Lendo’s guide to Singapore’s digital banking licences

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Recently Singapore announced it would follow Hong Kong in issuing virtual banking licences to entities without “banking parentage.” In other words, digital banks without any branches. As Fintech News Singapore says: “Depending on which part of the world you’re from it comes in many names; neo-banks, challenger banks, virtual banks and digital-only banks.”

In Singapore’s case, the digital banking license is specifically being implemented to help serve underserved sectors, such as small businesses.

It’s an exciting opportunity for those hoping to operate in this sector, and we’ve identified some of these licence’s features for you.

Local banks won’t need an additional digital licence to launch a digital bank. So, although the government is only issuing five licences, there could be more than five digital banks.

Capital and liquidity rules are the same as for existing banks, so they need to have a minimum paid-up capital of SG$100 million. Also they can’t take deposits from individuals (except for fixed deposits at least SG$250,000) but are free to open and maintain business deposit accounts for SMEs and other businesses.

The full banking licence is to be issued in stages. The first stage is the Restricted Digital Full Bank stage, in which the bank can only offer simple credit and investment products. Deposit restrictions will be lifted once the digital bank has proved that it can manage the risks involved, and is delivering on its value proposition. Once they have passed the test, they will get a Digital Full Bank Licence.

The bank must also have its HQ in Singapore and be controlled by Singapore citizens. Foreign companies however, are still eligible if they form a joint venture with a local company, and the local firm holds management control over the joint entity.

It is also clear that the Singapore authorities will not tolerate entities with ‘disruptive’ business strategies. They say the Monetary Authority of Singapore (MAS)will reject any bank, digital or otherwise that engages in value-destructive competition to gain market share.

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