Singapore has just minted four new digital banks that will commence operations by early 2022.
The winners for the digital full bank bid are a consortium comprising Grab and Singtel (SGX: Z74) and Sea Ltd (NYSE: SE), while the two parties who clinched the digital wholesale bank (DWB) licences are Ant Group, a unit of Alibaba Group (SEHK: 9988) and a consortium comprising Greenland Financial, Linklogis Hong Kong and Beijing Co-operative Equity Investment Fund Management.
The results were announced after a year-long evaluation process.
The Monetary Authority of Singapore (MAS) wants these digital banks to target underserved segments of the population, in what has been billed as one of the most radical moves to liberalise the banking industry in decades.
With Singapore’s population already enjoying high rates of bank usage and adoption, the entrance of the new digital banks could spell trouble for the three incumbent local banks.
Should investors fret over this news?
And do Singapore banks still qualify as a buy?
DBS: No monopoly on technology
DBS Group Holdings Ltd (SGX: D05), Singapore’s largest lender by market capitalisation, is no stranger to technology.
In its 2019 Annual Report, the bank detailed its transformation into a technology company.
In recent years, the lender has invested in cloud infrastructure and enabled all its applications to be cloud-ready.
This new architecture allows the group to leverage application programming interfaces (APIs) that enable developers and brands to plug into the bank’s technology.
DBS has gone to great lengths to incorporate technology into its banking processes and has invested resources and money to develop its digital edge.
So much so that the bank was named the “World’s Best Digital Bank” by Euromoney this year.
There is even a dedicated website that describes the bank’s digital banking initiatives and what its apps can achieve for customers.
Piyush Gupta, CEO of DBS, remains unfazed by the digital banks’ entrance.
His comment during the recent Singapore Fintech Festival stated that none of these players had a “monopoly on technology”.
What he meant was that the bank had access to technology that digital bank winners had and that it had been building its digital capabilities over years with a workforce of 7,500 engineers.
UOB: The future lies in TMRW
United Overseas Bank Ltd (SGX: U11), or UOB, has also been busy building its digital capabilities.
Its digital banking initiative, termed TMRW (pronounced “tomorrow”), provides a full suite of banking solutions through a mobile app.
TMRW aims to engage digitally-inclined millennials and appeal to customers who prefer mobile banking on the go.
The app allows for payments, access to current and savings accounts, as well as unsecured lending.
TMRW was officially launched in Thailand in March 2019, and in Indonesia in August this year.
UOB believes that COVID-19 has altered consumer banking behaviour permanently as more people move online for the first time.
According to the bank, there were 40 million new internet users in 2020, and 70% of Southeast Asia’s population is now online.
The good news is that 94% of UOB’s new customers continue to use digital, affirming the importance of digital engagement and validating the bank’s digital efforts over these years.
OCBC: Greater “Velocity” in digitalisation
OCBC Bank (SGX: O39) has the proud honour of sponsoring the Singapore Fintech Festival for the fifth year running.
The bank has been enhancing its digital capabilities in a variety of ways.
It was the first bank to integrate business financial management capabilities onto its Digital Business Banking platform, known as OCBC Velocity.
The app offers a full suite of advanced features such as cash-flow visualisation and unlimited e-invoicing which are designed to assist businesses to transition to digital processes.
OCBC also offers a health and wellness app known as HealthPass by OCBC that allows customers and non-customers to receive affordable healthcare services by working with healthcare partners.
With the rise in popularity of telemedicine in the wake of the pandemic, OCBC’s app aims to capture a wider customer base of users who can use it to book video consultations with approved doctors and healthcare specialists.
Since this app was launched in June, it has surpassed 100,000 downloads.
Over in Malaysia, FRANK by OCBC was launched in September to offer customers greater control over their finances.
The app allows you to manage your finances through a feature called Money InSights, while also offering attractive fixed deposit rates without the usual penalties and restrictions.
Get Smart: Singapore banks are digitally-ready
All three local banks have made extensive investments in their digital capabilities and are more than digitally-ready to take on the new digital banks.
It may seem like the banking space is becoming increasingly crowded, but UOB’s research has shown that there is plenty of space to serve the unbanked and underbanked.
While Singapore may be a small market, all three local banks have set their sights on the wider Asian market, where opportunities to target local populations remain ripe for the picking.
In summary, digital banks may have arrived, but the incumbents are certainly more than well-equipped to handle the competition.
Disclaimer: Royston Yang owns shares in DBS Group Holdings Ltd.