SINGAPORE (June 19): It has been more than 20 years since Singapore liberalised its financial sector. In the past five years, the focus has been on financial services going digital as part of a Smart Nation initiative. Last year, the Monetary Authority of Singapore (MAS) even offered new digital-only banking licences. That trend was accelerated when the “circuit breaker” drove banking services online.

Still, bankers like Brendan Carney, Citi-bank Singapore CEO and Global Consumer Banking Asean cluster head, believe that a hybrid model — incorporating digital services for day-to-day banking transactions, and face-to-face meetings with its affluent customers who need sophisticated products — is more suitable for traditional banks like Citibank.

Since the start of the “circuit breaker”, domestic systemically important banks (D-SIBs) such as the local banks and Citibank Singapore, have reported that 90% of trans-actions done by retail customers are digital.

“Since January, we saw a jump to about 90% of our financial active customers engaging with us digitally every month. In April alone, about 94% of our customers were activating new credit cards via digital channels. As customers increasingly experience the ease and convenience of digital banking, there is no doubt that this trend will continue to grow,” Carney says.

Oversea-Chinese Banking Corp (OCBC) is experiencing similar trends. Pranav Seth, OCBC Bank’s head of digital and innovation, says: “Already, eight in 10 of our digitally active customers bank on their mobiles, and more than 90% of our total volume of financial transactions in Singapore are performed on digital. 1Q2020 saw a huge uptick with a robust growth of 40% in our financial transactions. While ATM transactions dropped by 20% month-on-month in March, we also saw a 20% increase in QR code-based withdrawals at the ATMs — showing the trend and adoption of digital and contactless payments.”

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Carney also points out that Citibank also has a strategy where 80% of its customers bank digitally. “With Covid-19, digital banking went from being a more convenient option, to the safest and sometimes only option.”

But there are services that Citibank is reluctant to perform online. “For high net worth clients in the Citigold and Citi Private Client segments, these clients typically have more complex wealth advisory needs which include rebalancing their investment portfolio and protecting their assets with life insurance. For them, they generally still prefer to speak to their relationship manager and our experts in Investment Advisory, FX, or Insurance,” Carney explains. “Having said that, as we work through the various phases post-circuit breaker, the way by which such meetings will be organised and how they will be conducted will change,” he adds.

Increasingly, Citibank’s customers will be able to get their advisory needs over the phone, by video conference and other digital channels. “We already have services like Authorization Corner in our mobile app that allows customers to easily finalise their trans-action without signing documents multiple times. I expect that we will see more and more of these simple digital tools used, allowing customers to get advice and transact wherever they are,” Carney says.

Privileged banking

The privilege of being a qualifying full bank (QFB) or a significantly rooted foreign bank (SRFB) was that they were able to have more branches and ATMs than other full banks. QFBs could have as many as 25 branches and ATMs while SRFBs could have up to 50 branches and ATMs. Citibank was one of the first banks to be awarded QFB status in 1999, moving to a D-SIB in 2015. To date, no bank has qualified as an SRFB.

Singapore liberalised its financial services sector in phases from 1999 onwards. The aim was to strengthen the local banks through competition, provide Singaporeans with quality banking services while enhancing the Republic’s position as an international financial centre. MAS phased in the liberalisation measures progressively, to give local banks time to upgrade themselves to meet the competition, and maintain the stability of the financial system.

Initially, four QFB licences were granted — these included Citibank and Standard Chartered which eventually incorporated their local subsidiaries. In the second phase, banks that had been in Singapore for decades — such as HSBC and MayBank — were granted QFB licences.

Currently, there are nine QFBs here. In addition to Citibank, HSBC Bank, Standard Chartered and Maybank, two Indian and two Chinese banks — Bank Of China, Industrial and Commercial Bank of China, ICICI Bank and State Bank of India — also have QFB status.

In 2012, MAS refined the QFB category to require local incorporation of the retail operations of QFBs which are important to the domestic market, for better depositor protection. This phased liberalisation allowed the local banks to regionalise and strengthen.

During the global financial crisis (GFC), it was the local banks that customers flocked to with their deposits as these were seen to be safer than the QFBs.

