The MAS review follows the decision by regulators in Hong Kong to issue virtual banking licenses as a way to shake up retail lenders and compete better with regional economies such as China and India.
Among the firms to receive Hong Kong permits, three have partnered with financial institutions such as Standard Chartered, BOC Hong Kong Holdings and ZhongAn Online P&C Insurance Co. Fintech firm WeLab Holdings has also received a Hong Kong banking license. The new entrants are targeting a market dominated by HSBC Holdings, which has a leading share of local retail and corporate lending, mortgages and credit cards.
In its statement, the MAS said digitalisation isn’t new to Singapore’s banking industry, noting that local lenders have been allowed to pursue digital-only business models since 2000. DBS Group Holdings, Oversea-Chinese Banking Corp and United Overseas Bank all have digital strategies, and compete with home-grown financial-technology firms as well as the local branch networks of HSBC, Citigroup Inc. and other foreign banks.
DBS Chief Executive Officer Piyush Gupta downplayed the competitive threat for the local banks of the possible entry of digital-only banks in a recent interview with Bloomberg News. “To my mind, that’s just basically giving a few more banking licenses,” he said.
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In the interview, Gupta said he’d only see a problem in Singapore if virtual banks are allowed to operate on more lenient terms than the incumbents, for example in terms of the capital they are required to hold. “The real challenge is if the regulators create an unlevel playing field, and let the new bank licensees come in and do banking on different terms,” he said. But he said most regulators “don’t seem to be inclined” to do that.
Virtual banks typically have lower operational costs than traditional lenders that rely on brick-and-mortar branch networks. Last month, Gupta told DBS’s annual shareholder meeting that a new digital bank could generate US$100 ($136.20) of income from a cost base a little above US$30. In contrast, DBS’s cost-to-income ratio stood at 44% last year.
