Singapore digital banking era will put focus on SMBs, consumer trust

Introduction of digital banks will 'shake up' Singapore's banking industry, which is expected to have up to five new digital market entrants, says a Forrester analyst, who underscores a need to build consumer trust and for small businesses to be better served.
Written by Eileen Yu, Senior Contributing Editor on

With Singapore slated to issue up to five new digital bank licences, incumbents will have to build on existing customer trust and enhance online services to meet increased consumer expectations and remain competitive. Digital market entrants, on the other hand, need to ease security concerns and identify profitable business models even as they work to scale their customer base. 

The introduction of digital banks would "shake up" Singapore's banking industry where 70% of online consumers performed banking activities on a smartphone, noted Zhi-Ying Barry, Forrester's senior analyst for e-business and channel strategy. Some 45% of local consumers said they visited a bank branch to conduct banking activities, she said, citing the research firm's survey. 

Consumers also expect banks to deliver beyond basic services such as money transfers to offer better management tools to support the customers' financial posture. Asked what they preferred to transact on their main banking app, Singaporean respondents pointed to the need to create savings objectives and track their budgets. They also wanted to plan and manage their finances digitally. 

Digital banks have been challenging their incumbent competitors by targeting "progressive pioneers", or what Forrester defined as consumers who were more open to trying out new technologies. Amongst these consumers, 32% said they would consider switching to a digital-only bank in the next two years. They would do so to be able to open accounts on digital touchpoints, to gain relevant insights on their banking needs, and to have more transparency. 

More than half of Singaporean respondents would retain their money with companies that provided them with the tools to manage it. Few local banks, however, currently offer digital money management tools such as budget tracking and spending analysis, Barry noted, adding that digital players in other regions already use such tools to offer new value for their customers.

United Overseas Bank's TMRW in Thailand, for instance, and Monzo in the UK provide their customers with tools to categorise and assess their spending in real time to help them manage their finances, she said. 

"While some established banks in Singapore are starting to pick up speed in this area, there's still a major gap to fill," the analyst said. 

In addition, Barry said, small and mid-sized businesses (SMBs) want better financial services. Noting that there are some 220,000 such businesses in the city-state, contributing almost $200 billion to the local economy and accounting for two-thirds of employment, the Forrester analyst said few SMBs are well-served by traditional banks. 

The research firm's survey also revealed that one-third of SMB operators said they would switch their primary banking services provider to another. 

In this aspect, digital banks would pose a challenge to incumbents by working to better serve SMBs, Barry said. She noted that traditional banks, in Singapore and worldwide, failed to keep pace with these businesses' changing requirements and increasing demands for banking services. 

"They do a poor job of helping business owners get loans, manage cashflow and payroll, and receive financial insights and advice," she explained, "Powered by advanced data and technologies, digital banks can fill the void by focusing on markets that traditional banks consider unprofitable or risky."

Pointing to Tencent's WeBank as an example, she said the Chinese player offers a microlending product that tap into technologies such as big data and artificial intelligence to perform risk analytics and modelling. It did this with the aim of widening SMBs' access to loans in China, she noted. 

Despite their market potential, digital banks first would need to resolve several key challenges, such as ensuring they had a clear path to business sustainability. 

Barry said: "While they need scale to achieve profitability, they can't sustain large marketing campaigns, so the key to survival is acquiring new customers efficiently. For this to happen, they need to win customer trust, drive advocacy, and convert customers to a primary relationship."

To establish customer trust, these digital players would have to ease security concerns, the survey said, which is a major barrier in Singapore where just 51% of online consumers feel safe using their financial data online. This was one of the lowest amongst the Asian markets that have been surveyed by Forrester, the analyst noted. 

She suggested that digital market entrants could build customer trust by introducing new services, such as European digital bank Revolut, which offers disposable virtual debit cards as a way to reassure customers about the security of online payments.

Barry anticipates concerns about digital banking security will limit the ability of digital banks to attract customers -- at least in the short term.

While this means established banks have some advantages, they would need to be mindful of their digital counterparts' better digital services and lower costs, she said. Incumbents would also need to improve their own digital offerings to ensure they could retain customers.

For one, traditional banks should continue to nurture customer trust, especially since 79% of Singapore online consumers said they trusted their primary bank to act in their best interests with regards to their financial posture. In comparison, only 11% trusted digital banks to do likewise. 

"The trusted relationship that incumbent banks have built with customers over the years will be their most important competitive advantage in the digital era," Barry said. She also urged these traditional market players to improve their digital services portfolio and digital customer experience. They would need to drive their digitisation efforts and "fully embrace" a digital business culture and strategy, she said. 

Singapore in June announced plans to issue up to five digital bank licenses as part of efforts to add market diversity and boost the banking system in the country, as it looked to become a digital economy. This meant that non-bank organisations would be able to apply for a license and offer digital banking services, according to the Monetary Authority of Singapore (MAS). 


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