Singapore's regulators could give rise to new class of bank rivals

Banks are rightly focused on PSD2 as an international gateway for fintechs to disrupt banking, though potential deregulation in Singapore can give digital payment companies another route to take share directly away from banks.

The Monetary Authority of Singapore is considering granting banking licenses to fintechs that provide digital payments and other financial services, greatly increasing the number of banking companies. The MAS currently provides banking licenses to digital-only subsidiaries of licensed banks. The potential expansion would allow companies with nonbank parents to offer banking services without a branch footprint.

Grab is reportedly considering applying for the MAS license, which is still under consideration. The city and ride-sharing company have both become forces in financial innovation.

Wei Leng Tay/Bloomberg

Grab, along with other ride-sharing apps such as Uber, is dramatically expanding the services it offers from its core product. The ride sharing company has launched a unit to focus on Grab’s financial diversification, and it has considered acquiring payments technology.

Grab is also collaborating directly with financial brands. It has partnered with Mastercard to offer a prepaid card and more recently partnered with Citigroup to issue a co-branded payment card. Parts of Grab’s Southeast Asian footprint do not have a robust banking system. The partnership with Citigroup and potential banking license would provide support for digital transactions.

“Grab is a leading digital ecosystem. By doing a co-brand with them we think we can further grow our cards’ business in the region.” said James Griffiths, a managing director at Citi in Hong Kong, in an email, adding Citigroup has also done a similar deal with Paytm.

Griffiths added he "didn't see" how the potential Singapore banking license would impact the co-branding deal, calling the development "speculative." Grab and MAS did not return requests for comment.

Singapore has an active fintech industry, with technology companies and banks already entering deals. Rapyd, for example, recently partnered with Singapore's OCBC Bank to support P2P payments

The city is also at the fore of new authentication initiatives, with a federated ID project that binds credentials for payments, transit ticketing and business security.

That environment feeds a robust fintech market, with investments doubling in 2018, reaching $365 million, up from $180 million in 2017, according to the Straits Times.

By providing a banking license for companies without bank parents, Singapore's fintech industry would be able to benefit from a global trend to reduce barriers of entry to the financial system. That can enhance the ability of payment technology companies and financial apps to disrupt traditional banking, according to Kendrick Sands, head of consumer finance at Euromonitor International.

“Consumer payment policy is a priority and the first step of improving consumer payments is moving away from cash,” Sands said. “And the big step there is reducing the regulation as to who can process payments.”

Much like PSD2 and GDPR have necessitated an adjustment to open banking and data sharing between fintechs and banks outside of Europe, banks outside of Singapore would be pressured to adjust given the cross-border scope of Singapore's financial system, Sands said.

“Singapore could set a standard,” said Sands, adding there are technology companies from outside Singapore that could use the license to grow their product bundles.

Alipay, for example, has attempted to grow its share of an addressable market of 3.2 million Chinese travelers through a partnership with local Singapore authorities to enable a fully cashless experience. By adding banking, that product bundle could expand beyond Singapore and become a disruptive threat to other markets given Singapore's influence, according to Sands.

“We’re seeing a lot of other companies being active," Sands said. "Alipay is spreading through the Asia Pacific region, so this licensing could potentially lead to another platform for them that could spread beyond Singapore.”