Data to determine success of Singapore digital bank aspirants

Eight publicly known applicants want to focus on the country’s underbanked segment.

The success of the digital banking applicants in Singapore will be determined by their depth, quality, and data accessibility, a Maybank Kim Eng report said.

The Monetary Authority of Singapore received 21 applications. Of these, eight were known: a consortium comprised of Grab and Singtel; Razer Youth Bank; Beyond; a consortium with iFast Group, Yillion Group, and Hande Group; Ant Financial; a consortium with Sheng Ye Capital, PhillipCapital, and Advance.AI; and a consortium with AMTD, Xiaomi, SP Group, and Funding Societies.

Read more: MAS receives 21 digital bank licence applications

The eight publicly known applicants have claimed they will focus on the underbanked in the Lion City, namely low income individuals, early income millennials, startups, and microSMEs, where traditional banks have largely shunned. Success in these segments will be determined by depth, quality and access to data, as it will help reduce transaction costs and manage risks.

However, the report noted that even with aggressive growth, Singapore’s digital banks are unlikely to gain material market share in the medium term. Asset quality, growth and dividends will push sector performance.

“Performing credit checks, KYC, and performance monitoring for large volumes of low yielding, higher risk accounts is a weak business case for incumbent banks given resource requirements and thin risk-weighted returns. But a digital bank can substantially lower acquisition and transaction costs by automating these processes,” wrote analyst Thilan Wickramasinghe.

Applicants with access to the highest quality data are the most likely to succeed in scaling digital banks, he added.

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