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Fintech, Challengers and More: The Singapore Scene

Singapore represents one of the two wheels of a bicycle that showcase Asia’s fintech credentials to the rest of the world, according to a leading fintech analyst.

Varun Mittal, global emerging markets fintech leader at EY, the professional services company, said: “For Singapore to succeed, it needs Hong Kong to also succeed together because both represent Asia to the world.

“These are two wheels of a bicycle for an Asian global visibility and global portrayal of the kind of stuff which is happening in Asia.” 

Fintechs of most types located in Singapore

In recent years, fintechs of various hues have established themselves in Singapore, benefiting from regulatory support, a strong talent pool, and high mobile penetration while some fintechs have viewed the market as a gateway for the rest of the Southeast Asian market.

Singapore’s banking sector is worth around £2 trillion, according to Singapore’s central bank, the Monetary Authority of Singapore, and the sector is set for a fillip next year when a handful of new firms, recently awarded digital banking licences, enter the fray.

Yet standalone neobanks have hitherto not been plentiful in Singapore.

and it has been reported that those operating in this space have struggled during Covid-19, hit by a decline in fees.

Some numbers

Singapore is Asia’s highest-ranking fintech city, according to Findexable’s global fintech index, 2020.

According to figures, 40 per cent of Southeast Asia’s fintechs are based in Singapore, with more than 100 incubators, over 40 innovation labs and over 150 venture capitalist investors.

It also has a high level of smartphone penetration, around 82 per cent, according to official statistics, and Singapore is often seen as a destination for mobile firms to release their latest models attracting users from other parts of Southeast Asia keen to get the newest smartphone.

Fintechs across blockchain, regtech, data analytics, insurtech and wealth management abound.

Yet according to Aspire, a Singapore-based neobank-like platform that helps SMEs secure working capital, standalone neobanks are still “relatively rare” in Singapore, as tough regulatory hurdles have prevented many from getting off the ground.

2022 the year for Singapore challenger banks

But the neobank landscape could be in for change after last year the MAS awarded two major types of banking licences– which were primarily won by big platform firms.

It awarded two Digital Full Bank (DFB) licences (allowing firms to provide banking services to retail and non-retail customers).

The first was to a consortium made up of Grab, the Southeast Asia “super app” which entered financial services in 2016 and Singtel, one of Singapore’s biggest telecoms firms.

It also awarded another to the Singapore tech giant Sea.

Additionally, it awarded two Digital Wholesale Bank licenses (allowing companies to provide banking services to SME and non-retail customers), the first going to Ant Group, China’s biggest payments provider.

While the second went to a consortium made of up obscure Chinese firms, made up of Greenland Financial Holdings, the Shanghai-based real estate firm, Linklogis, a blockchain supply chain financing firm, and Beijing Co-operative Equity Investment Fund Management.

The ambition behind the initiative, which set stringent requirements including demonstrating the proposed bank’s business model is sustainable, is partly to allow non-bank players with innovative business models to offer digital banking services.

The MAS said the new challenger banks, which are set to enter the market next year, will “further strengthen Singapore financial sector for the digital economy of the future.”

Experts say that the arrival of the new entrants will raise the bar of the banking sector, as they will enhance services through the introduction of the latest technology, data analytics and machine learning.

What impact the arrival of these newbies has on Singapore’s major incumbent banks, including includes DBS Bank and United Overseas Bank, is a moot point.

Incumbent banks have won awards for digital initiatives

While there are suggestions it will spur incumbent banks to speed up their digital processes, Mittal points out that incumbent banks have already been looking at different digital propositions for some time and incumbent banks have been recognised globally by winning awards as ‘Best in Class’ digital banks.

He adds: “There is enough market and an average Singaporean customer has multiple bank accounts.”

Mittal also points out that the wholesale banking market in Singapore currently consists of 99 wholesale banks, so the addition of two new wholesale banks “will not dramatically change the competitive landscape per se from a wholesale landscape perspective.”

Barriers to enter high for challenger banks

According to Singapore-based neobank Aspire, generally speaking, fintech startups looking to incorporate and obtain a banking licence face “a few hurdles” in Singapore.

A spokesman for Aspire said: “Despite the buzz around neobanks, they’re still relatively rare in Singapore. Singapore is a country where financial regulations are rife.

“As such, many fintech startups looking to incorporate or obtain a license in Singapore might face a few hurdles.”

Partnerships

One fintech segment that has thrived is B2B fintechs, powered by Singapore’s large and established base of small and medium-sized enterprises (SMEs).

Because half of the Multinational companies (MNCs) in Asia have their regional headquarters in Singapore, it makes it easier for a B2B fintechs in Singapore to build a network of customers and partners.

Two examples of these partnerships include the Singapore-based OCBC bank teaming up with CXA Group, the insurtech for its Health Pass app, and MasterCard and Idemia, the augmented identity fintech, partnering with MatchMove, the Singapore-based payments firm, to pilot fingerprint biometric plastic cards.

“Partnering with large banks in Singapore and across the Southeast Asian region has been very successful for us, allowing us to quickly localise and penetrate neighbouring markets,” said Dorel Blitz,VP strategy & business Development, Personetics, the fintech software firm.

“The network and know-how of large regional banks have helped us accelerate market expansion tremendously.”

Covid

Like many businesses, Covid has undermined the performance of challenger banks in Singapore, which has been in contrast to the strong performance of online shopping businesses online gaming, food delivery and video streaming.

According to one analyst, the incomes of challenger banks has fallen sharply during the pandemic,

“The drop in consumer spending and overseas travel has resulted in a steep decline in fees, which is their main source of revenue—transaction fees,”  UOB Kay Hian analyst Johnathan Koh told the Singapore Business website.

Fintechs continue to thrive in Singapore, helped by its tech-savvy population and the desire of authorities to make it a global fintech powerhouse.

What impact those firms with the new digital banking licences will have on Singapore we will get to know in the next few years

Authors

  • Contributing Reporter at The Fintech Times

  • Benedict Smith studied English at Oxford University, followed by Journalism at City, University of London. Alongside the The Fintech Times, he has written for ABC News and Good Morning America.

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