Tech Regulations & Govt | |
Tech Regulations & Govt | |
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Sunday, June
16, 2019 / 06:11PM / By Fintechnews
Singapore / Header
Image Credit: MAS
The now famous Hong Kong virtual banking licenses have
been a bit of a mixed bag for the region, but nevertheless, it’s gotten a lot
of attention. To date, four licensees will be ready to go to market before the
year closes.
Singapore has indicated that they want a slice of that
action too.
The Monetary Authority of Singapore (MAS) stated that
it is studying the licensing regime to see about admitting fintech firms
without a traditional bank at its core. The statement from MAS came a day after
DBS Bank’s Piyush Gupta said that he sees no reason why the regulator would not
in a TV interview with Bloomberg.
The move was probably only a matter of time, as
Singapore and Hong Kong have been in a stiff battle for the Asia fintech hub
status for many years now, though ostensibly, both are amicable enough to forge
strategic partnerships.
Our neighbour from across the causeway, Malaysia, also
wants to pave the way for virtual banks, and will release its requirements for
a virtual banking license by the end of this year.
Singapore is known to be relatively experimental with
its fintech, most recently via a trial with Canada to conduct cross-border
payments with a central bank backed digital currency, via Project Jasper and
Project Ubin, respectively.
More pertinently, e-wallets have achieved a
significant level of ubiquity in Singapore that its populace is at least
educated about digital money, whether or not they decide to utilise it. With an
interest in fostering the oft-touted cashless society, virtual banking is the
next natural step for Singapore.
The Timing Can’t be Better
These digital only banks go by many names: virtual
banks, neo banks, challenger banks, etc, but mainly they indicate banks that
are fully operational online, and often, offer 24/7 service that could be
disruptive of incumbent banks that lock you into only utilising them during
banking hours.
It’s not surprising then that in CB Insights‘ first
2019 report for fintech funding, the company noticed an interesting trend about
fintech funding for virtual banking—that it’s on its way towards hitting
critical mass.
The figure below, showcasing funding into global
virtual banks in recent years paints a picture about virtual banks’ future.
Source: CB Insights / Fintech Singapore
Many of these banks aren’t even three years old, and
yet they are able to pull significant numbers due to a variety of factors:
Though educating the general public about virtual
banks can be tough, especially if one wants to stand out above the multitudes
of online money scams, virtual bank operations can be cheaper than a regular
bank. In the best of circumstances one may only need customer service
operatives on the phone, and people to deal with the tech and backend.
Having all of your operations online through a web
browser or app also allows for more automated processes, and robust data
analysis on trends and behaviours. Being online means that virtual banks are
able to offer more personalised banking services to crowds that may have been
underserved before, and do so profitably.
The selling point is there, all it needed were success
stories, and enough time and advocacy for these virtual banks to soar. For all
intents and purposes, 2019 seems to be that year for the scene because
according to the same CB Insights report, two funding rounds in 2019 propelled
two challenger banks into unicorn status.
Source: CB Insights / Fintech Singapore
The unicorns are part of an ongoing funding stream
into challenger banks lately, while there was a slowdown following a promising
start to 2018, funding activity has ramped up again with the two new unicorns,
N26 and Chime.
Source: CB Insights / Fintech Singapore
Investors seem excited to pour money into the next big
virtual bank, and MAS seems to want to cash in on this trend. The question is
now, will the virtual banking license help cultivate any of its homegrown
names, or will an international player swoop in to take it all in Singapore?
Revolut is a UK-based virtual bank, and arguably the
reason why virtual banks are so vogue. And it has made a huge stake in
Singapore, even set up its Asia Pacific headquarters here. After winning
licenses from the regulator, Revolut is also working with MAS to shape the
upcoming Payment Services Bill most recently at its second reading.
Even from the ground-up, Singapore is already getting
input from an international firm, so there could a cause for concern here.
Execution is Key
Hong Kong’s move to introduce the virtual banking
license has been lauded by many and saw huge interest when it was just
announced, but criticisms have since emerged about punishing requirements.
Hong Kong-based virtual bank Neat was one
of the first to publicly speak out about the virtual banking license by the
Hong Kong Monetary Authority (HKMA), preferring to pick up the money lender license instead.
To Neat, the minimum capital requirement of HK$300 million, a requirement for high profile board members, and
strict IT security structures would preclude them from offering their existing
services to the underserved profitably—which was the company’s entire reason
for existing.
In contrast, Neat’s founder David Rosa references UK’s
regulations, which only require €5 million in minimum capital for a license to
encourage entry of niche players and neo-banks.
Later, a Tencent-backed virtual bank, Airwallex,
echoes Neat’s sentiments about the requirements, which they opine could affect their ability to offer new banking products and services.
HKMA seemingly had investors as a priority when
drafting its rules, and had the understandable impulse not to rock the boat too
much.
An argument could also be made that the
restrictive minimum capital requirement was by design, in order to ensure
that if Hong Kong’s populace does port over to virtual banking, then the
fidelity of the state’s economy can be maintained without too much
overhaul in the future.
The Monetary Authority of Singapore now has to
undertake the difficult job of walking a thin line with both sides of the virtual
banking tightrope.
Given Singapore’s track record, it is likely that
Singapore’s own eventual virtual banking will veer closer to the UK’s
relatively more lax regulations, rather than Hong Kong’s, though of course,
only time can tell.
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