The window for the application of virtual banking licenses in Singapore closed at the end of 2019, generating interest from a number of institutions, both financial and otherwise. The Monetary Authority of Singapore’s move marked a new beginning of sorts, and four themes are expected to play out, writes Bhaskar Prabhakara, Founder of WeInvest.

The Monetary Authority of Singapore’s move marked a new beginning of sorts, but what does the issuance of virtual banking licenses mean for the banking and investment services industry more broadly? The happy dance between financial services and technology promises opportunities for incumbent institutions and startups. There are four broad themes that we expect to see play out in 2020 and beyond. 

1. Don’t forget the SME

Of the five virtual banking licenses that the MAS will issue, two are going to be full-banking licenses and three wholesale licenses catering to corporate clients only. The MAS has received 21 applications in all, including seven for full banking, and 14 for wholesale banking, illustrating a high level of interest.

There is much buzz given big names that are known have put their hats in the ring – including Grab and SingTel, Razer, Ant Financial and ByteDance Technology (owner of TikTok). However, there’s a need to be circumspect. Given the extent of retail banking penetration in Singapore that we already see – and particularly given that all major banks locally are already digitally competitive – it is going to be challenging for the new virtual banks that will be active in the consumer space.

That the banks have substantial financial resources and deep relationships with customers – both retail and wholesale – cannot be underestimated.

SME banking, on the other hand, is often considered boring. And overlooked. But SMEs still continue to offer the biggest value pot in terms of opportunities. And for this reason, the wholesale banking licenses are going to be particularly interesting, because those banks can support not just Singaporean businesses, but also overseas companies that have a presence in Singapore. It is a huge market to tap into, and the winners of those licenses should be watched closely.

2. The traditional banks’ response

The traditional banks in Singapore are going to stand their ground. That said, the issuance of the virtual banking licenses will apply a lot more pressure on the incumbent banks’ existing offering sets. But in more ways than one, banks in Singapore have been feeling the pressure from disruption for a few years now, with a plethora of fintech startups active in various areas traditionally seen as the preserve of the large, traditional financial institution. So far, they have coped well, adapting quickly to the pace of technological change, often co-opting or collaborating with potential disruptors.

However, the issuance of virtual banking licenses takes things one step further as it means there will be more players competing on the very same turf in terms of providing the same services and targeting the same consumers. This will result in incumbent banks pushing the agenda to be even more digitally savvy and a lot more competitive in terms of providing a better digital customer experience. That the banks have substantial financial resources and deep relationships with customers – both retail and wholesale – cannot be underestimated.

3. Digital banking, digital wealth

Digital wealth continues to become increasingly popular in Singapore, in keeping with Asian and global trends. Almost all banks and established advisory firms now offer digital advisory solutions to their customers. Globally, in the robo-advisory segment assets under management stood at $981 billion as of 2019 and are expected to rise to $2.6 trillion by 2023, according to Statista. In Asia alone, total robo-advised AUM is expected to increase at a CAGR of 48% from $190 billion in 2019 to $907 billion by 2023.

For the new virtual banks, this will be a natural add on, but perhaps at a later stage. To start with, we are likely to see a focus on personal finance management, with a focus on lending, payments and insurance. But undoubtedly, the robo-investing needle is likely to move even further in coming months.

We could be faced with an investment slowdown as people look to save more.

This is because of the broader trend of continued interest in robo solutions. Big banks are looking for ways to integrate robo wealth services into their offerings to consumers while wealth tech providers are launching new offerings as well. It will be a natural evolution for virtual banks to provide these offerings. But it will not be without its challenges, because the new players will be competing with institutions that are already trusted. And unlike payments or lending, wealth is a lot about winning the customers’ trust, which is a long battle.

4. The impact of global trends

The financial community in Singapore will be watching what happens in Hong Kong with great interest. Hong Kong issued eight virtual banking licenses in 2019, and the evolution of the financial sector there could offer a peek into Singapore’s virtual banking future too. Separately, much attention is also pinned on Hong Kong, as Singapore is the biggest beneficiary of the movement of funds from Hong Kong owing to political volatility. In the short-to-medium-term, that should provide a boost to Singapore’s wealth and financial services sector.

However, there are economic headwinds that Singapore is not immune to. The ongoing trade tussle between the US and China has already had adverse implications on Singapore’s economy – bringing down annual GDP growth in 2019 to a decade-low 0.7% – and with little suggesting a rebound this year. In addition to the trade war, a growth slowdown in China (estimated GDP growth of about 6% in 2019[6]), slower growth in India (growth of 4.5% in Q3 2019, the lowest in 26 quarters), and a slowing down in economies nearer home – such as Thailand – is also having an impact on Singapore’s economic performance, given its economy’s heavy reliance on international trade.

These factors will help keep growth in Singapore subdued, which in turn will adversely impact employment. Investment confidence may take a hit, and we could be faced with an investment slowdown as people look to save more. However, in that could lie a silver lining for the financial services sector – with the economic situation not looking promising, many banks will be compelled to rethink their business models and could potentially invest more in technology, in the search for better returns.

At a crossroads?

All in all, what should one make of the issuance of virtual banking licenses? Symbolically, it is a huge deal because it has drawn the interest of some very prominent names, which is an illustration of both the expectations around the future of the banking industry and a vindication of Singapore’s approach towards financial innovation. In reality, will it have any serious impact on Singapore’s financial services sector and customers? The case is not convincing. Yet. That is perhaps a conversation to be had at the end of 2021.

The author of the above is Bhaskar Prabhakara, Founder & CEO, WeInvest, Singapore’s leading digital wealth firm for banks, brokers, asset managers, and financial advisors. He has spent the last 15 years consulting with various financial institutions across the globe. As a staunch believer in digital and hybrid propositions with the end-customer experience and proposition as the core focus, Bhaskar embarked on WeInvest after a 7-year stint with Headstrong Capital Markets running both European and Asian businesses.