After the GFC, local banks continued to step-up their game: OCBC acquired Wing Hang Bank in Hong Kong in 2014 and diversified its earn-ings base while United Overseas Bank (UOB) continued to regionalise. In 2018, UOB became the first local bank to open as a foreign-owned subsidiary in Vietnam, making it the third country in its “Mekong Delta” strategy. DBS Group Holdings — South-east Asia’s largest bank — has appeared in league tables and continues to grow from strength to strength, despite some questionable steps in the past 10 years. These include its high yield bond issuance and retail perpetual security programmes which have hurt investors, and a questionable IPO in Eagle Hospitality Trust which is now under investigation by the Singapore Police Force’s Commercial Affairs Department.  

Overall though, since financial sector liberalisation the pie has grown and local banks are working to maintain their share. By most accounts, local banks’ market share of home loans, current account savings account (CASA), and SMEs are estimated at 80% to 90%.

Ready for new digital banks  

On the digital front, local banks have kept pace with QFBs and global banks. OCBC has seen the take-up for digital services soar, from new accounts to the sale of investments. Within the first two weeks of the circuit breaker which started on April 7, OCBC says its time deposit placements online increased 150%. Compared to January, there was a 14% increase in CASA opened in April digitally.

“At the same time, we believe that the human touch, digitally aided, is critical for certain financial interactions and we are progressively enabling our financial consultants to advise people remotely over the phone and over video. Our branch staff are also progressively calling our customers up, if the customers have certain transactions like Time Deposits maturing, to either help them do the task digitally or to assist them with the transactions, so they do not need to visit the branch physically as they would have traditionally done,” says OCBC’s Seth.

MAS had announced a further levelling of the playing field on June 28 last year. It will issue up to two digital full bank licences and three digital wholesale bank licences later this year. The new digital bank licences will be extended to non-bank players. Digital full banks (DFB) will be allowed to take deposits from and provide a wide range of financial services to retail and non-retail customer segments, while digital wholesale banks (DWB) will be permitted to serve SMEs and other non-retail segments.

MAS has received 21 applicants — seven for the two DFB licences and 14 for three DWB licences. On June 18, MAS said five DFB applicants and nine DQB applicants met the eligibility criteria required for the application to be considered. In the next stage, MAS will invite the 14 applicants to present their proposals via virtual meetings.

These new digital banks are in addition to any digital banks that local banking groups may already have established under MAS’s existing regulatory framework, the regulator says. In 2000, banks incorporated in Singapore, including the QFBs, were allowed to set up internet-only banks (IOB). Foreign banks could set up foreign-incorporated IOBs within the existing framework for the admission of foreign banks.

Although almost everyone has at least one bank account, some smaller segments such as SMEs could be underserved, suggests Citibank’s Carney. “In my view, the new digital banking entrants could bring some innovation and focus on these potentially underserved segments in Singapore, which makes it an interesting phase for the banking industry here. Coupled with the high rate of financial inclusion in Singapore and the deep roots that we have established over time, I think the new entrants will face some heavy competition,” he says. “To me, digital-only banks cater to a specific segment and offer targeted products or services. At Citi, we serve our clients holistically — through digital channels for simple banking needs and personalised advisory for deeper wealth discussions — and evolve our strategy according to our customers’ behaviour and needs.”

Can digital-only banks succeed?

DBS launched a digital-only bank — Digibank — in India in 2016, and then in Indonesia a year later, thus moving to a “phygital” strategy. UOB also launched a digital-only bank TMRW in Thailand in 2019, and then in Indonesia. It plans to expand TMRW to Vietnam, Malaysia and eventually Singapore. TMRW’s model is more like Monzo’s model, where it uses net promoter scores to gauge success and “advocates” to gain market share.

“The advantage of some digital-only banks is that they may have a large, existing customer base to tap into. For example, Kakao Bank in Korea has been very successful largely due to the fact that over 98% of Koreans already have a Kakao account. I would imagine that some of the digital bank licence applicants have a similar cross-sell strategy,” Carney explains.

In Singapore, Grab has tied up with Singapore Telecommunications to apply for a DFB licence, while Sea (which owns Garena and Shopee) has also applied. Both Grab and Sea have customers to which they could cross-sell financial products to.

But digital banks are not without disadvantages. Trust is one issue, says Carney. “When you are borrowing or getting a credit card and putting a small amount of money into a (digital) wallet, trust is not a huge factor for customers. But when you are thinking about putting your life savings with a bank, trust is a huge factor and traditional banks have already built a huge reservoir of trust over the years,” he explains.

