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Singapore to be shaken up by virtual banks?

Singapore to be shaken up by virtual banks?

(15 May 2019 - Singapore) Singapore's never ending battle with Hong Kong to become Asia's Fintech centre is reaching fever pitch as the country considers issuing licenses for virtual banks.

Both cities have long been major regional banking centers as highlighted in East & Partners latest Regional Treasury Centre analysis.

Singapore may have attracted more Fintech investment however Hong Kong has moved faster to embrace neobanks. In March, Hong Kong issued its first three virtual-banking licenses to Livi VB, made up of Bank of China (BOC), JD Digits and Jardines; SC Digital Solutions, a JV between Standard Chartered, HKT, PCCW and Ctrip; and Zhong An Virtual Finance, a ZhongAn Online and Sinolink joint venture.

The make-up of the groups receiving virtual-banking licenses in Hong Kong reflects the importance of Chinese business to the city. Major Chinese tech groups are present in all three of the consortiums. Beijing is pushing for Hong Kong Fintechs to focus on serving the giant Greater Bay Area.

Singapore in contrast is a sovereign state that isn't dicated to by another government. How much value can challenger banks add to the city's financial system however? Singapore does not suffer from low financial inclusion, nor a lack of high-quality banking services, given the presence of strong local and international incumbents. More competition in the banking sector should benefit the city-state, but to what degree depends on the quality of offerings from virtual banks. They will have to offer more than just the same mobile-banking platforms available from incumbents.

Incumbent Singaporean banks such as DBS and UOB have some reservations about the digital-based competition. One of the main concerns is that if the regulator allowed challenger banks (who generally operate online platforms without bricks and mortar branches at a lower cost) to operate lower capital requirements they could undercut incumbents on price. But the chances of that happening are not high according to local banking analysts. "The real challenge is if the regulators create an unlevel playing field, and let the new bank licensees come in and do banking on different terms," DBS CEO Piyush Gupta stated.

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