Banking is no longer just for traditional FIs, thanks to open banking’s spread. Digital banking development is poised to explode in Singapore, where legacy institutions have traditionally dominated.
This prospective growth can largely be attributed to the Monetary Authority of Singapore (MAS), the region’s main regulator, which announced in June 2018 that it would grant five digital banking licenses to third-party companies. Just two of these licenses will afford approved companies full banking privileges, which represent an entryway into a market with one of the fastest-growing digital economies in the world. The news set off a high-stakes race among today’s top global eCommerce, finance and technology players.
Competition to be one of the lucky five increased at the start of 2020. Chinese firms like Alibaba’s Ant Financial and Zall both applied, as did Singapore-based companies Grab and Singtel. The introduction of any of these — or of other applicants — will have a huge impact on how banking is conducted in the market, an MAS spokesperson said in a recent interview with PYMNTS.
“MAS’ latest initiative to issue new digital bank licenses is aimed at enabling non-bank players with strong value propositions and innovative digital business models to offer banking services,” the spokesperson explained. “Digital challengers can add diversity and choice to our banking system and spur existing banks to continue to innovate and digitize their service offerings to improve customer outcomes.”
The race to enter Singapore may end up as one of the most important worldwide open banking developments over the next two years, but the tools facilitating such shifts remain the same. Careful, clever usage of application programming interfaces (APIs) and interconnected platforms will be essential to such financial innovation in Singapore, and the latter’s emergence is a main driver behind the five licenses.
APIs and open banking growth
The impact these digital licenses could have on Singapore cannot be understated. Entrenched banks still control most of the nation’s financial activity, with three native FIs — DBS Bank, Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB) — handling 60 percent of deposits, collectively valued at about $490 billion USD. The landscape also means traditional banks are not particularly motivated to upgrade their platforms or technologies. The MAS hopes FinTech or third-party license recipients will encourage greater innovation, the spokesperson said — not to break traditional FIs’ grip on Singapore’s customers, but to stimulate overall financial and technology growth.
APIs are critical, as they enable further digital banking connectivity. MAS has thus been encouraging FIs in Singapore to openly develop and share APIs ahead of the license application deadline, creating resources like the Financial Industry API Register and co-developing guidelines in partnership with the Association of Banks in Singapore (ABS).
“In MAS’ engagement with the banking industry, there is broad consensus as to the benefits of open banking,” the spokesperson said. “What we see is an opening up of customer data as a ground-up [innovation] process led by the banks themselves. We believe this is a constructive development [and] that industry players see the value in doing so. As of November 2019, there have been over 470 APIs published by financial institutions on the Financial Industry API Register.”
API mastery will likely be a major factor in determining which companies receive the five licenses, regardless of applicants’ intention to support or replace Singapore’s traditional banking players. License recipients will find themselves competing against traditional players that have been innovating their products and services for further engagement, said the spokesperson. This makes the growth potential entrants can bring to Singaporean banking key to MAS.
Growth and competition
Singapore’s growth focus means the market’s existing entities will prove themselves formidable competitors for new entrants, whose technologies should connect with established FIs in the way FinTechs and third parties work with more experienced financial service firms in the EU under PSD2. Licenses are not meant as free passes into financial domination in Singapore, after all.
“Banks in Singapore have already been expanding their digital platforms to better cater to customers’ needs,” the MAS spokesperson said. “They have partnered with FinTechs to harness the capabilities of new technologies and deliver more customized solutions, and [they] have adopted more customer-centric approaches, integrating solutions for their financial and non-financial needs.”
MAS’ intended innovative financial atmosphere has increased the market’s attractiveness, as 21 firms have already submitted applications. The battle to enter Singapore will continue until licenses are granted later this year, and recipients can start their operations in late 2021. The timeline is in sync with large markets such as India and China exploring their own data and financial regulations, meaning Singapore could be useful for foreign firms hoping to enter those spaces.