What are Digital Full Bank and Digital Wholesale Bank licences?

The Monetary Authority of Singapore (MAS) has received a total of 21 applications for the five new it announced last year, as on December 31, 2019 (last date). The government will allow only up to five banks in the country two full-banks (DFBs) and three wholesale banks (DWBs).

The new digital bank licences will allow entities, including non-bank players, to conduct digital banking businesses in Singapore. These are in addition to any digital banks that Singapore banking groups may already establish under MAS’s existing internet banking framework.

Of the 21 applications the market regulator has received, seven are for the digital full bank (DFB) and 14 for the digital wholesale bank (DWB) licences.

The MAS expects to announce the successful applicants in mid-2020.

The DFB licence will allow for the consortiums to lend money to other companies and individuals, as well as serve retail customers. DFB can take deposits from and provide banking services to retail and non-retail customer segments. Foreign companies are eligible if they form a joint venture with a Singapore company and the JV meets the headquarter and control requirements.

As for DWBs, they are only allowed to serve SMEs and other non-retail segments. DWBs will be allowed to take deposits from and provide banking services to SMEs and other non-retail customer segments. Both local and foreign companies can apply for this.

In order to successfully obtain a digital bank license, besides compliance with regulatory requirements, technical capability and a sustainable business model, an applicant needs to demonstrate how they can meet the objectives from this initiative as set out by the MAS, including deeper financial inclusion.

Regulatory compliance requires a substantial amount of investment in people and technology. Reporting at every step of the way may not be built into the DNA of non-financial institutional aspirants.

The MAS expects that “the entry of new digital players will add diversity and strengthen Singapore’s banking system in the digital economy of the future. With innovative business models and strong digital capabilities, these players can cater to under-served segments of the market.”

Eligible applicants will be assessed for the following:

The value proposition of the applicant’s business model, incorporating the innovative use of technology to serve customer needs and reach under-served segments of the Singapore market that differentiates it from existing banks. MAS will also consider the ability of the applicant to implement the proposal.

Ability to manage a prudent and sustainable digital banking business, including the level of understanding of key risks in the banking business, and strength of its regulatory compliance and risk management plans. The MAS will also consider the reputation, track record, financial strength and commitment of the applicant’s shareholders.

Growth prospects and other contributions to Singapore’s financial centre, such as the jobs it will be bringing to Singapore, its commitment to develop the skills of the local workforce, the capabilities (including technology) it will be locating in Singapore, the headquarter functions it will be anchoring here as well as its regional expansion plans.

Who are the applicants?

Although the MAS has received 21 applications for the digital bank licence, only a few applicants chose to make it public.

Here is the list of companies/consortiums which announced their applications:

Grab and Singtel; Razer Youth Bank; Beyond Consortium; Ant Financial; iFast Corporation; Hande and Yillion; Sheng Ye Capital, Phillip Capital and Advance.AI; AMTD, Xiaomi Finance, SP Group and Funding Societies; Sea Group; and Enigma Group.

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