Earlier this year, Hongkong offered digital banking licenses to Alibaba, Tencent and Xiaomi. Therefore, it is not surprising to hear that the Monetary Authority of Singapore (MAS) are opening up their doors to digital banks too. Applications are open for firms wanting to set up a digital bank in Singapore.
The deadline for applications is the 31st of December. MAS have announced that five applications will be accepted in this round. Two of them will be full digital banks and three wholesale digital banks.
Hongkong and Singapore have locked horns to be Asia’s Fintech hub. While Hongkong enjoyed its access to China’s consumer base, Singapore had the ASEAN bedrock. With the emergence of South East Asia as a big potential consumer Fintech base, Singapore is well placed to make the most of the growth.
MAS have set several criteria that the applicants need to meet to have a good chance at winning the banking license.
- Capitalisation: A S$15 Million paid up capital and a paid-up capital of S$1.5 billion within three to five years’ time of setting up business.
- Deposits: A total deposit cap of S$50 Million and per customer deposit cap of S$75,000.
- Track Record: At least one entity that holds a 20% stake in the applying entity will need to have a track record of 3 years in running a technology or e-commerce business. (This is an interesting rule)
- Path to Profitability: Applicants should submit five year financial projections, through which they should be able to demonstrate a roadmap to profitability.
It is interesting to see the last two criteria. It invites Tech companies to apply for the license, however, only the ones that can convince the decision makers that they can make a profit. In a WeWork era, “Profitable tech companies” is perhaps oxymoronic though.
MAS have announced that, applicants that show a consistent loss making pattern will not be provided their digital banking license.
Firms like Ping-An from China, and Grab (a Softbank fund’s portfolio firm) from Indonesia are openly declaring their interest to apply for the banking license. We have seen several lifestyle businesses move into digital payments, and some into lending. Grab might be the first ride sharing business that would be a digital bank.
This could trigger a massive market in South East Asia for digital banks, if MAS can demonstrate viability. Singapore is a key member of ASEAN, and there are other national regulators waiting to open up their doors for digital banks. Malaysia could be open up applications for digital banks this year.
As a financial inclusion follower, it is exciting to see these developments. In 2017, roughly 39% of the adult population in low- and middle income countries did not have a bank account. 55% of this population live in Asia. However, with an extremely high rate of mobile penetration over the past few years, this trend is improving.
The IMF report that provides this data clearly articulates that there are definite macro economic benefits for low and middle income nations that embrace financial inclusion. With technology firms joining the digital and financial inclusion wave, Asia (not just China) could be the new consumer fintech hub of the world!
Arunkumar Krishnakumar is a Venture Capital investor at Green Shores Capital focusing on sustainable deep-tech investments