Players gear up for new digital bank licences in 2020
SINGAPORE (Dec 27): Singapore’s financial technology (fintech) ecosystem has grown much livelier. According to the Monetary Authority of Singapore (MAS), there are now more than 600 fintech start-ups in Singapore, compared with 50 in 2015.
Data from global consultancy firm Accenture, released in October, showed that the total value of fintech deals in the first nine months of 2019 jumped 69% to US$735 million ($996.6 million) from US$435 million the previous year.
In a statement released in October, MAS chief fintech officer Sopnendu Mohanty says crossing a billion-Singapore-dollar investment mark is “recognition from investors around the world of the potential of Singapore’s fintech ecosystem and the outlook for digital financial services not just in Singapore, but also in Southeast Asia”.
“It’s encouraging to see the local start-ups financing their global growth from Singapore. In addition, several global fintech companies with regional headquarters in Singapore have recently raised sizeable funds to fuel their Asian expansion,” he says.
Just four years ago, MAS started working closely with financial institutions and start-ups to develop a network of collaboration and innovation.
The initiative was Singapore’s attempt to create a bigger role for itself in the growing global fintech landscape. Not only has it created a vibrant network here but it has also made Singapore an industry world leader, according to the inaugural Global Fintech Index City Rankings 2020 report by analytics firm Findexable.
More than 1,100 fintech-related jobs were created each year for the past four years, MAS data shows. There are now also more than 40 innovation labs, up from five in 2015. These were just some of Singapore’s achievements noted by MAS managing director Ravi Menon at the opening of the fourth Singapore Fintech Festival and the first combined edition of SFF and the Singapore Week of Innovation and Technology on Nov 11.
The festival — the world’s biggest fintech-themed event — has been seeing a y-o-y increase in the number of participants, with this year’s event seeing a record of 60,000 attendees from more than 130 countries. This year’s focus is green financing and, to kickstart that initiative, MAS set up a US$2 billion green investments programme to invest in public market investment strategies. This will help engage traditional markets in creating and distributing a range of financial products and services that deliver both investable returns and environmentally positive outcomes.
Pula Advisors emerged as one of the winners of the Global FinTech Hackcelerator, a competition held during the SFF for start-ups to address problem statements. Pula, a US-based company, restructures agricultural insurance and uses technology to insure the previously unbanked, uninsured and untapped market of smallholders across the globe. It facilitates crop and livestock insurance cover to 611,000 farmers in African states such as Kenya, Rwanda, Uganda, Nigeria, Ethiopia and Malawi.
To help provide these smallholders with the protection they need in an increasingly unpredictable climate, Pula also works with several Fortune 500 companies, global non-profit organisations, research institutions and governments.
Meanwhile, financial inclusion or access to financial products and services was another hot topic at the SFF.
At least 75% of the Southeast Asian population is underbanked or known to not use banks or banking institutions. Fintech services help build the bridge between these consumers and banks, allowing the latter to provide financial services previously not available to the former. This is typically done through partnerships between fintech companies and banks. Through such collaborations, the payment landscape is radically transformed, with borders between financial and non-financial institutions disappearing.
Fintech funding
Local fintech firms are seeing more funding from within the Asean region, according to a report by United Overseas Bank (UOB), PwC and the Singapore FinTech Association. The report, titled “FinTech in Asean: From Startup to Scale-up” and published on Nov 12, says Singapore fintech companies have received 51% of the funding for the region.
Singapore is also the preferred base for Southeast Asian fintech companies, with the city state being home to 45% of the region’s fintech firms.
“Singapore’s favourable regulatory and business environment, strong investor interest and maturing fintech sector continue to make it an attractive base for firms that are looking to tap Asean’s growth potential. As such, more firms in the country have also graduated from pre-series to later-stage funding,” says Janet Young, UOB’s head of group channels and digitalisation, in a Nov 12 press release.
“However, expanding into and within one of the world’s most diverse regions is not plain sailing. Therefore, in order to increase their chances of success, it is important for fintech firms to find the right partner to supplement the experience, insights and connections required to navigate the differing regulatory frameworks and operating landscape across Asean.”
