Singapore: Digibanks Should Not Pursue Mindless Market Grab
New digital banks in Singapore may offer higher interest rates to attract new customers but they need to do this with profitability in mind eventually.
Digital banks may dangle more attractive rates compared to incumbent banks, and this is fine as long as it is not mainly to grab market share, said Monetary Authority of Singapore (MAS) managing director Ravi Menon. They must have profitability in mind over the medium term.
«Today, we have keen competition among banks on interest rates and a whole range of other fees and charges. What we don't want to see is a case of these digital-only banks offering products and services in a manner that is not sustainable over the medium term,» said Menon, who was quoted in the «Business Times» (behind paywall).
Unlikely to Serve Full Range of Customers
While there is a fair chance that there will be some upward pressure on interest rates, the digital-only banks will not be able to serve the full customer base because a good number of customers prefer banks who are omnichannel, Menon noted.
The statement comes as a range of technology firms and fintechs eye the digital licenses being offered in Singapore. Revolut, a U.K. based challenger bank, has announced plans to launch its offerings in the city-state this month.
No Social Purpose
In the case of digital-only challenger banks in the U.K., most of them have not turned profitable. This signals that the purpose of such banks revolved around a mere market-share grab, amid a flush of cheap venture capital funding.
«They're just eroding the share of the incumbents. It serves no social purpose,» said Menon.
Other Liberalization Moves
Besides the impending issuance of up to five digital bank licenses, Singapore will also open up the real-time payment system – known as Fast – to fintechs. This would soon give fintechs direct access to the backbone of Singapore’s payments infrastructure.
The above two moves form part of Singapore’s broader liberalization of the banking sector.
Aggregated Platform
Next year, Singapore will announce more details on creating a single aggregated platform for consumers to draw in their financial information from various accounts across banks, insurance companies, and brokerages. MAS is working with the Ministry of Manpower to make sure that consumers are well-served with this platform.
«If you take all these three together, the challenge to the banks is not trivial,» Menon said, referring to the three-prong strategy. However, the regulators hold «deep-seated convictions» that customers will benefit from better service, and that banks will become stronger from the competition.
