News analysis

Digital banking new players' offerings likely to target SMEs and millennials

Singapore's foray into the realm of digital banking is not a fishing expedition.

The move to liberalise the banking sector by allowing digital-only banks is part of a bigger plan that has been in the works for a few years now. It goes by the quaint name of Ubin Project.

While ensuring that the banking sector remains resilient, the latest move aims to spur innovation in segments that are less attractive to traditional banks because of their lower profitability or higher credit risks.

The idea is to nudge traditional banks to improve their own digital offerings without causing too much disruption to their customer base.

The new players, with fresh ideas, are supposed to join hands with traditional banks to drive Singapore's digital economy of the future.

One low-hanging fruit that the new players are likely to target are the small and medium-sized enterprises (SMEs) which account for 99 per cent of Singapore's companies and employ 70 per cent of the population.

These companies are always on the lookout for ways to reduce their banking costs - especially as they venture into the region.

The new players, with their potentially lower cost base, will try to tailor offerings for this segment.

Millennials, who form a fifth of the population, and other digitally savvy customers are also likely to be wooed by digital banks, which may simply offer them the products they need without forcing a costlier buffet of products down their throat.

The bet is that digital banking will unleash the spending power of the younger generation, who already tends to spend more than the baby boomers.

The total spending power of end consumers in Australia, Hong Kong, Malaysia and Singapore combined is estimated to reach US$2.5 trillion (S$3.4 trillion) by 2025. By then, the younger generations will account for about 75 per cent of consumer spending.


The result of increased spending will fuel end-client digital demand. To capture that, not just banks but businesses and governments will also have to develop a digital ecosystem.

Singapore is already working on such a system.

A key part of it is what the Monetary Authority of Singapore (MAS) calls the Ubin Project.

Under the project, MAS, with some industry partners, is exploring the use of a blockchain network for clearing and settlement of payments and securities based on central bank-issued digital tokens.

The goal is to develop a simpler-to-use and more efficient alternative to today's payments systems and improve cost efficiencies for businesses.

The payments systems being explored for now include inter-bank, cross-border and multi-currency transactions.

But the network will eventually integrate with commercial blockchain applications.

It will be a huge leap into the future for any e-commerce or online financial platform to tap into a payments system powered by the blockchain technology from one of the world's major trading hubs, like Singapore.

Introducing digital banking will also boost the use of financial technology like big data, machine learning and artificial intelligence.

Real-time analytics could also be integrated into business processes.

Almost all Singapore-based companies, big or small, plan to increase or maintain real-time data analytics and business intelligence-related spending.

Digital banks will need some time to establish trust and relationships with the people and businesses. But eventually, the introduction of digital banks will be seen as one of the first steps towards transforming the local banking business model.

All banks will have to look to a new architecture that is digital to the core, and more will choose to build and migrate to new systems.


Several traditional banks across the world have invested heavily in updating their legacy technology in order to remain competitive. But the new players can simply start from scratch - which is cheaper - as they try to claim their own share of the pie.

The list of partners in MAS' Ubin Project shows that traditional financial institutions will not be far behind in the race to the digital future.

The partners in the MAS project include local financial institutions DBS Bank, OCBC Bank, United Overseas Bank and the Singapore Exchange.

The foreign entities are Bank of America Merrill Lynch, Credit Suisse, HSBC, JP Morgan, Mitsubishi UFJ Financial Group and R3, an enterprise blockchain technology company.

It promises to be an exciting journey into the future.