Will a digital banking license necessarily make things better for the consumer masses?

Digibank. It is the old vs the new, our local big three (DBS Bank, OCBC and UOB) and a consortium of corporate players who writ large in the cyber world.

Vikram Khanna today wrote an illuminating article on it entitled: “The coming banking battles” in the Straits Times.

The clash may therefore involves some Schumpeterian creative destruction, which is the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one”.

But the barriers of entry are high. The digibankers face “a deposit cap of $75,000 per customer and $50 million in aggregate.” That’s not enough deposit to justify returns on investment or loans so as to set off the money they have to pay to keep deposits in. That’s straitjacketing their critical mass.

Next barrier is the paid-up capital. It is pitched at $1.5 billion. That’s a lot of money for set up. Additionally, “they will then have to meet stiff capital adequacy norms with a low deposit base, and face caps on their lending rates, which will limit their lending capacity and margins.”

It seems like these rules will set a high wall for the digibankers to surmount. Yet, the definitive Schumpeterian will to creative destruction is not to be undermined or underestimated.

The $1.5 billion capital set up is a low wall for them. Mind you, they are made up of big, rich players like “deep-pocketed…SingTel, Far East Organization and Mitsui Sumitomo Insurance, or well-funded and have high valuations, like Grab, Razer and Sea Group.”

So, $1.5 billion is pocket change and well, a tad more, for them.

How about customer base? Well, they are formidable on this front. “Razer boasts 70 million registered users, Grab has more than 150 million and Singtel, more than 700 million.” Compared to the largest local bank DBS, which have some 10 million customers.

It’s David and Goliath here, the Davids are the digitbankers, because we know who struck out at the end on stones.

Their larger customer base means that the extent of their influence goes deeper and their attraction as a one-stop, financial hub for their millions of customers is irresistible in the long run. That in itself is a significant tactical advantage over the banks.

What’s more, they come in at a time when the world is disillusioned with big, entrenched, traditional and elitist establishments like big banks and financial institutions. This is another plus point.

As for low deposit regulations, the digibankers are not going to let that tie them down. Vikram mentioned that they are in for the long run, and they can launch off with services like remittances and card payments, which is their digital forte.

They can also concentrate on microfinancing, and you can’t get anymore democratic than that. While the traditional banks scoured the world for high net world individuals and families, they look after those at the bottom, which numbers in the billions. That’s a huge reserves of idling funds at their disposal.

And the biggest digital leap for them is the vast amount of data they collectively own and manage. Vikram wrote: “they know a lot about which businesses are selling how much to which customers at what price. They can use this data to make granular credit assessments and tailor financial products to their customers, such as micro-loans, credit facilities, insurance and wealth management products, as well as rewards, with the kind of precision that traditional banks cannot easily replicate.”

In addition to all that, they have mobile-apps and state-of-the-art digibanks such as Alipay and WeChat Pay. Their technology is fast paced, personable, intuitive, likeable, hip, fun with games, and entertaining, stocked algorithmatically with what is called “Super-lifestyle apps.”

I guess the local big three have much in their hands in the near digitalised future, commencing mid-2021, when the technological Krak-ken is unleashed. Lesson? Well, they say when the elephants battle it out, the prawns in the pond get trample on.

I read with interest this development because it reminded me of VHS, Nokia, and Kodak, all of which were once corporate juggernauts, but they went quietly the way of the dinosaurs.

Like it or not, this is the how the world works now. Nothing moves in glacial rate like evolutionary changes of the past. We have taken absolute control of our destiny, and the shape of the world and the lives at stake are all the product of strategic decisions churned out at the top with unintended consequences experienced at the bottom, largely.

At times, watching these battles at the top from below, we the commoners are like sitting by the seemingly calm beach with our families sipping orange juice and biting into our home-made sandwiches, not knowing how the beach (or our lives) will be changed in the coming few days.

Unfortunately, some changes will have deep impact and the calmness of the water belies the disjointing tsunamis waves rushing to the beach where we are having a pleasant picnic with loved ones.

Alas, ominous as it may sound, these battles will not improve the inequality gap one iota. The poor will not only get poorer, they may even get ghettoized for being an inconvenient reality that needs to be hidden from the digitally perfect landscape. The question will then be, how to manage them, rather than alleviate their plight – or fulfilling some consolatory Millennium Goals 2015z

But I guess that is how the cookie crumbles and we will just have to embrace ourselves for whatever changes it bring, good or bad.

 

Michael Han

 

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9 Responses to “Will a digital banking license necessarily make things better for the consumer masses?”

  • patriot of TUMASIK:

    Walau Michael your article should be in The Economist NOT here leh!!! how many will understand???…we have the People’s Bank though own by DBS and it is for the People thank you POSB…leave the digital Hoo-ha! to the supposedly Aristocraps and their Supposedly ILLUSIONs of a Smart City to a BUNCH of Idiots …

    who can say such SHIT as “I can provide the Data but you need NOT know”… and …”I will sue until his pants DROP, he is NOT my brother”…and …the Mother of it all… a silly arsehole who goes to Parliament to self vindicate and cry because his siblings call him a Liar & Power Mad with an equally Mad for power Jinx

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  • Harder Truths:

    Digital banking is one step away from a cashless society. By itself it is not a bad thing IF cash is still made the principal means of transactions.

