P2P lenders face big test amid virus outbreak

FINTECHS such as peer-to-peer (P2P) lenders have burst onto the scene in the past few years to address a credit gap that they say is untouched by banks.

Now, with the ongoing virus outbreak threatening to break small- and medium-sized enterprises (SMEs) struggling with cash flow, supply constraints, and dwindling sales, such newfangled platforms may see their biggest test to date when it comes to their lending models.

Checks by The Business Times showed that P2P platforms have already adapted to the heightened risk environment. On the investors’ front, some investors have diversified by funding more debt backed by property. Platforms have also tightened their credit assessment to account for the heightened risks brought on by the virus outbreak. These go some way to determine if loan delinquency rates will tick higher this year for such platforms.

Keoy Soo Earn, regional managing partner, financial advisory, at Deloitte South-east Asia, pointed out that this “black swan event” will be a check against fintechs’ past credit underwriting policies and the current ability for lenders to recover debts.

“P2P platforms, as a key differentiator to local banks, provide unsecured short-term financing to smaller SMEs that can be approved within a short period of time,” he said. “This leaves the P2P platforms limited options of recovery should a loan turn bad.”

This comes as these smaller SMEs are “likely to face greater financial challenges” in this trying period, he added.

Crowdfunding platforms match lenders in the form of accredited investors to borrowers such as micro-SMEs, with the platforms earning a fee from the matchmaking. Some also now do direct lending.

These platforms are seen as an alternative source of funding for small businesses with a lack of track record. Such loans are typically faster but more expensive compared to traditional banks due to the higher risk.

As it is, the government, banks and the private sector have already pumped in significant funds to help SMEs with working capital.

Co-founder and CEO of Minterest Charis Liau said that the crowdfunding platform expects greater demand for loans during this period. But the fintech will need to balance this with the investment requirements of their platform lenders.

The platform has since adjusted its credit assessment criteria to account for the higher risk during this period. It will also raise its “post-disbursement engagements” with borrowers.

“We do not anticipate any changes to the terms as they involve independent lenders on the platform,” she added. “However, we will be sympathetic to borrowers who genuinely have suffered disruptions to their operations and will assist borrowers to liaise with platform lenders on restructuring the loans, if required.”

While businesses’ cash flows will be affected due to the virus outbreak, Ms Liau stressed that it is “still too early” to say if the portfolio will see an increase in delinquencies. Its loans overdue by more than 90 days was 1.73 per cent in 2019, up from 0.68 per cent in 2018.

Minterest is also now facilitating a fund by ARA Asset Management, The Straits Trading Company and property tycoon John Lim’s family office to provide loans to SMEs that have been hit by the virus outbreak.

For P2P lender Validus Capital, it expects to see SME loans getting stretched as repayments get prolonged and cash flows become slower. It also finances SMEs directly through an earlier tie-up with Lighthouse Canton Group in 2018 to create a S$20 million fund.

Vikas Nahata, co-founder and executive chairman of Validus Capital, said that it will manage re-payments with a “softer touch”. It has introduced a S$50 million VSupport Package to SMEs who are part of its corporate vendor financing programme. This will help businesses with cash flow issues, operational expenses and support their growth through increased financing limits and longer repayment terms, among other things.

“We faced the trade war crunch last year, and that made us more prepared for this new ‘black swan’ event,” he noted. “Our major changes will be making sure concentration limits are tighter, and growth opportunities still remain available for SMEs that work with large corporates who are partners in our ecosystem.”

Its loans past 90 days due was 2.69 per cent in 2019, up from 2.5 per cent in 2018.

So far, he has not seen any pullback in investments from its accredited investor base.

However, the fintech expects investors to be risk-averse during times like this, and will be less inclined to invest in products that are not insured or ring-fenced in nature. Validus is working on launching a scheme with fixed returns for some accredited investors, added Mr Nahata.

Similarly for Funding Societies, its co-founder and group CEO Kelvin Teo has not seen waning interest from investors on its platform.

However, he said there has been increased diversification into property-backed business loans – from 5 to 20 per cent of monthly investments – as investors manage their risks.

In 2020, he expects delinquency figures to be similar to last year’s or higher, depending on the impact of the virus outbreak and the ongoing trade war. Its loans default rate in 2019 was 2.76 per cent, up from 0.11 per cent in 2018. Funding Societies also has a small direct lending portfolio as well.

The platform has likewise adjusted its credit assessment and monitoring, especially for businesses impacted by the virus outbreak.

For key sectors impacted by Covid-19 and businesses with significant exposure to China, Funding Societies is now “more careful” and will ask for more information to estimate impact. Similarly, when there is a late repayment, it also follows up earlier to ascertain root cause, said Mr Teo.

“As a two-sided marketplace serving both investors and SMEs, unfortunately there is a limit to which we can help these companies, beyond leveraging on our expertise to provide short-term financing for quality SMEs,” he explained.

