Tuesday, 21 May 2024

Thriving in Singapore’s competitive digital banking landscape

5 min read

Singapore presents one of the most competitive and regulated digital financial services markets in the world, where speed to market, streamlined processes and agile technology to meet customer and regulatory demands are key to success.

  • Singapore has one of the toughest digital bank licensing and regulatory regimes
  • Digital financial services revenue projected to hit $9 billion by 2025
  • Huawei-Temenos digital bank partnership accelerates transformation efforts

On 20 December 2020, the Monetary Authority of Singapore (MAS) granted digital bank licences to four successful applicants with the expectation that they will start operations by early 2022. Among the prudential requirements and licensing pre-conditions that digital banks had to meet to start operations were MAS’ technology risk management guidelines, some of the most comprehensive and stringent in the world.

Singapore has one of the toughest digital bank licensing and regulatory regimes

When the MAS introduced the digital bank licensing scheme in June 2019, it created one of the biggest shakeups of its financial sector in almost two decades. Up until then only banks and banking groups were allowed to introduce digital banking services under the existing internet banking framework introduced in 2000.

The advent of financial technology (fintech) and technology-led financial (techfin) platform companies has transformed the banking landscape in recent years with the increasing digitalisation of financial services. They have brought innovation at a scale and speed never seen before, onboarding hundred of millions of financial services users, many for the first time. Regulators could no longer ignore their potential to disrupt the market and offer viable alternative offerings to consumers, especially those who have been erstwhile overlooked. MAS was among the first wave of central banks, together with those in Australia, mainland China, Hong Kong SAR and South Korea, to license these players to operate.

The new scheme enables up to five non-financial players such as tech and e-commerce companies to offer banking services. Two of the five licensees are for digital full banks (DFBs), which will include the ability to take deposits from retail customers, while the other three are for digital wholesale banks (DWB). According to MAS, the initiative will ensure Singapore’s banking sector will continue to be resilient, competitive and vibrant. The entry of digital banks offers “unique and innovative value propositions and adds diversity and choice to the market”.

However, these new players face strict paid-up capital requirements, up to SGD 1.5 billion ($1.1 billion) for DFBs and SGD 100 million ($72 million) for DWBs. They are also expected to provide more competition to incumbent banks, among other things by offering lower costs and at the same time being more efficient and profitable because of their use of data and technology, lack of physical presence and overheads, and ability to access and onboard underserved segments of the markets.

Digital financial services revenue projected to hit $9 billion by 2025

According to a study by the investment company of the Singapore government Temasek and big tech firm Google, revenue from digital financial services in the country is expected to increase by a compound annual growth rate of 14% from $4 billion in 2019 to more than double to $9 billion in 2025, primarily through digital payments and lending to consumers and small and medium sized enterprises (SMEs) in the form of merchant discount rate for payments,  fees and foreign exchange spread for remittances, interest charges on lending, premium on insurance, as well as sale charges and management fees for investments.

These digital-only banks could also leverage Singapore as a base to explore the $1 trillion digital payments market and $18 billion of digital lending revenue that Southeast Asia is expected to generate by 2025.

In a recent ranking of the global top 100 digital-only banks, The Asian Banker found that only 29 are profit making in 2021. Average time to profitability is between two and three years with an average return on equity (ROE) of about 16%. Those focused on personal finance and wealth management, or SME banking are among the most profitable, and slightly more than half, 55%, are in Asia.

SMEs have been an underserved market due to the perception that they are high-risk with low growth potential, mainly due to the lack of visibility of their actual financial conditions. The launch of digital-only banks will plug the gap with its supply chain financing and innovative, easy-to-use technological solutions.

In June 2022, Singapore welcomed its first of licensees to commence operations in Singapore, which symbolises a major milestone to strengthen the core pillars of digitalisation, technological empowerment and green finance in the island state.

Huawei-Temenos partnership accelerates banks’ digital transformation efforts

One of the challenges that digital-only banks encounter in starting operations is often the lack of existing banking and IT capabilities for the design and implementation of its digital banking technology stack. To resolve it, the first digital-only bank to go live in Singapore designed, built and launched its pioneering digital bank on a cloud-native open digital banking platform developed jointly by Temenos and Huawei that utilises the latter’s public cloud infrastructure to enable hyperscale resilience and efficiency. All in just nine months, shorter than 12 to 18 months launch expectation and compliant with regulatory requirements.

The platform provides the bank with a full suite of corporate banking, including deposits, payments, loans, treasury and advanced analytics solutions.

Huawei and Temenos have been cooperating since 2019. In 2021, they jointly launched their first digital bank solution, this was followed a year later with digital bank solution 2.0, launched at Huawei Intelligent Finance Summit (HIFS) 2022 in Singapore in late July. It enables fast service integration and rollout based on a cloud-native architecture with key capabilities in agile and open pre-integration. Through enhanced cooperation in the future, the two companies strive to create more value together with partners in the financial industry.

"The partnership started about a year ago," said Erich Gerber, president and chief revenue officer of Temenos." With Huawei we share the same values, and the same passion for our customers. We're combining our strength to create more values for our customers together. And that's why we work closely together with Huawei."

One area for future cooperation and value creation for the two partners is intelligent data analytics and decisioning. Jason Cao, president of the global financial services business unit at Huawei, remarked, "From the intelligence perspective, we are experiencing the era of intelligent decision-making. 2022 is a milestone for intelligence. We have officially entered ZFLOPS times with the development of intelligence and an era of super-personalisation, and we have to think about what that means for us. We see smart contracts that will make decision-making possible everywhere.”

Meanwhile, incumbent banks are also accelerating the digitalisation to seize the significant market opportunities that remain relatively untapped, putting efforts into advanced technologies such as artificial intelligence (AI), blockchain, cloud computing, and big data (ABCD) as well as environmental, social, and governance (ESG), when ESG is also incorporated in digital-only banks’ product development and growth stategies.

Huawei’s MOU with OCBC for further digitalisation in Southeast Asia and Greater Bay Area 

At HIFS 2022, Huawei also signed a memorandum of understanding (MOU) with OCBC Bank to bolster the bank’s digital transformation in Southeast Asia and China’s Greater Bay Area in three key areas: green branch and buildings with smart IoT; data science and artificial intelligence (AI) innovation as well as cloud adoption acceleration.

“Digital transformation is inevitable. Today, businesses depend on digital solutions to improve our customer experience. Our partnership with Huawei comes at a time where we are looking for more ways of enhancing our digitalisation capabilities to meet the demands of an evolving industry that will help us achieve our goals to be a carbon-neutral and sustainable green financial institution,” said Eugene Lau, Head of Group Technology Services at OCBC Bank.

To support green branch and buildings with smart IoT, Huawei will work with OCBC on the sustainable development of the bank’s facility operations to lower carbon emissions and enhance its green power infrastructure. This in turn, will accelerate intelligent operations transformation in their branch offices with innovative solutions that integrate with smart IoT devices.


This is a sponsored article and does not necessarily reflect the opinion of the publisher.

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