    It is an insidious process to move everyone to a cashless system and then there will be no resistance to any government policy since the control of the digital currency is directly under the government.

    If the government says you did something wrong or mixed with the wrong crowd and then cuts off your bank account – what are you going to do?

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  • RDB:

    Smart or over smart Alacks right at very top of a country’s decision makers who have no knowledge from past relevant experience to apply, are just loud mouths to want their careers to be embalmed by their political bosses for better rewards. What is so mystery about that? Ahem!

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  • Heng Coma Longan Faint:

    Not to worry, as always the People will pay for everything.

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  • REGIME CHANGE is the solution:

    Why so many banks when the government with its constant rent-seeking activities will wind up with all the money. Singaporeans will be left with “loose change” and dependent on government handouts. Singaporeans will indeed by “cashless”, i.e., no money.

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  • Harder Truths:

    REGIME CHANGE is the solution:
    Why so many banks when the government with its constant rent-seeking activities will wind up with all the money. Singaporeans will be left with “loose change” and dependent on government handouts. Singaporeans will indeed by “cashless”, i.e., no money.

    That is an excellent question. The banks are actually the REAL bosses of $G as they control the money flow into and out of the island. They also launder casino and underworld money – it is well known in US that $G is the principal point of such black money activity in Asia after Hong Kong.

    Their main purpose though is to create GDP from debt – the more people borrow the more the banks are worth. Loans are assets not liabilities to banks. Cash is a liability to them. It is not commonly known that when you put your money in a bank it becomes the bank’s money and you are like a shareholder – if the bank loses its investments so do you lose your savings.

    The more banks in a country the more the loans they give and larger the debt to be repaid. In order to survive banks need to recoup these loans from individuals and businesses. It is no secret $G is a big debt trap for property and the oil sector, where most of the money is loaned.

    For banks to grow locally where there is no real production – they need new debt from newcomers creating more loans. As the oil sector has tanked and banks are bleeding from bad loans to this sector, the banks meed the government to bring in more people and foreign investments to create this debt.

    All foreign investments taken by the government are classed as increase in GDP but are really liabilities as they have to be paid back. The government also may need to borrow from banks (say if they were lost in the stock market or bad investments) rather than print currency to keep the $G dollar stable – this means they need to repay these loans by increasing the citizens’ taxation or raiding the Reserves. (Something our REAL and ONLY President OTC may have found out and caused panic).

    So banks are essential for growth-at-all-costs as part of the wider immigration strategy. Less banks do not mean less growth – just less debt. There is a difference.

    In reality almost every government is beholden to its banking sector. This is the reality people are not aware of.

    “Permit me to issue and control the money of a nation, and I care not who makes its laws!” – Mayer Amschel Rothschild (1744 – 1812).

    Disclaimer.
    The above post is Fake News and therefore POFMA does not apply.

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  • oxygen:

    CONSUMERS ALL HAVE TO LEARN how to be tough with banks and financial institutions in all dealings. Some financial institutions are even no longer shameful of their obvious misconduct.

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  • technology, digitalization:

    //Alas, ominous as it may sound, these battles will not improve the inequality gap one iota. The poor will not only get poorer, they may even get ghettoized for being an inconvenient reality that needs to be hidden from the digitally perfect landscape. The question will then be, how to manage them, rather than alleviate their plight – or fulfilling some consolatory Millennium Goals 2015z//

    aiyoh. never mind ? the white idiots are champion thought leaders ? can always spin about many pillars needed and so 6.9m or 10m will definitely alleviate the problems of ‘inequality’ and ‘tfr’ ? technology, digitalization and AI will create more opportunities for more people to seize and so white idiots need 6.9m or 10m to seize such opportunities ?

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  • fiat money is ever growing:

    //CONSUMERS ALL HAVE TO LEARN how to be tough with banks and financial institutions in all dealings. Some financial institutions are even no longer shameful of their obvious misconduct.//

    how to be tough ? you need them more than they need you ? fiat money is ever growing (either online or printed form or interchangeably) in order to grow the 6.9m or 10m open-leg economy (creating and inventing demand to keep everyone busy, distracted and fighting for survival) – skewing the benefits more to the few top percentile ?

    you know in the early 70s when savings was much encouraged and a virtue when national bank used to have grand draws for account holders (watching on old tv sets) and children were happily pasting stamps on one or two-page savings pamphlet ?

    fast forward to now, banks now charge you for many things (any possible means to squeeze revenue), e.g even for having an account, platform charges, low interest rate for savings (even low FD rate), etc, etc ? all good kpi for the top bankers & staff but benefits may not be passed down to consumers ?

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