Even with the added risks on the horizon, fintechs are not necessarily at a disadvantage despite their smaller size. “While fintech players do not have a long history of operations, the short-term nature of our loans enables us to be nimble and adjust quickly to market conditions,” said Mr Teo.

The current uncertainty behind the severity and timeframe of the Covid-19 outbreak means that the dynamic nature of these fintech lenders could also work to their benefit.

Sam Kok Weng, financial services leader at PwC Singapore, said P2P platforms could see new pricing levels due to the higher risk environment.

“At different circumstances, they will just have different risk profiles of borrowers and lenders – it doesn’t mean they go out of business during a crisis.”

The article was contributed by Business Times.

From cash flow to marketing, help for businesses flow in amid virus outbreak

LOCAL crowdfunding platform FundTier is the latest to join a number of companies in offering support to small and medium-sized enterprises (SMEs) in Singapore, which have faced pressures from the ongoing virus outbreak.

On Monday, Fundtier announced it is offering S$1 million in loans to local SMEs that are keen to use a mobile marketing solution by its strategic partner, Dodoca Information Technology (S).

Each business using the Dodoca Integrated Mobile Marketing Productivity & Solution could get a loan of up to S$10,000. The loan would be interest free for up to six months.

FundTier will also absorb all administrative fees.

In addition to a loan, Dodoca will offer a 30 per cent discount on the original price of the package.

“Given the current Covid-19 situation in which many SMEs have been badly hit, it is timely for SMEs to explore upgrading their marketing and productivity capabilities in order to stay competitive,” FundTier co-founder Christopher Chan said.

FundTier was founded by five former bankers from lenders including StanChart, UOB and DBS in August 2015. It previously operated under the name Ricco Capital.

Separately, Singaporean property tycoon John Lim’s family office, JL Family Office, ARA Asset Management and Straits Trading Company said loans from a fund they set up have been applied for by more than 100 businesses in Singapore, seeking a total of more than S$6 million.

The trio had set up a S$5 million fund earlier this month to extend short-term loans to local SMEs, in a bid to help those that might be facing temporary cash-flow problems as a result of the virus outbreak.

Of the 110 loan applications, close to 60 per cent met the eligibility criteria, said ARA, JL Family Office and Straits Trading in a joint statement on Monday.

The fund has disbursed its first loan, which went to a vegetarian food chain. The loan was approved in less than 48 hours and the funds were issued within 24 hours, according to the statement.

Almost 30 per cent of the loan applications came from SMEs in the retail, and food and beverage (F&B) sectors, which have been hit by “significantly lower” patronage.

ARA Group CEO John Lim said the “overwhelming response” to the fund “attests to the need for SMEs struggling during this period to find alternative sources of cheaper short-term funding”.

The fund has also received a S$3 million contribution from Singapore-based tycoon Gordon Tang – who is a majority shareholder of Singapore-listed property developer SingHaiyi Group – and his family.

Celine Tang, Mr Tang’s wife and the managing director of SingHaiyi, said: “The Tang family has been through numerous business cycles ourselves, and we fully empathise with fellow business owners who feel the stress and pressure during economic downturns.”

Since Feb 15, local businesses had been able to apply for loans of up to S$50,000 for up to a period of six months from the fund, through online crowdfunding platform Minterest.

The interest rate is pegged at 0.5 per cent per month. There is also a 2 per cent processing fee charged by Minterest to cover loan administrative expenses.

To be eligible, the companies must be GST (goods and services tax) registered and be majority-owned by Singaporeans and/or Singapore permanent residents. They must also have been in operation for the past 12 months.

The article was contributed by Business Times.

Offer of loans to SMEs hit by coronavirus outbreak oversubscribed

SINGAPORE (THE BUSINESS TIMES) – Over 100 businesses in Singapore have applied for loans from a fund set up by Singaporean property tycoon John Lim’s family office, JL Family Office, ARA Asset Management and Straits Trading Company, seeking a total of more than $6 million.

The trio had set up a $5 million fund earlier this month to extend short-term loans to local small and medium-sized enterprises (SMEs) in a bid to help those that might be facing temporary cash-flow problems as a result of the coronavirus outbreak.

Of the 110 loan applications, close to 60 per cent met the eligibility criteria, said ARA, JL Family Office and Straits Trading in a joint statement on Monday (Feb 24).

The fund has disbursed its first loan, which went to a vegetarian food chain. The loan was approved in less than 48 hours and the funds were issued within 24 hours, according to the statement.

Almost 30 per cent of the loan applications came from SMEs in the retail, and food and beverage (F&B) sectors, which have been hit by “significantly lower” patronage.

ARA Group CEO John Lim said the “overwhelming response” to the fund “attests to the need for SMEs struggling during this period to find alternative sources of cheaper short-term funding”.

The fund has also received a $3 million contribution from Singapore-based tycoon Gordon Tang – who is a majority shareholder of Singapore-listed property developer SingHaiyi Group – and his family.

Ms Celine Tang, Mr Tang’s wife and the managing director of SingHaiyi, said: “The Tang family has been through numerous business cycles ourselves, and we fully empathise with fellow business owners who feel the stress and pressure during economic downturns.”