To help local fintech start-ups raise more funds, MAS, Deloitte and S&P Global Market Intelligence are developing a research platform to help investors and financial institutions connect with fintech start-ups. This digital platform is designed to help increase transparency by providing a comprehensive view of fintech companies, including their attributes on business models, use cases, funding and technology stack.
While it not known when this platform will be released, MAS’s Mohanty says in a November statement that he believes the deployment of capital in start-ups, particularly those offering business-to-business solutions, can be vastly improved “by enhancing transparency and increasing the confidence in data on early-stage companies”.
“We are keen to leverage this platform, and create synergy with the API Exchange that was developed by MAS in collaboration with the World Bank’s International Finance Cooperation and the Asean Bankers Association.”
Digital banking
As part of the city state’s continuing efforts to maintain its top spot as a fintech hub, MAS has said it intends to round up all the applications for a digital banking licence at end-2019 and award up to two licences for a digital full bank and up to three for a digital wholesale bank by mid-2020.
Digital banks are technically banking entities that can operate without a physical branch. This could allow the banks to reach a wider segment of customers, lower costs and automate banking operations.
Digital wholesale bank licences are geared towards providing banking services to small and medium-sized enterprises (SMEs) and cannot take deposits from individuals, except for fixed deposits of at least $250,000.
On the other hand, digital full banks will be allowed to take deposits from retail customers.
These banks are expected to begin operations in 2021. Both local and international companies such as Hong Kong’s AMTD Group, China’s Ant Financial Services Group, Razer, Singapore Telecommunications and Grab have made known their interest in this licence.
Meanwhile, local bank Oversea-Chinese Banking Corp has joined peer-to-peer lender Validus Capital and Temasek Holdings’ venture-capital arm to apply for this licence. It was also reported that V3 Group is currently in talks with stored value card operator EZ-Link, Far East Organization and Temasek-owned Heliconia Capital Management to form a consortium to apply for a digital banking licence.
The pressure might be too much for some smaller firms, however, as the minimum paid-up capital for the application of the digital full bank is $15 million, which is then expected to progressively increase to $1.5 billion.
This capital requirement is too high for some companies — UK-based digital payment firm Revolut and remittance company Nium have reportedly pulled out from applying for a digital banking licence. The latter, backed by investors such as Temasek Holdings’ unit Vertex Ventures and Rocket Internet, have said it will now focus on its global business-to-business payments instead.
Fintech leaders The latest 2019 Fintech100 report from KPMG International’s global fintech practice and fintech investment firm H2 Ventures found that the top 100 fintech companies have raised more than US$18 billion ($24.4 billion) in the last 12 months and more than US$70 billion in their lifetime. Of the 100 companies listed in KPMG’s report, 32 have raised at least US$100 million in the last 12 months.
Asia is now a hotspot for fintech, with seven companies in the top 10 coming from the region.
Top 10 global fintech companies
- Ant Financial (China): The world’s largest third-party payment platform
- Grab (Singapore): An integrated platform that uses data and technology to improve everything from transportation to payments for more than 620 million people across Southeast Asia
- JD Digits (China): A digital technology company, dedicated to providing digital, online and offline all-scenario services around three key points — data, user and connectivity. It uses emerging technologies such as big data, artificial intelligence, cloud computing, blockchain and Internet of Things
- GoJek (Indonesia): A multi-services platform with more than 20 services catering for millions of users in Southeast Asia
- Paytm (India): The largest digital payments company in India, with more than 380 million registered users and 12 million merchants on-board its Paytm platform
- Du Xiaoman Financial (China): A provider of short-term loan and investment services
- Compass (US): A real estate technology company with a powerful end-to-end platform that supports the entire buyingand-selling workflow
- Ola (India): An India-based company that uses its ridesharing user base Ola Money to make payments easier and simpler
- Opendoor (US): A platform that makes it possible to receive an offer on a home in just a few clicks, and sell in a matter of days, removing risks from the transaction
- Oaknorth (UK): A company that specialises in lending to small and medium-sized enterprises using its proprietary data and technology platform
