Digital Banks : Can Singapore’s Incumbents Survive The Challenge?

Its quite common to hear that investing in blue-chip Singapore bank stocks are a solid bet.

With their oligopoly of the local banking scene, high savings rate of Singaporeans, our love of property (which require large bank loans to pursue), and widely marketed insurance and wealth management products, the big three Singapore banks are definitely great businesses for retail investors to own.

Furthermore, with the banking industry commanding such high profit margins, shareholders can expect to receive sizable dividends for holding the shares, which would add to their total return on investment. In fact, many investors advocate owning shares of the local banks, due to the dividends paid out and the good fundamentals of the business.

However, 2022 might be the year all this starts to change.

If you aren’t aware, 2022 is likely to be the year which digital banks approved by MAS start their business operations in Singapore. Two digital full bank licenses were awarded to SEA Ltd, and the Grab-Singtel consortium, while two digital wholesale bank licenses were granted to Ant Group and a consortium led by Chinese real estate developer Greenland Financial Holdings.

While Greenland Financial is a relatively unknown player in the fintech field, the other three competitors are clearly well versed in the tech and digital domains, with vast experience in attracting and retaining consumers, and either having formidable backers, or are heavyweights themselves.

Could this be a case of disruptive innovation? And how would the existing banks likely fare against them?

An “Evolutionary” Initiative

“Disruptive innovation” is probably not something regulators would want to toy around with, particularly if it involves the core banking institutions in charge of the hard-earned money of it’s citizens. MAS has stated that it intends for digital banks to value-add to the banking industry by servicing under-banked segments of the nation, raising the bar for service excellence in the industry, and generally providing a more holistic range of solutions to individuals and businesses.

We expect them to thrive alongside the incumbent banks and raise the industry’s bar in delivering quality financial services, particularly for currently under-served businesses and individuals. They will further strengthen Singapore’s financial sector for the digital economy of the future.

According to MAS, the potential candidates were selected based on the following factors;

  • Value proposition of business model, incorporating innovative use of technology to serve customer needs and reach under-served segments;
  • Ability to manage a prudent and sustainable digital banking business; and
  • Growth prospects and other contributions to Singapore‚Äôs financial center.

Clearly we can see why SEA Ltd and the Grab/Singtel consortium were selected; both candidates already command dominant digital ecosystems in their respective fields of online retail and food delivery/transport services. Singtel is also a leading telecommunication operator, with a 50% share of the mobile market.

On the wholesale side, ANT Group has shown that it has the expertise and experience to handle more than 1 billion users in China while also being an affiliate company of the Alibaba Group, who is expanding in Singapore. Digging deeper on Greenland Financial’s website reveals the entity’s experience in a wide spectrum of financial matters such as micro-loans, private equity, asset management, fintech, and seed funding.

The Hong Kong Situation

We can probably glean more relevant knowledge about the likely performance of said banks by glancing at a commonly utilized case study; Hong Kong. With digital banks having commenced operations in the city since march 2020, the financial center is an ideal candidate to study the effects such banks have on the banking industry.

The result? Quite varied. For certain banks such as ZA bank and MOX bank, market share and customer deposits have been accelerating, accounting for around 70% of all virtual banking customer deposits. Other players such as Airstar, Livi, and Fusion bank are still facing difficulties in attracting and retaining customers, but seem to be focused on growing their loanbooks instead.

The fact is that the combined deposits of all the neobanks only account for around HK$15.8 billion, or 0.11% of total deposits across the entire banking sector. Investors should also take into account that this was even with the pandemic ongoing, which provided strong encouragement for consumers to try out digital platforms.

Furthermore, with global interest rates facing constraints due to monetary conditions, digital banks need to market and drive more lucrative segments such as wealth management after building their market share through lower-margin services such as deposit accounts, loans and money transfers.

The process of building a banking enterprise, even a digital one, typically takes years to scale, achieve critical mass, and turn profitable. At the moment, it’s safe to say that neobanks are starting to gain traction but have yet to pose a serious threat to the incumbents.

Traditional banks in Hong Kong are also adapting by removing certain fees and accelerating their digital transformation initiatives, something Singapore banks have embarked upon as well.

Likely Beneficiaries

The commonly stated rhetoric is that such digital banks will provide more options and solutions for consumers and SMEs. With this factor in mind, it’s likely that the new digital banks will focus on products such as payment solutions, savings accounts, personal, micro, or flexible loans, timed deposits, insurance, and wealth management in the beginning.

Apart from the standard banking products, the full digital banks might also be able to offer products which synchronize with their current ecosystems such as e-vouchers, rebates, cashback, and reward point systems.

The digital banks can also choose to offer value in other forms, such as speedy account opening, revolving credit lines, currency conversion, or even allowing no minimum deposit requirements for their accounts.

The likely end result is that consumers and small/micro businesses will enjoy the benefits of service, flexibility, and of course, competitive interest rates.

With that being said, it’s unlikely that we’ll see abnormally high interest rates for savings accounts as it really isn’t sustainable in the long term and would likely be frowned upon by MAS as well.


The banking industry has been transformed greatly over the years; i still remember when queuing at bank outlets to update account books was a thing. With the incoming digital banks, it looks likely that we’ll see another adaptation of banking take place.

Do you remember the days Uber and Grab first entered the Singapore market? As consumers, the introduction of fair competition definitely bodes well for us as we can look forward to more customized products and competitive interest rates being offered at the very least.

If you are a shareholder of the three main Singapore banks however, it’s critical that you assess the threat being posed by the incoming digital entities and monitor your investments closely. Ultimately, only time will tell how the digital banking transformation will pan out, investors should adjust their strategy accordingly as the banking industry reinvents itself.

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