SINGAPORE -- The Monetary Authority of Singapore, the city-state's central bank, on Friday said it will issue up to five new digital banking licenses, opening the sector to newcomers like ride-hailing startup Grab.
The central bank will accept applications for the licenses starting in August. The move comes as Singapore vies with other Asian financial hubs in business competitiveness and support for innovation.
Up to two full digital banking licences will be issued, allowing recipients to provide a wide range of financial services and take deposits from retail customers.
The application process for the full licences will be open to companies headquartered in Singapore and controlled by Singaporeans. Overseas companies are also eligible if they form a joint venture with a Singapore company, and the venture meets the headquarters and ownership requirements.
The central bank added that the applicant or its parent company must demonstrate a "sustainable" digital banking business model. "MAS will not allow any bank, digital or not, to engage in value-destructive competition to gain market share," it said in a statement.
In addition to the two full licences, the bank will issue up to three digital wholesale banking licences for services for nonretail customers. Any company is free to apply for these licences.
Singapore's move to allow fresh competition in banking comes as digital consumer services expand, changing peoples' lives in the country as well as across Southeast Asia.
"Digital challengers with innovative business models can add diversity and choice to banking systems," MAS Chairman Tharman Shanmugaratnam said Friday at an event hosted by the Association of Banks in Singapore.
"They can often serve the needs of traditionally underserved segments, such as the credit gap faced by young and micro-enterprises," said Tharman, who also serves as senior minister in Prime Minister Lee Hsien Loong's cabinet. "They could also bring with them deep digital know-how and insights from operating nonbank businesses."
The central bank had been studying the pros and cons of allowing the new digital bank licences. To minimize the risks associated with nonbanks handling customer deposits, the activities of fully digital banks will be restricted for the first one to two years, according to MAS.
Financial liberalization presents a fresh challenge to existing local banks, which are already allowed to set up stand-alone digital banks.
In response to the announcement, United Overseas Bank CEO Wee Ee Cheong said, "We welcome the diversity."
"Banking will continue to be shaped by how financial service providers ensure customers' interests are not only anticipated, met and protected, but that their experiences are also differentiated," he said.