The announcement of five new digital bank licences from The Monetary Authority of Singapore (MAS) is set to propel the already world-class financial hub further as the country continues to expand its banking sector. But what does this mean for FinTech in Southeast Asia?

Online banking operations are now filling the gaps of traditional brick-and-mortar banks with an ability to reach a broader scope of clients, lower costs, and streamline operations. The licences handed out later this year are expected to bring more to the table than modernised banking platforms. With the banking bar raised, it’s predicted to be an opportunist environment for AI to swoop in and reap the rewards as banks compete to better their operation systems.       

We explore the new fintech trends in Southeast Asia

Who can apply for a digital licence?

A total of five digital licences are up for grabs. Two full bank licences are to be allocated, allowing those licensees to offer a broad scope of financial services and accept deposits from retail customers. Applications for the full digital bank licences are open to Singapore-based companies and must be operated by Singaporeans. Foreign companies who partner with a local Singaporean company are also invited to apply for the full licences. The other three wholesale licences will be handed to licensees who service the non-retail sectors and SMEs (small and medium-sized enterprises). Both local and foreign punters can apply for the digital wholesale licences. 

 “MAS will therefore issue up to five new bank licences to digital players that can add value to the Singapore banking sector and the economy. This is in addition to any digital banks that the local banking groups may also establish. The local banks are already allowed to set up standalone digital banks under our internet-only bank framework.” Mr Tharman Shanmugaratnam, Senior Minister and Chairman, MAS, said at The Association of Banks in Singapore’s Annual Dinner. 

MAS is inviting any value-adding companies to apply, even those without a history in the banking sector:  “We welcome firms with innovative value propositions to apply for the new digital bank licences, even if they have not yet established a track record in banking. They may apply for a digital full bank licence or a digital wholesale bank licence…”

So what’s the catch? To ensure a standard of quality, MAS are taking precautions to safeguard customers and the existing established banking industry in Singapore. Applicants must present a sustainable, innovative, and tactile business model that adds value to the existing market. They won’t allow any value-destructive competition–a good example of this is the hit the taxi industry took when ride-hailing business models entered the market.

Battle of the banks 

With this digital bank revolution, will the competition between virtual and physical see Singapore’s traditional branches dissolve, or is this a chance for them to step up? MAS took a calculated risk when they set out on a mission to liberalise Singapore’s financial sector and are confident that creating competition will drive existing local banks to upgrade and transform their systems to keep up with the modern, digital market. They aim to support, rather than disrupt the anchors of the industry, ensuring systematic balance and an ecosystem that continues to flourish. MAS believes the established key players create the strong core of Singapore’s financial market: 

“We must allow for greater competition and spur greater innovation in finance – competition between new and traditional business models, new players and incumbents, and different ways of using technology to serve business and individual customers better. We must also retain strong local anchors and trust in the banking system. These dual objectives have guided our past liberalisation initiatives, and motivate our next moves.” Mr Tharman Shanmugaratnam said.

Photography of City During Dusk

AI: It’s showtime

Virtual banking will, without doubt, be the next stage of Singapore’s mission to dominate the global banking world, but the financial sector won’t be the only ones to benefit from this progressive move. As the new digital banks roll out, traditional branches must tighten their operations to keep up, which means utilising artificial intelligence (AI).

AI is already working magic in the background of banking operations across the region, revolutionising areas such as fraud detection, credit scoring, and Know Your Customer (KYC). Instantaneous cross-checks of databases, facial recognition to replace face-to-face identity checks, and access to more comprehensive risk profiles and credit scoring are all enabled by AI technologies.  

Southeast Asian banks are embracing the fintech revolution

Virtual banks, determined to make their mark in the financial market, should invest in the best AI to ensure they can execute an operational system to compete with their traditional banking peers. As we see the healthy competition between virtual and brick-and-mortar banks take off, it’s predicted a huge demand for AI technologies will follow. All of this creates a prime environment for new FinTech in Singapore to flourish, and a healthy increase in valuations for FinTech AI companies already established.  

With virtual banks set to be Singapore’s next big thing, benefits will be felt throughout the economy, further strengthening the country’s digital ecosystem. Moreover, as the demand for AI technologies multiplies, we will no doubt see these Singapore FinTech trends make headline news all over the globe.