How digital environment has changed the banking industry in Singapore

How digital environment has changed the banking industry in Singapore

Digital technology has made inroads into almost every industry and banking is no exception. As a mature, developed market, Singapore has seen consumers readily adopting digital banking and making it their preferred mode for financial transactions. According to a McKinsey survey, 94% of Singaporean banking customers prefer to avoid going to physical bank buildings to make a transaction.

Encouraged by the Monetary Authority of Singapore’s (MAS) push to strengthen the country’s position as a smart financial center, coupled with higher margins that digital banking offers, local lenders are boosting investments in this sector. DBS, which had recently said its digital consumers were 42% more profitable than its regular customers, plans to invest S$20 million in the next five years. International banks such as Citibank, Standard Chartered, and HSBC are also making plans to ramp up their digital offerings in the region.

Digital banking preferred for simple transactions

While the use of digital banking is nearly universal in Singapore, simpler transactions like payment of bills, money transfer, and balance inquiry are more popular in this mode than more complex procedures such as currency exchange and purchase of various financial products, according to McKinsey.

The use of digital banking is popular across different sections of the society from the affluent to those in a lower economic level. However, youngsters are more willing to access digital banking services compared to older people.

Cashless transactions on the rise but not dominant

The Singapore government would ideally want banking customers to rely on cashless transactions as much as possible. To this end, a wide range of online transaction options including mobile apps has been made available to the customers.

But the push to promote digital dealings has not proved easy, as access to ATMs and cash is not difficult in the country. Cash is still the preferred mode for nine out of 10 people, according to Paypal, as several popular food outlets accept paper money. Around 90% of small and medium businesses still favor cash. Security concerns are also a major hurdle in convincing consumers to make their payments online.

However, mobile banking transactions are definitely picking up. Steps from banks like DBS, which introduced a QR code-based payment system that can be used even at hawker centers, are aiding the cause. According to JD Power, mobile-based payments had risen to 40% in 2017 from 26% in the previous year. 

Fresh competition for banks

The arrival of the digital environment has leveled the playing field and paved the way for several startups to move into the payments sector. The transportation service company Grab recently expanded its payments system to store and restaurant transactions. Such bold invasions into the financial sector by local non-financial startups and larger global players such as Google, Apple, and Alibaba are boosting the competition in this sector.

The government, on its side, has said that Singaporean banks may soon be permitted to own or operate major stakes in digital platforms. This is expected to allow the lenders to become a more integral part of their consumers’ everyday activities.  

The entry of digital currency is also becoming a major factor influencing the banking business. Although DBS reportedly called bitcoin a Ponzi scheme recently, MAS sees a huge potential for digital currencies and is trying to streamline their operations with a simpler licensing system.

More investment in technology

Banks are also attempting to take advantage of recent technological advancements such as the Internet of Things (IoT) with its plethora of connected devices and artificial intelligence (AI). OCBC recently partnered with the telecommunication company StarHub to fund research on ways in which IoT and AI can help improve the consumer experience.

Digital banking teams now prefer the “agile” process to develop and release new technologies quicker as opposed to the traditional “waterfall” method of rolling out products over several months. To make such efforts all-the-more attractive, MAS has even launched a S$27 million grant for financial and research institutions to encourage the adoption of AI and data analytics in the financial sector.

Singaporean banks appear to be keen to cash in on the rising popularity of social media as well. Reports indicate a pilot project was planned in 2017 to allow consumers to make payments using a payee’s social-media usernames instead of account numbers and sort codes.

More efforts on the horizon

In an attempt to streamline mobile payment systems and encourage its adoption, Singapore is rolling out a common Singapore Quick Response code (SG QR) in 2018. SG QR will function as a service-provider agnostic solution that would make payments simpler and more customer-friendly.

Most banks have already set aside significant funds to boost their digital arms and are, in fact, looking to hire specialists in the field who can devise innovative methods to penetrate the market. OCBC, for instance, recently hired a strategist from Standard Chartered to work on their customer experience and business model. Demand for chief digital officers has increased across the region in the recent years.

Plans are also on the anvil to boost cybersecurity requirements. MAS is keen to raise the security-standards bar, which it sees as a primary requirement for technologies such as digital banking to take off. Earlier this year, the central bank had set up a panel of experts to provide advice on beefing up the cybersecurity in the financial sector.

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Photo by ITU Pictures

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