The Hong Kong Monetary Authority generated plenty of buzz handing out three virtual-banking licenses at the end of March – and, yesterday, a fourth, to fintech WeLab. Now it’s the turn of Monetary Authority of Singapore to shake things up.
MAS has just granted, for the first time, a capital market service (CMS) license to a fintech that has a business plan aimed at Singaporean customers.
This isn’t the first CMS granted to a fintech in Singapore, but it is the first time that MAS has dropped with the pretence that such licenses – which waive some of the usual requirements that financial institutions must meet – are not aimed at the retail market.
This represents a bolder attempt among challenger robos with big mainland Chinese backing to go after Singapore’s retail market, taking on local banks head to head.
The newest licenses is Pivot, backed by Pintec Technology, a Chinese fintech solutions provider, and FWD, a regional insurance group owned by Hong Kong tycoon Richard Li.
This follows MAS amending its CMS license guidelines in October 2018 to let startups apply.
Whereas HKMA did not reduce capital requirements or other hurdles for digital-only bank licenses, MAS has made room for technology companies to apply for a CMS. It has waived the usual requirement of S$1 billion of assets under management and a five-year track record.
In effect this opened the local market to Chinese internet companies.
A CMS holder can offer investment services to retail customers in Singapore, but the first licenses to fintechs were granted on the premise that they would mainly go after mainland offshore investors, rather than Singaporeans.
The first recipient was Lu International, the overseas arm of Lufax, the P2P wealth-management platform owned by Ping An Group. It was incorporated in Singapore in January 2017, and got a conditional licence after just six months.
CEO Kit Wong told local media Strait Times that Lu international is an offshore platform , under the terms of their CMS licence.
But Pivot’s business model was never couched in terms of targeting mainland Chinese residents; it is up front about taking on Singapore wealth managers – the banks, as well as IFAs – in their own back yard.
Bank executives are said to be outraged by the regulator opening a back door to well-capitalized Chinese tech competitors.
Frank Troise, CEO of SoHo Capital and an advisor to various projects in wealthtech, said incumbents are under enormous cost pressures. “In fairness to them, the same bar should be set for everyone,” he said.
In fairness to them, the same bar should be set for everyone
Frank Troise, SoHo Capital
Banks therefore think the MAS should not waive requirements for technology applicants – or it should allow digital-savvy banks such as DBS and UOB to apply for mobile-only CMS licenses, under the same lax guidelines.
On the other hand, Troise notes, the cost of customer acquisition is probably the biggest business hurdle to a new company.
So from a tech challenger’s perspective, they are already facing an uphill battle against incumbents, which already bank the vast majority of Singaporeans. And from the regulator’s point of view, promoting innovation and competition is no bad thing.
Limited to ETF
In Pintec’s case, MAS granted it a provisional license in December, while requiring the company to clarify or improve things like protecting customer data, product suitability and governance, says Zheng Yudong, CEO of Pintec's wealth management business.
In return for the looser requirements, MAS is limiting fintech CMS holders to providing only basic investment products, which fall under MAS’s ‘excluded investment product’ definition.
Pivot will launch by offering retail investors ETFs, mostly US dollar or euro-denominated products as there are few Singapore dollar-denominated ones.
These ETFs are usually US dollar or euro-denominated products as there are few Singapore dollar-denominated ones, he says.
Hence, local investors are exposed to currency and concentration risks.
Local competitor DBS, on contrary, launched its digiPortfolio platform in February, offering retail investors online access not only to ETF, but also to stocks, bonds and actively managed funds.
Other competitors include fellow mainland-China based players such as Creditease and Ping An-owned Lu International.
From B2B to B2C
Pintec has been providing A.I.-driven investment services in China since 2016, and now counts among its clients Minsheng Seurities, Bank of Nanjing, Bang of Zhengzhou and Guoyuan Securities. They use it to support their own wealth-management businesses, relying on its algorithms to convince their retail customers to remain invested through market downturns.
Pintec also provides some of the tech behind the digital arm of UOB, but Pivot shows the readiness to move beyond B2B work, competing head to head with local banks for Singapore’s retail customers, and perhaps use this as a springboard into other markets.
Pintec’s willingness to service a bank on the one hand, and also to have its local subsidiary launch a competing business on the other, shows the complexity of competitor-collaborator relationships.
To make Pivot a success, however, will require more than a friendly regulator and selling ETFs. Pivot’s next steps include partnering with local travel agencies or telecom companies, to provide their customer base with savings products and money-market funds (but marketed not as a “fund” but as a service, as Alibaba did with its Yuebao product).
Pintec has already developed the technology to do this. It has a risk profiler, driven by machine learning, called SquirrelSave. It gamifies a questionnaire to assess a customer’s risk appetite (similar to other robo products such as Yunfeng’s Youyu app).
Pintec also has a personalization tool called Polaris. It can mass customize investment recommendations. Instead of just relying on one factor - market movements, it also calculates the size of a customer’s position in a given instrument, the customer’s risk tolerance, the duration of a given investment (designed for any length of time), and the customer’s end goal (is it for general accumulation, or intended for, say, a child’s education?).