(Bloomberg Opinion) – The highly anticipated introduction of virtual banking in Singapore may not be an “aha” moment for consumer finance, but corporate banking will be different. One should expect disruptions.
The application deadline for Singapore's first pure internet lender ended last week with five known hopes for so many licenses offered. The move reflects the award of eight licenses in the competing Hong Kong financial center. The idea is to introduce fancy fintech tools – big data, machine learning and artificial intelligence – into local banking systems to make them more competitive. The Singapore winners will be announced mid-year.
The gaming company Razer Inc. leads a consortium of bidders. Superapp Grab Holdings Inc. is a pioneer in another company. Both seek full banking licenses that require S $ 1.5 billion (S $ 1.1 billion) in capital and local control. Jack Ma’s Ant Financial, a billionaire founder, wants a banking license for major customers. This also applies to a consortium consisting of the locally based asset management platform iFast Corp., the Chinese Yillion Group and the Hande Group. The Singapore Business Times reported that China's ByteDance, which owns the video sharing app TikTok, is also making such a bid.
The difference to full banks is that the wholesale versions do not allow savings deposits in Singapore dollars, but can accept company overdrafts. The required capital is only S $ 100 million, and foreign players can sit in the driver's seat.
Razer, who is supported by Sheng Siong Holdings Pte, a Singapore grocer, and Hong Kong tycoon insurance company Richard Li, among others, will woo millennial customers. Grab a partnership with Singapore Telecommunications Ltd. may be aimed at customers and drivers who travel by car, as well as small and medium-sized businesses. Grab's financial ambitions are not exactly new. Earlier last year, it partnered with Chinese ZhongAn Online P & C Insurance Co. to build a digital insurance distribution business in Southeast Asia. Chubb Ltd. was the first to register and provide Grab drivers in Singapore with protection from loss of income from illness or accidents.
However, a full-fledged bank is another undertaking. Start with deposits. How will Grab or Razer convince Singaporeans to loyalty the three domestic banks DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. switch? The wealthy Asian city-state with 5.6 million inhabitants is not exactly full of people without banks. And even if there are some underserved segments, such as small businesses, is it really worth writing a $ 1 billion check to register them?
The competition will be tough. DBS, the standard depositor solution in Singapore, has built impressive digital banking capabilities itself. One can well imagine that virtual challengers offer additional services such as innovative insurance products, while banks in Singapore are perplexed.
Ant, a subsidiary of Alibaba Group Holding Ltd., has the most extensive financial expertise among the newcomers. And it appears to be pursuing a cautious strategy. Ma wants to do better than competing for retail deposits – or using a virtual bank to drive e-commerce.
Alibabas Lazada, which operates online shops in Singapore and other Southeast Asian countries, has enough payment options to support the trade. The website signed a credit card agreement with Citigroup Inc. just three months ago. DBS and OCBC cards offer installment plans to consumers shopping at Lazada that are pushing for the top spot in the city's online retail market with another Asian website, Qoo10.
Providing wealth management services – including algorithm-generated financial advice – to less wealthy investors can lead to a more lucrative venture, but Ma's actual bet is somewhere else and is a longer-term game. As my colleague Nisha Gopalan and I wrote last year, the potential for digital disruptions in corporate cash management is greatest and most profitable.
Take only part of it: move money. McKinsey & Co. says the Asia-Pacific region generates $ 85 billion in annual fees for banks for such transfers, two-thirds of which is what companies send to each other and to individuals. If the Monetary Authority is absent from Singapore's Ubin project, a study of the central bank's digital currencies, it can be imagined that a bulky and costly chain of correspondent banks will be circumvented. Cross-border payments are processed using cryptocurrency tokens, which offer the advantage of “atomicity”: all parts of a blockchain transaction are successfully executed or fail together. The money doesn't get stuck somewhere in the middle.
As China's largest online financial platform, Alipay will be responsible for marketing the digital yuan that the People's Bank of China may be offering this year. The ability to use these digital tokens in a major global retail and banking center such as Singapore for businesses and institutions is a far greater opportunity than accepting mutual funds or using analytics to give small loans to millennials. By foregoing small deposits, Ma only needs to use a fraction of the capital that other challengers have to bring. Even though Ant's payday in the back room of Singapore's bank takes some time, he can afford to be patient.
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Andy Mukherjee is a Bloomberg Opinion columnist dealing with industrial companies and financial services. Previously, he was a columnist at Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.
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