It’s 2020 and the future is here.
We’ve already created magical running shoes that can turn anyone into Usain Bolt and found a way to distill vodka from water and carbon dioxide.
The Covid-19 pandemic has also forced many companies to shift their operations online, in a bid to reduce contact between people.
Many banks, for example, have had to close some of its branches during the circuit breaker, as its employees started telecommuting.
Thanks to the advent of digital banks, however, we may never need to visit a physical bank again.
Here are 10 facts about digital banks, the banks we might see in the near future.
Digital Banks Operate Fully Online
A digital bank, as its name suggests, is a bank that operates entirely online.
It offers the same banking services as your traditional banks, except it has no physical infrastructure, such as a bank branch.
This means that customers will handle their finances from their smartphones or computers, much like Internet banking.
To use the example my colleague gave, it’s like the difference between Shopee and Jurong Point. Both offer you a vast array of products, but only one has a physical location.
Covid-19 May Have Accelerated the Digitisation of Banks
As previously mentioned, many firms, including banks, have been forced to shift their operations online.
After decades of operating in physical outlets, moving your entire operation online isn’t easy.
One industry that has benefited from this is the digital financial services industry, as more banks are turning to them for guidance on their digitisation plans, according to Vulcan Post.
This, in turn, may have accelerated the digitisation of banks.
MAS Will Grant Licenses to Four Digital Banks
On Friday (4 Dec), the Monetary Authority of Singapore (MAS) said it’ll be granting digital wholesale bank licenses to two groups:
- Ant Group (an affiliate company of Alibaba and the world’s highest-valued fintech company)
- A consortium consisting of Greenland Financial Holdings, Linklogis Hong Kong, and Beijing Co-operative Equity Investment Fund Management
The authority will also grant digital full bank licences to Tech Giant SEA (parent company of Shopee) and another consortium which we’ll get to later.
A digital full bank license allows the digital bank to serve retail customers (people like you and me) while a wholesale digital bank license allows it to serve corporates and small-to-medium enterprises (SMEs).
In June, MAS said that 21 applications were submitted for digital bank licenses here. But only four made the cut.
So, who’s the other successful applicant?
Singtel and Grab Will Run a Digital Bank Together
Yes, the company that gives you mobile data and the firm that delivers your bubble tea every day will be teaming up to run a digital bank of its own.
First formed last year, the consortium is one of two successful applicants that will be granted digital full bank licences.
According to The Straits Times, the consortium has already started recruiting employees for around 200 positions in Singapore.
It intends to fill those positions by the end of 2021.
The roles that have already been filled are in areas such as product, data, cybersecurity, and technology.
Grab CEO Anthony Tan said: “We are honoured to have this opportunity to build Singapore’s next-generation digital bank, and open up access to easy-to-understand and relevant financial services.”
Similarly, Singtel Group CEO Yuen Kuan Moon is confident that, with the digital expertise of both Singtel and Grab, they will be able to improve banking services for both consumers and businesses here.
Grab owns 60% of the consortium, while Singtel holds the remaining 40%.
Digital Banks Will Only Begin Operations in 2022
It should be noted, though, that these licences haven’t actually been granted yet.
As MAS said, the successful applicants must meet all the relevant prudential requirements and licensing pre-conditions before MAS grants them their respective banking licences.
The authority only expects the new digital banks to begin operations from early 2022, so you’ll still have to queue up at your bank from time to time until then.
Some Countries Already Have Digital Banks
It’d be nice if Singapore was at the forefront of the digitalisation of banks, but this is not the case.
In fact, at least nine other countries already have virtual banks, including Japan, Vietnam, China, and Australia, to name a few.
In May last year, Hong Kong issued four more virtual bank licences, bringing the total number of such licences to eight.
They May Be Less Vulnerable to Cybercrime
Because all their operations are online, one might be led to believe that digital banks are more susceptible to cybercrime, where in fact the opposite may be true.
Data has proven that traditional banks are more vulnerable to cyber-attacks because they do not place a huge emphasis on technology.
On the other hand, given that the whole point of digital banks is to use technology to improve banking processes, they are more likely to implement cybersecurity measures to combat any potential threats.
Digital Banks May Offer Higher Rates on Deposits
Without physical branches, digital banks will have less running expenses, such as electricity and rent.
This may enable them to offer customers higher interest rates on deposits, which is great news for us.
As ST noted, there will also be no need for a middleman, so lower fees for financial products may also be offered.
Service Interruptions May Present a Problem
But it can’t all be good, right?
Well, aside from cybersecurity concerns, users may have to deal with service interruptions, as all services and transactions will be given and carried out online.
*coughs*Singtel*coughs*
Moreover, instead of personally meeting and talking to a banker, you’ll have to engage with the bank through e-mail, online chat, or phone calls.
The impersonal nature of these methods of communication may put some customers off.
40% of Customers Will Consider Digital Banks, But Only Once They’re Popular
A digital banking customer insights study by PwC found that 40% of respondents would be interested in opening a digital bank account, but only once the bank is “popular and successful”.
Furthermore, around 99% of respondents said they would keep their existing bank account after opening a digital bank account, with 67% of these saying they would continue to use their existing account as their primary account.
There, of course, is the issue of trust, just as is the case with any new player in an industry.
Some are concerned about digital banks having their data, while others aren’t so sure these banks can remain financially stable.
Digital banks certainly sound like a great idea, as it does away with the hassle of physical transactions.
But when given the opportunity, will you open a digital bank account?
Featured Image: Kenishirotie / Shutterstock.com
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