Digital Bank Licensing in Singapore: The Incumbents

Editor’s Note: This article is the third part of a four-part series that takes a closer look at the landscape of Digital Bank Licensing in Singapore. Read the previous article here.  

It’s true that digital banks will be able to offer the same type of services that traditional banks do. In fact, MAS’ intention is for a digital full bank to eventually be able to conduct all banking transactions as existing banks. In Singapore, the current main local players are Oversea-Chinese Banking Corporation (OCBC), United Overseas Bank (UOB) and DBS Bank.

One key differentiating factor of traditional banks is the presence of a physical structure such as a bank branch. People’s preference to have ‘human interaction’ as part of a collective cultural norm bodes well for the traditional banks’ business model – something that digital banks will have a hard time to topple over. This crucial difference equips the so-called incumbents with significant advantages over new industry participants. In its report, ‘Banking in Asia Pacific’, EY listed down these resultant advantages:

“In improving customer experience, data still remains the ‘secret sauce’ in enabling companies to come up with better offerings.”

Large customer bases. Banks have well–established customer relationships, giving them access to deep customer data. In the open data environment, these are key assets banks can use to enhance the user experience and deliver deeper insights to identify cross–and up–sell prospects and to constantly enhance offerings.

Scale, underpinned by strong balance sheets. Lending, funded by a strong balance sheet, is still the major source of growth for financial services entities. Scale is critical to being anything other than a niche offering and delivers banks a massive advantage over new entrant rivals, particularly for corporate clients. Incumbent banks with deep pockets, established histories and trusted client relationships, continue to be the preferred source of funds for corporates.

Compliance expertise. While FinTechs may be quicker and more agile in testing new ideas, incumbent banks are well practiced in delivering products and services in compliance with stringent regulatory frameworks. Banks’ compliance capabilities will prove a strong asset as the open data environment is increasingly regulated.

A trust advantage. Customers still trust their bank to keep their money safe and, more recently, to protect their data. This a key differentiator for banks as financial services move to an open data environment, an environment that hinges on customer trust to realize its true potential.

But this is not to say that bank branches are the traditional banks’ key engine of growth. Over the last couple of years, local players are investing in technology, efficiency and customer experience to further entrench their positioning. In fact, even as the total assets of local banks continue to increase, their physical bank branches are in constant decrease.

People’s preference to have ‘human interaction’ as part of a collective cultural norm bodes well for the traditional banks’ business model – something that digital banks will have a hard time to topple over.

 

Fig. 1: Number of commercial bank branches per hundred thousand adults in Singapore

Fig. 1: Number of commercial bank branches per hundred thousand adults in Singapore

Source: Statista

 

Fig. 2: Total assets of banks in Singapore

Fig. 2: Total assets of banks in Singapore

Source: Statista

 

In improving customer experience, data still remains the ‘secret sauce’ in enabling companies to come up with better offerings. This is particularly true in banking.

In an interview with this magazine, Anurag Mathur, Head of International Retail Banking & Wealth Management for Asia Pacific at HSBC and The Digital Banker’s Retail Banker of the Year in 2019 commented: “Data is critical for us in delivering a mobile-centred smart banking proposition where we can proactively, yet without being intrusive, prompt or alert our customers on how we can support them.”

“We also leverage data to further drive customer experience as it allows us to have a better understanding of our customers especially when they are actively looking for banking solutions that meet their life stage needs. Having access to rich and precise data allows us to better customise our offers and guide our customers in discovering new services or solutions that will help them in their financial planning journey,” he concludes.

“We don’t believe in doing this as a one-off. DBS has consistently been investing in digital for our retail and wealth customers over the years – and hasn’t slowed down.”

For DBS Bank’s Head of Digital Wealth, Evy Theunis, it all boils down to being customer obsessed: “We don’t believe in doing this as a one-off. DBS has consistently been investing in digital for our retail and wealth customers over the years – and hasn’t slowed down. Instead, we continue to invest and enhance our capabilities on an ongoing basis. It’s also critical to ensure the investment isn’t just on the front-end; it must be front-to-back. You need strong back-end architecture and systems to enable excellent front-end client experiences – can’t have one without the other.”

***

This article is the third part of a four-part series that takes a closer look at the landscape of Digital Bank Licensing in Singapore. Here are the links the complete series:

Part 1: The Real Score

Part 2: The Contenders

Part 3: The Incumbents

Part 4: 2020 and Beyond

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