Singapore's four new digital lenders will likely leverage on their existing businesses to carve a share in the island nation's busy banking space where dominant local players already have a head start in engaging with customers online.

The Monetary Authority of Singapore Dec. 4 awarded four digital bank licenses as a part of its efforts to liberalize the sector. However, they may not be a significant threat to the three local banks — DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. Ltd., and United Overseas Bank Ltd., analysts said.

Sea Ltd., which owns online games developer Garena Online Pvt. Ltd and operates the popular e-commerce platform Shopee Ltd., is one of the two digital full bank licensees. It also has a financial services unit. The other is a consortium of ride-hailing service provider Grab Holdings Inc. and telecom operator Singtel. Both will get to serve retail customers, about whom they already have data that they can now possibly use to determine credit worthiness and offer banking services.

The MAS also gave out digital wholesale bank licenses to a unit of China's Ant Group Co. Ltd. and to a consortium led by Greenland Financial Holdings Group Co. Ltd. That would allow them to target small businesses and non-retail segments.

Online-only banks are no longer a novelty -- the U.S., the U.K. already have several players, and even Singapore's regional rival Hong Kong has issued licenses to eight companies. But Singapore's choice of players, from among dozens of applicants, is likely to be watched keenly as regulators globally grapple with the blurring of boundaries between commerce and banking. The dramatic halt last month of Ant Group's IPO two days before its scheduled listing in Shanghai and Hong Kong underscored the challenges for regulators and the industry.

"With the approach to issuing the new licenses, I feel that the MAS is trying to slowly incubate new entrants into the industry while ensuring that the incumbents are not rendered irrelevant," said Tay Wee Kuang, a research analyst at Phillip Securities Research. "This will allow MAS to strengthen the financial system and create a better banking ecosystem that can accommodate new players," he said.

Digital ambitions

Ever since Singapore invited applications in 2019, the hopefuls have articulated their ambitions to increase digital banking services in a nation where, according to the World Bank, 98% of the adults have a bank account. Through their licenses, the new digital lenders will finally be able to build a banking stack that can better integrate with their existing ecosystem, said Sampath Sharma Nariyanuri, an analyst at S&P Global Market Intelligence.

"The current financial services offered by the tech firms are overlaid on incumbent banking infrastructure," he said. "With bank licenses, the tech firms might look to reduce their dependence on traditional financial institutions and fintechs," he said.

Contrary to some fears in the market, they may do that with little disruption to the traditional banking industry, Tay said. "Should the new entrants have a unique offering in the market, I believe that the incumbents, with their operational know-how, will be able to compete favorably against the new entrants," Tay said.

The three local banks had begun their digital effort a few years ago and their current licenses already allow them to provide the full suite of online services that the new entrants have just gained, he noted.

Ready for competition

The banks too have sounded confident about their ability to compete against the new players on their turf. "From a capability standpoint, we have done enough over the years," DBS Group CEO Piyush Gupta said in response to a query from Market Intelligence at a company press conference on Dec. 7. "We are confident that notwithstanding the extra competition, we will be able to continue to hold our own and in fact continue to do well."

The Grab-Singtel consortium announced plans to hire 200 people by the end of 2021 in the areas of product, data, technology, risk, finance and compliance, the consortium said in a Dec. 4 statement. The consortium is aiming to formally launch the digital bank in early 2022.

"We will redefine banking by building a sustainable business focused on out-serving Singapore with personalized, accessible and trusted financial products," said Charles Wong, CEO of the digital bank. "Customers from multiple segments, including the underserved and underbanked, will be able to have their financial needs met seamlessly."

Ant Group, which in China partners with financial institutions to serve SMEs, plans to offer similar services in Singapore. "Over the years, Ant Group has accumulated substantial experience and proven success, especially in China where we work with partner financial institutions to serve the needs of SMEs," the statement read.

Sea said it aims to derive insights from its existing platforms for its digital bank. That, the company hopes, will "support the growth of the country's digital economy by reducing the barriers to accessing financial services through technology," according to a Dec. 4 statement.

Greenland Financial Holdings could not be reached for a comment.

Uphill battle

Still, the new digital players will likely face an uphill task to acquire customers. Attracting them with digital services that already exist in their current banks will be tough, analysts say.

"Building a deposit base in a matured market could be a tall order for the newly minted digital banks," Nariyanuri said. It puts them "squarely in competition with Singapore's large incumbent banks, which have amplified their digital efforts in recent years and whose customer acquisition efforts involved targeting large pools of consumers and small businesses tethered to the popular consumer tech platforms."

But the digital banking licenses could be a way to complement the their core business, especially for the two digital full bank licensees, Phillip Securities' Tay said.

For example, the Grab-Singtel consortium could upsell services on their food delivery, private hire, or telecommunication services business on the pre-condition of the adoption of their banking services, he said. Similarly, Sea could use digital banking services to enhance the company's e-commerce and gaming platform proposition.

For the digital wholesale bank licensees, the competition may be "stiffer," Tay said, adding "pockets of growth could come from a smoother loan approval process from trades with the digitalisation of various functions such as collateral management [and] credit checks."

The digital banks will likely have their own target markets, with less room for overlap, Jefferies said in a Dec. 7 note. It expects the Grab-SingTel duo to serve local retail, SMEs, micro enterprises and startups, whilst Sea and Ant will likely focus initially on financing e-commerce firms in Singapore and in the region. The Greenland-led consortium may aim to carve a share of supply chain financing, Jefferies said.