By Low Shi Ping
SINGAPORE— As the Monetary Authority of Singapore (MAS) considers which of 21 applicants it will grant five coveted digital banking licenses to, market watchers say there are lessons to be learnt from Hong Kong, which handed out eight digital bank licences last May.
Singapore is expected to award two digital full bank licences and three digital wholesale bank licences in the second half of this year, instead of June as originally intended due the global escalation of the COVID-19 pandemic. The successful bidders had been expected to commence business by mid-2021.
For starters, market watchers note that there is nothing shy in the way Hong Kong’s new entrants are making themselves known to customers.
“We’ve seen in Hong Kong that one way is to offer higher returns for savings or time deposits to get people who have cash to park their funds with the new entrants,” points out Fergus Gordon, banking industry lead, growth markets at Accenture.
ZA Bank, the first of the eight Hong Kong virtual banks to kick off, launched with no minimum balance fees and a promotional 6.8 percent interest rate on savings deposits for 50 customers. For perspective, their standard rate is 1 percent for the first HK$500,000 (S$91,917), which itself compares very favourably to the 0.001 percent many traditional players offer.
Besides attracting almost 2,000 users to its digital-only service by the beginning of April, the move created buzz and brand awareness. WeLab VB is reportedly considering a similar strategy as a short-term measure for its own launch later this year.
Hong Kong’s virtual players have also clearly defined market segments.
“For example, Livi VB, a joint venture led by the Bank of China HK and JD.com, focuses on the underserved market. SC Digital is working on a fusion of the business and financial services scenario, which not only improves user experience, but also contributes to smart city development,” notes Dr. Yan Li, senior lecturer for strategy, IB and entrepreneurship at Nanyang Business School.
Singapore’s digital banks should consider how they can coordinate among themselves to create an ecosystem that can drive such positive change in the financial sector – and even collaborate with smart city initiatives, he says.
Looking beyond Hong Kong, Gordon says that digital banks in other parts of the world have gained success by focussing on specific pain-points, for example providing “cheaper foreign exchange transactions for people that travel a lot, or faster and more efficient lending for small- and medium-sized companies.”
They could also target specific audiences – and may not have to look far to identify them.
“Tap and activate the customer base of the different groups that joined together to win the new virtual banking licenses, as they were made up of companies in financial services, technology, consumer retail and telecommunications, with a broad range of customers.”
Once the house is in order, Singapore’s digital banks may also want to look beyond national boundaries, Li says.
He notes that the Hong Kong Monetary Authority does not expressly prohibit Hong Kong passport holders or citizens who live and have sources of revenue overseas from opening digital bank accounts, which facilitates business ties with mainland China.
“For Singapore, will our licensed digital banks, and traditional banks which do not need a license to go digital facilitate and accelerate this process with ASEAN countries for our small businesses?” Li asks.
The year has also shown that it is best to be prepared for the unexpected – from political protests in Hong Kong to COVID-19.
“How do you brace yourself for the new journey you are embarking on? How do you prepare your team? And how do you develop an increased resilience in all your plans?” says Varun Mittal, global emerging markets fintech leader at EY.
One solution would be to prepare a business continuity plan for the build and launch phase, he says, for example by targeting multiple market segments or smaller milestones. “You may have to change course along the way, so you take smaller steps to move faster,” he says.
“Once you get the license, that's the start of the journey, not the end.”