Singapore's digital banking hopefuls Sea and the Grab-Singtel consortium are most likely to be awarded licenses out of the six publicly known applicants.

Singapore’s regulators have a series of exceptions when considering license issuance to prospective full digital banks including a timeline to set aside S$1.5 billion ($1.1 billion) in capital by the fifth year of operation and expand in the ASEAN market. According to a recent S&P report, Sea and the Grab-Singtel appear «most comfortably» to meet these requirements among publicly known rivals.

In addition to the sizeable scale of Grab’s ride-hailing market, Sea’s e-commerce platform is also a force to be reckoned with in Southeast Asia. Last year, Sea’s shopping platform, Shopee, accounted for nearly a quarter of the combined gross merchandise value in Singapore, Malaysia, Thailand, Indonesia, the Philippines and Vietnam. Top line aside, the report also highlighted Sea’s willingness to absorb e-commerce losses after it saw a 30 percent increase in sales and marketing costs to reach $199 million.

Advantage Sea

Among the two full digital bank applicants, S&P underlined a greater lending outlook for Sea due to higher average transaction values compared to Grab’s ride fares. According to the ratings agency, the average transaction size in the third quarter of 2019 was $14.31 for Sea, compared to Go-Jek’s $4.50.

With a bank license, Sea could issue cards to drive down the frequency customers abandon purchases at checkout by providing financing plans for large-ticket transactions. The further enlarged data pool from the platform could drive its credit underwriting business to finance merchants.

While the report highlights similar potential from the Alibaba-backed Lazada due to scale and penetration of Southeast Asia markets, it notes that the large number of ongoing fintech partnerships established by the parent is likely to make it «less compelled» to set up banks in the region.