Updated: Feb 10
Four entities were recently issued licenses to commence digital banking operations in Singapore, in a bold move to liberalise the financial industry and accelerate the rise of the digital economy. As one of the biggest technological disruptions seen by the financial services sector in decades, digital banking is expected to be a significant game-changer for retailers and consumers alike. We discuss the opportunities and risks below.
From passbooks to e-wallets – it is hard to believe that account statements were once accessible only on manually updated pocketbooks, when nowadays the transfer of funds is as easy as the tap of a smartphone. Over the years the Singapore banking industry has rapidly evolved to serve the needs of consumers and the growing economy, building a strong infrastructure to support international trade and investment. With the shift towards a digital economy, the sector has once again risen to the challenge.
On 4 December 2020, the Monetary Authority of Singapore (“MAS”) announced the award of four digital banking licenses which will allow non-bank players to make their first foray into the heavily regulated financial services space. The new licensees all are established players in the technology and e-commerce field, including a Grab-Singtel consortium and an entity owned by tech giant Sea Limited. According to MAS, these entities have provided a clear value proposition which incorporates the use of technology to deliver sustainable, innovative customer solutions, targeted to reach especially the underserved segments of the market. The new digital banks are expected to co-exist alongside traditional banks, providing customers with conventional banking services without being constrained by the need to operate physical premises.
With this announcement, Singapore joins the ranks of regional counterparts who have also set their sights on improving access to financial services for the underbanked and unbanked. Fully digital banks have already emerged in countries like the Philippines, Japan, South Korea, with Thailand and Malaysia moving quickly to catch up. And there is great potential for this region. A joint report by Google, Temasek and Bain & Company posits that the adoption of digital lifestyle services in Southeast Asia has been greatly facilitated by high smartphone penetration, providing parallel opportunities for the introduction of digital financial services . Evidently, there is unprecedented potential for digital banks to grow.
Opportunities associated with digital banking
Improved access to banking facilities: Digital banking could herald a new dawn for consumers and micro, small and medium businesses with limited access to affordable credit lines. The Grab-Singtel consortium intends to offer flexible and transparent financing options for time-starved young PMETs, gig workers with flexible incomes, to micro-businesses with finite capital . Sea Limited has also signalled its intention to design a range of products specially for young consumers and SMEs 
Higher interest rates and returns from savings:
Allowing non-bank players to have a bite of the pie will greatly increase competition within the Singapore banking industry. The enhanced competitive landscape is likely to result in attractive interest rates and promotions, as new entrants and existing players strive to capture a larger market share from the get-go. For digital banks, such steep margins are made possible by the efficiencies created through the use of technology, and by eliminating the overheads associated with physical branch operations. Customers can thus look forward to receiving more attractive returns on savings and more flexible investment plans in the near future.
Enhanced consumer experience and efficiency: Although high interest rates may be attractive in the short term, a 2019 study by PwC has revealed that the key to retaining customers may instead lie in enhancing the consumer experience 
Risks of diving into digital banking
Privacy concerns and cybersecurity vulnerabilities: To facilitate the provision of personalised services and data-driven financial tools, consumers should be cognisant that digital banks will need to collect and store large amounts of data. With fully virtual operations, sensitive customer databases may also thereby become exposed to more potential points for cyber-attacks. In keeping with MAS’ recently revised Technology Risk Management Guidelines  (see our earlier article for an overview), digital banks should not only ensure that technical steps are taken to implement security-by-design and rigorous testing of all IT systems; it should also go one step further to develop a robust governance framework to manage all internal cybersecurity controls and risks. These safeguards should extend to protect customer data held by third parties under any outsourcing arrangements. The challenge for digital banks will be to enhance privacy standards and patch cybersecurity vulnerabilities in a timely manner, without compromising on the user experience.
Financial stability: Although digital banking is expected to quickly take flight, many customers could still remain hesitant to switch over fully to a virtual bank. A survey has found that 99% of Singapore customers are likely to keep their current primary bank accounts even after opening a digital bank account, and 67% are likely to continue to use their existing account as their primary bank . Clearly, the security of the tried-and-tested remains at the forefront of customers’ minds. Digital banking players will have to work hard to correct these pre-conceived notions, by gradually expanding their business through sustainable growth models. Customers may choose to exercise prudence – perhaps by first opening a supplementary account to test the waters, diverting more funds later once a relationship of trust and confidence has been built.
The golden opportunity
The advent of digital banking comes at an opportune moment in Singapore’s history, as the small island state moves towards the aim of becoming a Smart Nation. This development leverages precisely on the country’s strengths, combining its world-class digital infrastructure with its strategic position as a regional financial hub. As the bids have now closed, it remains to be seen how well the winners of the new digital banking license will translate their technology and sector expertise into tangible benefits for consumers. This article is produced by our Singapore office, Bird & Bird ATMD LLP, and does not constitute legal advice. It is intended to provide general information only. Please contact our lawyers if you have any specific queries.
For further information, please contact:
Lorraine Tay, Partner, ATMD Bird & Bird
 Google, Temasek, Bain & Company. (2019). Fulfilling Its Promise: The future of Southeast Asia's digital financial services.
 Grab-Singtel consortium to set up a dedicated team by 2021 to build Singapore’s next-generation digital bank. (4 December 2020). Retrieved from Grab - Transport, Food Delivery and Payment Solutions: https://www.grab.com/sg/press/others/grab-singtel-consortium-to-set-up-a-dedicated-team-by-2021-to-build-singapores-next-generation-digital-bank/#:~:text=Grab%20and%20Singtel%20first%20formed,digital
 Sea Selected for the Award of Digital Full Bank License in Singapore. (4 December 2020). Retrieved from Sea | News : Sea Selected for the Award of Digital Full Bank License in Singapore
 PwC Digital Consumer Research. (2019). 2019 Consumer Digital Banking Survey. PwC.
 Monetary Authority of Singapore . (2021, January 26). Guidelines on Risk Management Practices - Technology Risk . Retrieved from Monetary Authority of Singapore : https://www.mas.gov.sg/-/media/MAS/Regulations-and-Financial-Stability/Regulatory-and-Supervisory-Framework/Risk-Management/TRM-Guidelines-18-January-2021.pdf