Digital banks could mean lower costs for consumers

Analysts cite low cost base of digital-only banks, and tout more solutions on offer

The greatest beneficiaries of digital-only banks will be consumers, analysts said, amid a flurry of announcements from contenders who have put their names in the hat for up to five digital bank licences.

Seven applications were submitted for up to two full bank licences, while 14 bids were made for up to three wholesale bank licences, the Monetary Authority of Singapore (MAS) announced yesterday.

Successful applicants will be announced in June, and the new digital banks are expected to start operating by the middle of next year.

Associate Professor Lawrence Loh of the National University of Singapore Business School said that the entry of digital banks would likely mean higher interest rates and lower costs of financing for consumers, which would mean that "cost savings should be quite apparent for consumers".

The low cost base that digital banks will have, due to not having a physical presence and saving on rental costs of bricks-and-mortar stores, should mean that cost savings are passed on to customers, he added.

These benefits should be seen from the launch of operations as the licensees may be willing to take a loss in the initial stages in order to establish market share early, Prof Loh said.

While MAS has stated that the digital banks must show a path towards profitability, Prof Loh said that there is a sufficiently long runway for the players to take a short-term loss for about one to two years as they fight to acquire customers.

EY global emerging markets fintech leader Varun Mittal noted that in Hong Kong, the entrance of virtual banks led to major banks such as HSBC and Bank of East Asia waiving minimum balance fees for certain accounts.

The Hong Kong Monetary Authority has granted eight digital bank licences, and digital-only banks have also established themselves in other countries in Asia, including China and Japan.


"Benefits from (the entry) of digital-only banks will be seen from the get-go, like in Hong Kong. Singapore banks will ramp up their services, and we will see them become more agile," added Mr Mittal.

Contenders for Singapore's digital bank licences include property developers, insurers and firms that are not currently operating in banking industries, which could provide a new perspective and meet the under-served segments in the market, he noted.

Mr Mittal pointed out that some 25 per cent to 35 per cent of Singapore companies are in the business of wholesale and retail trade - importing from one country and selling to another.

There are several players among the applicants - such as real estate firms - which understand issues such as exposure of currency risks, making them better equipped to create solutions for small and medium-sized enterprises (SMEs) for managing cross-border payments, working capital and currency risk, Mr Mittal said.

"The overall winner of this exercise (will) be end consumers and SMEs, which will have a large pool of solutions to choose from," he added.