Digital banks would probably be more meaningful in markets such as the Philippines, Indonesia and Vietnam, where more than half of their adult population are “unbanked”. He adds: “This could present opportunities for a digital-only bank to have some impact on financial inclusion in those countries. I believe a successful digital-only model must be able to, among other things, revolutionize the way customers’ banking needs are being served, prove that their business model is profitable for the long term, and is able to meet all the capital, technology and regulatory requirements expected of any bank. Beyond these, the true measure of success would still be the client experience and stickiness to the brand.”

Covid-19 accelerates digitalisation

Although banks in Singapore had started their digitalisation years earlier, Covid-19 drove both retail customers and SMEs either online or to mobile banking. In some cases, Covid-19 even presented new opportunities.

“The pandemic situation has created a momentous push towards accelerated digitalisation for less digitally-savvy (SMEs), largely through both circumstances, for instance, lack of physical patronage due to virus contagion fears, as well as governmental incentives, for instance, $5,000 payout for F&B outlets if they sign up for PayNow Corporate and e-invoicing,” notes Helena Ooi, head of strategy at Maybank Singapore. “This revitalised mentality from small business owners presents an opportunity for locally entrenched SME-focused banks like Maybank to re-pivot and provide more digital value-added solutions to our customers while we seek to embed ourselves in their ecosystem as their everyday bank for both financing and transactional needs,” she adds.

On April 18, OCBC launched its virtual wealth advisory service during the circuit break-er period. In the first 10 days after the launch, OCBC registered an increase of 45% in the sale of wealth management products compared to the prior 10 days. On April 29, DBS rolled out its new personalised digital financial planning solution NAV Planner for DBS and POSB customers within their internet and mobile banking accounts.

Carney points out that in Singapore and the region Citibank is already largely digital. It has just eight branches and four instant banking centres in Singapore, and just two or three branches in other markets.

Different niches

With rank and file locals and residents bank-ing with the three local banks, who do QFBs serve? Obviously Maybank has a captive audience, with the large population of Malaysians in Singapore which account for around 7% to 8% of the population. In addition, Maybank also plans to serve Singaporeans.

“Our domestic (Singapore) franchise continues to be a key area of growth, with our value proposition and our competitive advantage within the segment of population that is focused on retirement planning. With the new ‘norms’ driven by this current environment, we believe that financial planning and healthcare-related matters will be even more important for various segments of the population and will look at strengthening our offerings to our customers in these areas,” Ooi tells The Edge Singapore in an emailed response.

For Maybank, SMEs form 99% of the companies it banks in Singapore. They are an extremely diverse segment ranging from traditional mom-and-pop stores to heavy VC-funded tech start-ups, Ooi indicates.

“One of the areas of focus will be the Singapore — Malaysia corridor, as we will still continue to be strong economic and trading partners. Even during the circuit breaker and Malaysia’s Movement Control Order (MCO) period, essential goods and services were allowed to cross borders. Our commitment to support the corridor was also seen through our various initiatives to help Malaysians who were stranded here, during the MCO, as well as help facilitate Malaysia-related banking needs,” Ooi adds.

For Citibank, Singapore is its Asia Pacific consumer banking hub where its senior regional consumer management team is based. It is also where many of Citibank’s digital solutions are launched. The Lion City also provides a large pool of high net worth individuals as it is, in Carney’s words, at the centre of a large and fast-growing wealth population. It is reported to be the sixth in the world in terms of household wealth per adult with 207,000 millionaires in the country, and almost half the adult population is among the world’s richest 10%.

“We see a great opportunity for us to accelerate our wealth business growth here, targeting a double-digit market share in Singapore’s wealth management space. We have consistently delivered strong business growth with wealth AUMs up double-digit year-on-year 2019 versus 2018, enabled by a strong digital strategy and a branch-light network. Our retail banking deposits also grew close to 20% over the last five years from 2015 to 2019,” Carney adds.

At the start of Singapore’s liberalisation at the end of the 20th century, the concern was that Singapore would become Wimbledon, the British tennis Grand Slam tournament where a Briton had not won the championship for a 70-year spell. Now as we enter the third decade of the 21st century, Singapore is a private banking, wealth management and fintech hub. Meanwhile, the local banks have held their own while foreign banks have found their niche.