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Consumers could be winners as Singapore shakes up its digital banking sector

A customer uses an automated teller machine in Singapore.

Nicky Loh | Bloomberg | Getty Images

Singapore is about to shake up its banking sector for the first time in two decades — a move that would allow technology players and non-banking companies to challenge traditional lenders. The disruption could be a win-win situation for consumers, according to marketing information services company J.D. Power.

The Monetary Authority of Singapore on Thursday said it will now accept applications for five new digital bank licenses until the end of the year.

MAS, both a regulator and the central bank of Singapore, announced in June that virtual bank licenses will be issued as part of “Singapore’s banking liberalization journey.”

The regulator will distribute up to two digital full bank licenses, which will allow non-banking entities to take deposits from retail customers. It also plans to issue up to three digital wholesale bank licenses for companies to serve small and medium-sized businesses and other non-retail segments.

Applicants have to meet a number of eligibility criteria, which includes showing they can manage a sustainable digital banking business and demonstrating experience in the technology or e-commerce sectors.

I think that’s a win-win-win for customers right now.

Anthony Chiam

J.D. Power

Digital full bank applicants must be “anchored in Singapore, controlled by Singaporeans and headquartered in Singapore,” according to MAS. Wholesale digital banks, meanwhile, can be controlled by either Singaporeans or foreign entities.

Who wins?

“It’s well overdue, in terms of more choices for customers,” Anthony Chiam, regional practice leader for global business intelligence at J.D. Power, told CNBC.

Singapore’s banking sector is dominated by three major local banks — DBS Group, Oversea-Chinese Banking Corp, and United Overseas Bank. A number of international banks with comparatively smaller operations are also key players. Still, technological progress in the city-state has led to the presence of a variety of financial technology, or fintech firms, which provide digital payments, online money transfers and remittance services, among others.

MAS’ decision to issue those licenses came after the Hong Kong Monetary Authority gave out eight virtual banking licenses this year in a sector dominated by big lenders such as HSBC, Standard Chartered and various Chinese banks. The moves from regulators in Singapore and Hong Kong are part of a broader shifting trend where more and more people in Asia are turning to online banking services.

New data from research and advisory firm Forrester found many users across the region said they believe they should be able to accomplish any financial task on a mobile device.

“The adoption of digital banking is about to accelerate and reach new levels of scale in Asia Pacific. Pioneers such as WeBank and Kakao have foreshadowed what is on the way, but this is just the beginning,” Forrester analysts wrote in a report, titled “The Pulse of Financial Services Customers In Asia Pacific,” which was released last month.

J.D. Power’s Chiam explained that the selected entities that ultimately receive the digital bank licenses in Singapore would have been thoroughly vetted by the monetary authority’s strict standards, which would make them more reliable. “I think that’s a win-win-win for customers right now,” said Chiam.

Who can apply for the licenses

MAS said the forthcoming digital lending licenses would be extended to non-bank players to keep Singapore’s banking sector competitive and resilient. “These new digital banks are