GXS’s app looks more like a music streaming service than a banking app © Tsubasa Suruga

Digital banking is accelerating in Singapore as deregulation encourages tech companies like Grab to enter the market in the hope of attracting younger customers and small businesses.

While this is expected to foster banking competition, retail virtual banks have yet to bring their operations fully online because of lingering regulatory restrictions. Meanwhile, incumbents like Standard Chartered are digitising their services at an accelerating pace.

GXS, a digital bank majority owned by Grab, operator of south-east Asia’s ubiquitous superapp, has expanded services since opening in September. GXS’s app hardly looks like a banking app. With its black and purple colour scheme, it has more of a music-streaming vibe.

The app updates GXS account holders with daily reports on how much interest their deposits have accrued. While a regular savings account offers 0.08 per cent interest, time deposits, opened for specific purposes such as travel or layaway purchases, earn 3.48 per cent. GXS hopes to increase user engagement by letting customers see the interest they earn every day.

“We are a bank created by digital natives for digital natives,” CEO Charles Wong told Nikkei Asia. GXS is targeting so-called gig economy workers like those who deliver meals or give commuters rides via the Grab app. The bank also looks to lure those just starting out in their careers. There is no minimum balance or account maintenance fees.

Charles Wong
Charles Wong, CEO of GXS, calls his company ‘a bank created by digital natives for digital natives’

Grab owns 60 per cent of GXS, with Singapore telco Singtel holding the rest. The partners have a combined local customer base of more than 3mn and can gather reams of data that will tell them what their account holders like to eat, where they commute and how much they use their mobile phones. GXS executives believe that by analysing this data, the bank can offer timely small loans, insurance products and other financial services.

Deregulation has made it possible for nonbank companies such as Grab to enter Singapore’s virtual lending market. In June 2019, the Monetary Authority of Singapore (MAS) announced the creation of two licences, including a digital full banking licence, which allows holders to serve individuals and other customers. It also announced a digital wholesale banking licence, with plans to issue up to five of the new licences in total.

The Singaporean central bank was responding to similar moves by other Asian countries. In South Korea, internet giant Kakao got into banking in 2017, and Hong Kong issued digital banking licences in 2019.

This article is from Nikkei Asia, a global publication with a uniquely Asian perspective on politics, the economy, business and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the biggest and fastest-growing listed companies from 11 economies outside Japan.

Subscribe | Group subscriptions

“We must take advantage of these opportunities that digital finance brings,” MAS chair Tharman Shanmugaratnam said, “and not be overtaken by the wave of changes taking place globally.”

Interests were high during the four-month filing period, when 21 companies and groups, including foreign entities such as Chinese mobile phone maker Xiaomi, submitted applications for digital banking licences in Singapore. Another Chinese tech giant, ByteDance, owner of the TikTok video-sharing app, was reportedly among the applicants.

In the end, the Grab-Singtel consortium and Singaporean ecommerce player Sea were granted digital full banking licences. But despite high hopes, neither has made much of a splash in the nascent market. GXS provides services to selected Grab and Singtel clients, while Sea is rolling out on an invitation-only basis. Neither has disclosed precise customer numbers.

Lingering regulations aimed at ensuring digital banks’ financial stability are behind the slow rollout. For retail services, one regulation caps aggregate deposits at S$50mn ($37mn) during the entry phase. The government has yet to announce when full-scale services will be permitted.

In the meantime, Standard Chartered, one of the UK’s largest banks, has begun operating a digital bank called Trust Bank, which has attracted more than 400,000 users in four months. Trust Bank was founded with FairPrice Group, operator of Singapore’s biggest supermarket chain.

Trust Bank hoardings at a supermarket
Trust Bank Singapore was founded jointly with FairPrice Group, operator of Singapore’s biggest supermarket chain © Tsubasa Suruga

“Banks have to transform themselves from being just a bank to becoming part of an ecosystem,” Dwaipayan Sadhu, CEO of Trust Bank, told Nikkei. Trust offers deposit accounts, credit cards and insurance policies through an app. Customers can earn loyalty points and coupons from partner brands.

Freed from the expense of operating physical outlets, the digital bank can lower the cost of winning customers and share the savings with them in the form of higher interest on their deposits, Sadhu said.

Trust obtained a licence that allows it to offer services similar to those of conventional banks. It developed a core banking system, which resides on a cloud platform, jointly with Thought Machine, a British unicorn that counts JPMorgan Chase as a shareholder.

Meanwhile, Ant Group, the fintech affiliate of Chinese tech giant Alibaba, obtained a digital wholesale licence, which allows it to conduct transactions for corporations. Ant’s digital-only Anext Bank allows companies registered in Singapore to open an online corporate account in an instant, even from overseas, a first in the city-state, the bank says.

“We are clear on our mission to accelerate financial inclusion through technology-driven innovation,” Anext CEO Toh Su Mei told Nikkei, adding that the bank intends “to better serve the underserved SMEs [small and medium-size enterprises] not just in Singapore but also across the region”.

The bank’s online loan service, which will become fully available by June, does not require application forms for unsecured loans of less than S$30,000 with a cap of S$300,000. The service instead sifts through data provided by credit information organisations, with customer permission, and deposits approved loans almost immediately upon receiving an application.

In one estimate, about 80 per cent of Asia’s cross-border ecommerce services are operated by small to medium-size enterprises, many of which lack ready access to financial services. In a 2020 survey by Visa, 88 per cent of SMEs in Singapore said they planned to make at least some of their transactions digitally.

But it remains to be seen how much of a share digital banks can take. Singapore is said to be overbanked as it is, with 98 per cent of the adult population already account holders. Globally, there are about 250 digital-only banks. According to Moody’s Investors Service, their combined banking assets represent 0.4 per cent of those of traditional banks.

“We can expect the retail banking market to grow” in Singapore, Jan Ondrus, associate professor of information systems at ESSEC Business School Asia-Pacific, told Nikkei. “The new digital banks will not replace the traditional ones but complement their offerings, at least in the early days.”

In the medium to long term, digital banks are expected to utilise their technology in other markets in south-east Asia, where, unlike in Singapore, many residents remain unbanked or underserved. Moves to issue digital banking licences are afoot in Malaysia, the Philippines and Thailand. Grab plans to open digital banks in Indonesia and Malaysia this year.

“We have in place a regional technology architecture, including our core banking system, which our digital banks in Malaysia and Indonesia can tap or repurpose,” GXS’s Wong said, describing a set-up that will keep costs low as Grab opens banks in more countries.

Still, a bumpy road lies ahead for tech companies struggling with their core businesses. Sea has cut staff, and Grab has frozen employee recruitment. Both are operating in the red and have less scope to invest heavily into new services now than when they filed for their digital banking licences in Singapore.

“Most of the incumbent banks have trusted brands, large customer bases and a broad set of products and services that drive profitable business models,” Eddy Kwong, director and digital business lead for Asia Pacific at Allianz Global Investors, told Nikkei.

“Digital banks have not had the time to develop these capabilities yet and face the uphill battle of tackling customer aversion to change,” he added.

This story has been amended to correct a reference to regulations governing retail deposits.

A version of this article was first published by Nikkei Asia on February 27 2023. ©2023 Nikkei Inc. All rights reserved.

Related Stories

Copyright The Financial Times Limited 2024. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article