getting served or are underserved by traditional financial institutions,” the source said. “This means our rational choice would be to work with incumbent players … and we have no intention to compete with banks such as DBS or UOB, and instead our operations in the region could lead more businesses to them." 

Source: SouthChina Morning Post, 25 January 

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