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The Monetary Authority of Singapore (MAS) is evaluating whether it should allow fintech companies to operate in the city under a virtual banking license, according to the Business Times.
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It should be noted that banks in Singapore have been able to set up banking subsidiaries to pursue digital-only business models since 2000. Hence, digital-only banks can operate using a bank parent for licensing, but a virtual banking license would allow them to do so on their own. MAS is currently exploring how digital-only banks can add value as well as how potential risks can be managed and contained.
Here’s what it means: Singapore has established itself as a leading fintech hub in Asia, and would further consolidate its position by launching a virtual banking license.
- Singapore has made a number of moves in recent years to help develop its fintech ecosystem. For example, in 2018, MAS issued a new report to provide clarityon the regulations digital advisors are subject to, and announced it would facilitate the research and development of new AI technologies in collaboration with other agencies. Additionally, the regulator inked a fintech deal with the US to offer fintechs access to the US’ financial market.
- However, other fintech players in Asia are challenging Singapore for the best fintech ecosystem.Both Hong Kong and South Korea have granted virtual banking licenses in the past. Four ventures, including WeLab, received a virtual banking license in Hong Kong earlier this year, while South Korea already licensed them to banks including Kakao Bank in 2017, per Reuters. If MAS launches a similar license, it could keep up with the developments in the region.
The bigger picture: A virtual banking license can help create a level playing field, and incumbent banks should watch out for new entrants.
It’s becoming a global trend for neobanks to receive banking licenses despite hurdles in some markets. In Europe, a number of neobanks were granted banking licenses, including Monzo, Revolut, and N26. Additionally, the US’ Office of the Comptroller of the Currency (OCC) is still looking to give out its fintech charter to fintechs, despite pushbackfrom state regulators in the country.
With these moves, it’s becoming increasingly apparent that fintechs will be able to operate in a level playing field with incumbent banks — making them a larger threat. To keep up, incumbents should focus on increasing their digital capabilities by either building in-house or partnering with other fintechs, or they’ll risk falling behind in the changing finance industry.
Here’s an industry opinion, as told to Business Insider Intelligence:
"It is a natural move for Singapore to look at Virtual Banking License for Fintechs, and MAS has a regulatory framework ready as it has allowed banks to have digital-only banks as subsidiaries for many years already. However, it is important to understand the cultural difference between Asia and the western world on how they deal with challenger banks. Banking license require more than 10 times capital and have far more limitations in Asia. It is good to see more regulators and private sectors trying to bring innovation into the finance industry." — Joe Seunghyun Cho, founder of LATTICE80 Fintech Hub
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