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Banking & Finance

Singapore brokerages join race for digital bank licenses

Securities trading companies look at diversifying amid ongoing disruption

With a total asset size of almost $2 trillion, Singapore currently has 150 deposit-taking institutions, including full banks, wholesale banks, merchant banks and finance companies.   © Getty Images

SINGAPORE -- A clutch of Singapore brokerages are preparing to enter the race for the city-state's first digital banking licenses, joining a growing list of tech startups already drawing up applications.

PhillipCapital and iFAST Corporation, both providers of securities trading platforms in Singapore, told the Nikkei Asian Review they wanted to add banking services as a way of protecting their business models from traditional banks such DBS Group, Oversea-Chinese Banking Corp and United Overseas Bank which are increasingly integrating full retail brokerage services into their product lineups.

Singapore brokerages have also faced added pressure in recent years following the entry western competitors such as Interactive Brokers and Robinhood which tout retail investing with zero commission, disrupting the traditional business model for brokerages which charge customers a fee when they buy or sell a security.

"I look at the application as two stages," said Luke Lim, managing director of Phillip Securities, the retail broking arm of PhillipCapital. "Stage one is to get the license, and stage two is to be profitable."

Driven by double-digit annual growth, digital payments are expected to become the payment method of choice for nearly half of all transactions across Southeast Asia by 2025, surging past the $1 trillion mark as fintech companies tap the 300 million adults who either don't have a bank account or lack proper access to credit, investment and insurance facilities.

The Monetary Authority of Singapore has set an end-of-year deadline to apply for two full digital bank licenses and three wholesale licenses. The new digital full banks would be allowed to take deposits from and provide banking services to retail and non-retail customer segments, while the wholesale banks could take deposits from and provide banking services to non-retail customers, including small-to-medium enterprises.

With a total asset size of almost $2 trillion, Singapore currently has 150 deposit-taking institutions, including full banks, wholesale banks, merchant banks and finance companies.

Lim said that while the privately-held PhillipCapital was open to being the anchor applicant for a wholesale banking license, the high capital requirements needed to fully service retail consumers meant that his company would be happier joining a consortium in which another company took the lead role.

Companies seeking the digital full bank license must have starting paid-up capital of S$15 million ($11 million) before progressing to a digital full bank with paid-up capital of S$1.5 billion.

Applicants must be headquartered in Singapore and majority controlled by Singapore nationals, meaning overseas players will have to find local partners if they want to enter the city-state's retail market.

PhillipCapital already operates a banking arm in Cambodia servicing retail and non-retail customer segments, and Lim said the addition of digital banking capabilities in Singapore would enable it to earn extra revenue managing more client assets.

Singapore-listed wealth management fintech iFAST said it was on track in applying for a wholesale digital banking license, said chief executive Lim Chung Chun in an interview, with the company looking at being the anchor applicant in a consortium, along with two to three other partners.

If his consortium wins a license, iFAST's Lim said the company would start offering deposit-taking services in major non-Singapore-dollar currencies, which the wholesale permit has room for. He said company can then draw additional revenue from net interest income, or money traditional lending.

Lim acknowledged that iFAST faced a daunting task in securing a license, with a deluge of potential applicants already signalling their interest in applying for a digital license.

"This is a bit of a beauty contest," Lim said. "What we can do is to make sure that we are as beautiful as possible, but we can't do much with some other world-class beauties coming in.".

Consortiums with access to customer behavioral data, artificial intelligence analytics and a solid regional presence would likely be the recipients of Singapore's new digital banking licenses, according to Maybank Kim Eng analyst Thilan Wickramasinghe.

"Innovations by these new players can potentially broaden the market, especially for underserved segments," Wickramasinghe said in a research report. "We believe the ultimate prize will be the underbanked in the Association of Southeast Asian Nations."

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