Singapore Digital Banks and Multinational IT Companies Battle

Alibaba and 20 Other Companies Challenge for Business Licenses

[Image source=Reuters Yonhap News]

[Asia Economy Singapore, Guest Reporter Seo Jumi] Multinational IT companies are showing strong interest in the establishment of digital banks (virtual banks) promoted by the Singapore government to enhance the competitiveness of the financial market. Not only Southeast Asian companies but also Chinese IT firms have joined the race to secure business licenses.

The Monetary Authority of Singapore (MAS) announced on the 31st of last month that a total of 21 IT companies participated in the license bidding process.

The participating companies are formidable. China's Alibaba (through its financial affiliate Ant Financial) and Grab, known as the Uber of Southeast Asia, participated in a consortium with Singtel. In addition, various companies from e-commerce, technology, telecommunications, fintech, and financial institutions sectors, including gaming company Razer, Xiaomi, and SEA supported by Tencent Holdings, have thrown down the gauntlet.

Singapore set strict conditions for bidding participation, requiring at least three years of performance in related businesses or e-commerce, and a capital of SGD 1.5 billion (approximately KRW 1.2861 trillion) or SGD 100 million (approximately KRW 86 billion) for wholesale banking. For retail banking, the headquarters must be located in Singapore, and Singaporean citizens must be involved in operations.

Despite the high barriers, many well-known companies applied because the market was opened to allow non-financial companies to conduct banking operations. IT companies without a financial industry background judged that if they obtained a digital bank license, they could compete confidently with traditional banks in Southeast Asia without being at a disadvantage.

However, there are also many negative views regarding the establishment of digital banks. Currently, more than 200 banks, including regional brands such as DBS, UOB, and OCBC, as well as Citi, Standard Chartered, and HSBC, operate in Singapore, leading to concerns that the Singapore banking market is already saturated.

In particular, existing banks have been rapidly transforming by integrating their sales and IT departments and establishing dedicated digital operation teams to compete with fintech companies that are encroaching on the mobile payment market. From the perspective of IT companies preparing digital banks, they also bear the burden of fending off fierce attacks from banks. Therefore, the prevailing opinion is that they must have innovative strengths capable of competing with existing financial companies and fintech firms to attract consumers.

MAS plans to finalize the selection of five companies for digital bank licenses by June. Licensed companies will be able to start operations from mid-2021. The licenses will be divided into retail banking, which offers financial services to general consumers, and wholesale banking, which serves corporate clients. It is highly likely that licenses will be granted to non-traditional financial institutions based on digital technologies such as fintech (finance + technology).