Singapore and Malaysia regulators intend to join Hong Kong in licensing mobile-only banks. Digital-only initiatives have already launched in India, Thailand, the Philippines and Indonesia, and are coming to Australia.
These initiatives are the most visible outcomes of supporting factors, which vary by market: open APIs, open-banking legislation, faster payments systems, QR code payment systems, national identity databases, biometric identity tools, and most importantly, the ubiquity of mobile phones.
One important differentiator is who launches such a business. A digital bank is one majority owned or operated by a traditional bank. (It is tied to a user’s mobile device, as opposed to traditional banks’ online web-based extensions.)
Four of Hong Kong’s virtual banking licenses went to joint ventures involving financial institutions: AMTD, Bank of China (H.K.), ICBC Asia, Standard Chartered Bank, and Hong Kong Exchanges are shareholders of various VBs.
But others have no banking partner, and the J.V.s also include mainland tech players that will play leading roles.
Eyes on Southeast Asia
The first VBs will go live by the end of this year. In the meantime, attention is shifting to Southeast Asia where new licensing regimes are being announced, and where banks are gearing up their own mobile-service efforts.
In India and Southeast Asia, banks have launched subsidiary digital-only businesses, usually riding on existing licenses. Hence DBS introduced digibank to India and Indonesia; UOB launched TMRW Bank in Thailand; and in the Philippines, two Malaysia-based banks, Maybank (Business Mirror) and CIMB, have launched digital banks.
Some of these are hybrid. Maybank’s MOVE in the Philippines is also operating pop-up kiosks to market the service. This takes a page from TYME, a South Africa-based fintech that was for a time owned by Commonwealth Bank of Australia and also operated in Indonesia – that business then being taken over by CBA’s Indonesian arm.
And while Maybank is trying to supplement a large branch network in the Philippines, CIMB is going full digital-only (The Edge Markets).
Singapore meanwhile has announced it will issue five virtual banking licenses, two for retail and three for SMEs. These are, by our definition, proper virtual banks, as they are to be issued to non-bank companies, meaning tech or telco players.
Moody’s Investor Service has already declared this a threat to smaller lenders such as Maybank but no threat to the city’s big three banks (CNBC). The high capital requirements have already narrowed the field to a handful of potential recipients. Grab (Reuters) and SingTel are currently the favorite bets.
Grab (now domiciled in Singapore, but born in Malaysia) is also eager to win a VB license in its home nation. Malaysia’s Bank Negara has indicated it too will issue licenses for mobile-only banks.
But traditional banks are also encouraged to apply, with CIMB, Affin Bank, Hong Leong Bank and AMMB Holdings affirming their interest (The Edge Markets).
India’s market is also dominated by banks’ own digital offerings: DBS’s initiative was quickly followed by mobile versions from Axis Bank, HDFC, ICICI Bank, Kotak Bank, Yes Bank and others. They did so using traditional licenses. Digital wallets such as Paytm have also won licenses to accept deposits.
Finally, Australia now has its first digital banks: Volt Bank, 86 400 and Xinja. They are competing against the likes of CBA which has its own digital agenda, but no plans to launch a separate digital bank. Aussie banks such as Westpac would aim to do so in Singapore or other markets, but not at home.
This means the only true virtual banks (majority controlled by technology companies or telcos) will be found in Hong Kong and Singapore, and maybe Malaysia. These markets may not offer as compelling a commercial opportunity but by submitting their banks to real competition from outsiders, they are poised to yield more interesting solutions.