Everyone is waiting with bated breath for the results of Singapore’s first digital bank bids.
To recap, back in December last year, the Monetary Authority of Singapore (MAS) announced that it will be liberalising the banking sector.
In a first for Singapore, MAS has put five digital banking licences up for grabs.
Two of these will be digital full banks (DFB), while the remaining three will be digital wholesale banks (DWB).
This announcement attracted a flood of applicants all clamouring to make history by setting up Singapore’s first digital bank.
The idea is to open up the market for the benefit of lower customers’ costs and to allow underserved segments to be targeted by the new entrants.
Some of the more well-known names gunning for the DFB include a joint application from Grab Holdings and Singtel (SGX: Z74) and gaming company Razer Inc (SEHK: 1337).
Other contenders for the DFB include a group led by OSIM founder Ron Sim’s V3 Group which includes Temasek unit Heliconia, the Singapore Business Federation and Far East Organization, and billionaire Jack Ma’s Ant Financial.
The new digital banks are expected to start operating in the middle of 2021, though this timeline may be pushed back in light of the COVID-19 pandemic.
However, before these banks can even start operating, they need to overcome two major hurdles first.
There has been a spate of incidents in recent months involving lapses in data security.
Late last month, e-commerce cashback platform Shopback announced a data breach involving unauthorised access to customers’ data.
As at the time of writing, authorities are still investigating the circumstances surrounding this breach.
Budget hotel management and booking services firm RedDoorz also reported that one of its IT databases suffered a breach.
Both Grab and Razer also had to contend with such incidents last month.
Grab was fined S$10,000 last month over its fourth data breach in two years.
The latest fine was for failing to secure its drivers’ and passengers’ details on its mobile app, as a software update in August 2019 exposed the personal data of over 21,000 drivers and passengers to the risk of unauthorised access.
In June last year, Grab was fined S$16,000 for disclosing the names of more than 120,000 customers in marketing emails.
Two years ago in October 2018, the ride-hailing company was fined S$6,000 for failing to prevent unauthorised disclosure of drivers’ personal data.
Judging by the sequence of failures, there is cause for concern.
For Razer, the personal information of around 100,000 customers was leaked online for three weeks, potentially exposing them to possible scams.
Even though no credit card information or passwords were stolen or shared, the data breach took more than three weeks to rectify.
Unless both Grab and Razer fix these underlying problems, customers may feel wary about using their services, which may affect the success of their digital bank bids.
Open banking is an initiative led by MAS to enable consumers to aggregate their banking, insurance and investment information across banks and finance companies on a single platform.
This involves making open APIs (application programming interfaces) available to facilitate data portability among financial institutions.
With such a platform, comparability becomes much easier as the customer can access all the information he needs as a “one-stop location” for his investment and insurance needs.
While this initiative benefits the customer as there is now a wider choice available along with greater transparency, it presents a challenge for both digital and incumbent banks.
Digital banks already face an uphill task in building a sizable customer base to break even over time.
Open banking threatens to make this task even tougher by increasing competition among banking players.
Get Smart: A sea change
These two challenges act as stumbling blocks for both Grab and Razer as they pursue their digital banking dreams.
Both companies need to work on enhancing systems security to prevent the unauthorised use of sensitive customer data.
The digital bank entrants will trigger a sea change in the banking industry come 2021.
However, the aspirants need to get their act together and overcome these two pressing issues before they stand a fighting chance.
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