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New Singapore sling a twist of commerce, dash of banking

By deliberately choosing contenders that have cut their teeth outside of finance, Singapore is copying the digital-banking model that emerged spontaneously - and problematically - in China

New S’pore sling a twist of commerce, dash of banking
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New S’pore sling a twist of commerce, dash of banking

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Singapore's virtual bank licenses will be watched globally

The new generation of digital lenders coming up in Singapore will be watched keenly, and not just for their novelty value. If they succeed, regulators globally will have to accept that boundaries between commerce and banking will get fuzzy - and decide how the resulting risks will have to be managed. Internet-only banks aren't exactly new anymore. The UK market is teeming with the likes of Monzo Bank, Starling Bank. and Revolut Ltd. Hong Kong's eight newly licensed lenders are in the process of setting up their virtual shops. In the US, the virtual and branchless Chime Financial Inc., Varo Bank and Stash Financial Inc. snagged one in four of all banking app downloads in the first half of this year. Back in 2017, traditional lenders' mobile apps dominated 99 per cent of the market, according to SensorTower.

But Singapore's virtual bank licenses, announced Friday, are different. They've gone to Grab Holdings Ltd. and Sea Ltd. The first is the ride-hailing firm that sent Uber Technologies Inc. packing from Southeast Asia. The other is a mobile games maker that also runs Shopee, a popular e-commerce website in the region. Having learned how to sell to consumers on the web, Grab and Sea have taught themselves payments and finance - and they will now be allowed to accept retail bank deposits. It makes business sense: Banks need data to know who they can trust with loans; commerce generates this data trail as a byproduct.

By deliberately choosing contenders that have cut their teeth outside of finance, Singapore is copying the digital-banking model that emerged spontaneously - and problematically - in China. The People's Republic has its successful WeBank Co., with a 28 per cent return on equity, as my colleague Anjani Trivedi wrote recently. Ant Group Co.'s MyBank has 12 million small and medium firms as clients. That's because founder Jack Ma earned his spurs creating a marketplace for these businesses to sell their widgets.

By going down the same route, Singapore appears to have taken a bolder approach than its bigger financial rival, Hong Kong. The neobanks there may turn out to be no less innovative, but as a Hong Kong resident, I have never hailed a ride, played games, or had any prior commercial engagement with the likes of ZA Bank Ltd., a unit of ZhongAn Technologies International Group Ltd., or WeLab Bank, the virtual bank operated by homegrown fintech WeLab.

However, when I lived in Singapore, I had the Grab app on my phone like everyone else, and used it multiple times a day. Among e-commerce apps, Shopee landed half of all mobile downloads in Southeast Asia last year. The data richness of Singapore's digital bank sponsors may give them an edge in selling everything from micro-credit, and micro-investment to micro-insurance, especially to millennials and Generation Z customers.

In Hong Kong, ZA, WeLab, or digital offshoots of traditional lenders such as Standard Chartered Plc's Mox Bank Ltd., or Bank of China (Hong Kong) Ltd.'s Livi Bank, will have to establish data relationships with new customers from scratch.

The Singapore neobanks' DNA will also be shaped by the impact of Covid-19 on their management of day-to-day commerce. For instance, the reluctance to handle physical cash during the pandemic has led to a 30 per cent growth in first-time digital payments use in Grab's food delivery, which now accounts for more than half of the group's revenue. Between March and September, as many as 350,000 small and medium firms and 32,000 micro merchants such as wet-market stall owners in Indonesia used Grab to go online amid social distancing restrictions. One of the wallets through which the Malaysian government distributed its coronavirus subsidy to people was GrabPay.

Make no mistake. Singapore doesn't want deposit-taking institutions to go into speculative non-financial businesses, such as property development or running hotels and casinos. That's too risky. But the city-state's monetary authority recognized three years ago that online purchases of goods and services and the use of e-payment channels are becoming increasingly integrated, and that banks should be allowed to "engage in the operation of digital platforms that match buyers and sellers of consumer goods or services" - provided such activities are complementary to their core financial operations.

In China, the rising power of fintech is making the Communist Party uncomfortable, as evidenced in the last-minute halting of Ant's initial public offering. In India, the regulator has to worry about handing the keys to other people's money to politically powerful crony capitalists; Indonesia paid a huge price for doing just that during the 1997 Asian financial crisis. But in Singapore's small, open economy, there's no dominant local private-sector group. DBS Group Holdings Ltd., the city's biggest bank and largest firm by market value, is 30 per cent owned by the state investor, Temasek Holdings Pte. New York-listed Sea is twice as valuable as DBS.

The combination of consumer data and the ability to issue loans makes a powerful cocktail - a Singapore Sling. Other countries will be tempted, too, but they may not have the supervisory capacity or the political appetite to risk redrawing the boundaries between commerce and banking. (Bloomberg)


Andy Mukherjee
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