Newcomers still have to create large funding and capital bases to contend with incumbents.
Although Singapore’s banking pie is large enough for sharing, virtual banks are unlikely to chip away at the Big Three's dominance and endanger the primary lending businesses of DBS, OCBC, and UOB in the near term, according to report from CGS-CIMB.
Also read: MAS mulls licenses for virtual banks
The research firm believes that the big banks have an edge given the significantly large funding and capital bases needed by virtual banks to cater for corporate companies’ needs and the time required to scale up their operations.
“The underserved pockets of the retail and SME segments (possibly weaker credit profiles) are likely to be Grab’s and other virtual bank applicants’ focus points given their capital constraints,” CGS-CIMB analyst Andrea Choong and Lim Siew Khee said in a report.
Aside from the large funding and capital requirements, the analysts believe that the high bank account penetration rate in Singapore which hit 98% (from World Bank data) could also translate into stiffer competition from the incumbents, which already have digital platforms in place.
In May, the Monetary Authority of Singapore (MAS) said that it is still reviewing whether to allow fintech firms to operate digital-only banks after Hong Kong issued such licenses to eight firms including entities backed by Tencent, Alibaba, Xiaomi and PingAn. Reuters reported that Grab is said to be exploring the possibility of entering the digital-banking space, posing a direct threat to entrenched market players.
On his part, DBS CEO Piyush Gupta downplayed the impact of new competitors to the entrenched players which have long upgraded their digital capabilities although the real challenge would come if regulators decide to create an unlevel playing field.
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