Since Feb 15, local businesses had been able to apply for loans of up to $50,000 for up to a period of six months from the fund, through online crowdfunding platform Minterest.

The interest rate is pegged at 0.5 per cent per month. There is also a 2 per cent processing fee charged by Minterest to cover loan administrative expenses.

To be eligible, the companies must be GST-registered and be majority-owned by Singaporeans and/or Singapore permanent residents. They must also have been in operation for the past 12 months.

The article was contributed by Straits Times.

John Lims Family Office, ARA, Strairs Trading to offer S$5m in loans to help SMEs amid outbreak

SINGAPOREAN property tycoon John Lim’s family office, JL Family Office, ARA Asset Management and Straits Trading Company have set up a S$5 million fund to extend short-term loans to businesses in Singapore amid the virus outbreak.

By doing so, they aim to “lend a helping hand to viable Singapore companies who may face short-term cash-flow problems as a result of the outbreak”, said ARA group CEO John Lim to media on Wednesday.

Chew Gek Khim, executive chairman of Straits Trading, also noted that there are already efforts to help the community and medical workers, but “not much is being done to help businesses”.

“We’re looking at people who have good businesses, and whose businesses are disrupted,” Ms Chew said.

And this mechanism of support is fast and practical, as opposed to handing out grants or funds with no terms, she added, in response to The Business Times‘ queries.

Mr Lim also made it clear that the fund is only meant to help businesses: “We’re not investing in a business, we’re actually doing a help fund.”

Starting Feb 15, local small and medium-sized enterprises (SMEs) will be able to apply for loans of up to S$50,000 for up to a period of six months, through online crowdfunding platform Minterest.

The interest rate will be pegged at 0.5 per cent per month – an “attractive” rate compared to industry rates of 7 to 18 per cent, according to Mr Lim.

There will also be a 2 per cent processing fee charged by Minterest to cover loan administrative expenses, although the fee is half of what it usually charges.

Applications can be approved as quickly as within 48 hours upon receipt of all completed documents.

To be eligible, the companies must be GST (goods and services tax) registered and be majority-owned by Singaporeans and/or Singapore permanent residents. They must also have been in operation for the past 12 months.

Face-to-face meetings will also be conducted with borrowers to determine if their capital needs are genuine, Mr Lim said.

The article was contributed by Business Times.

Payment performance further weakened in Q4 2019

The retail sector saw the highest increase in delayed payments.

The payment performance of Singapore firms have continued to deteriorate in Q4 2019 from the previous quarter, according to the Singapore Commercial Credit Bureau (SCCB). This marks the third consecutive quarter of decline.

Prompt payments accounted for less than half of total payment transactions whilst slow payments accounted for almost two-fifths of total payment transactions.

On a YoY basis, prompt payments inched up by 2.40 percentage points (ppt) to 46.23% from 43.83% in Q4 2018, but dipped 2.58 ppt QoQ from 48.81% in Q3 2019. Slow payments climbed 1.73 ppt YoY to 39.75% in Q4 2019 from 38.02% in Q4 2018. On a QoQ basis, it also inched up by 2.46 ppt from 37.29% in Q3 2019.

Meanwhile, partial payments slipped 4.13 ppt YoY from 18.15% in Q4 2018 to 14.02% in Q4 2019, but rose by 0.11 ppt QoQ from 13.91% in Q3 2019. This figure is said to be its new peak for 2019.

From a sectoral perspective, slow payments have moderated across the construction, retail, wholesale trade and services industries during the quarter.

The decline was led by retail where slow payments rose 4.33 ppt to 38.8% in Q4 2019 from 34.47% in Q3 2019, no thanks to a rise in payment delays by retailers of general merchandise, automobiles and furniture and home finishing.

The report added that retailers of general merchandise saw the largest increase in slow payments, up by 6.76 ppt QoQ to 42.5%. This is followed by retailers of automobile, which edged up by 5.72 ppt to 44% in Q4; and furniture and home furnishing store retailers saw the third largest decrease, up by 5.16 ppt to 42%.

In the services sector, slow payments were also up 3.49 ppt to 39.91% in Q4. This is its third consecutive quarter of increase, mostly owing to payment delays within consumer services, recreational and social services sub-segments.

The consumer services sub-sector registered the highest increase in slow payments, up by 18.81 ppt from 30.19% in Q3 2019 to 49% in Q4 2019, followed by the recreational services sub-sector, which inched up 10.12 ppt to 40% over the same period.

As for the construction industry slow payments climbed 2.52 ppt to 49.42% in the same quarter from 46.9% in Q3 2019, blamed on payment delays by special trade contractors. Slow payments in the building construction sector grew 2.16 ppt from 49.34% in Q3 2019 to 51.5% in Q4 2019, whilst slow payments within the heavy construction sector also rose 1.46 ppt from 44.36% in Q3 2019 to 49%.

The wholesale trade sector saw a marginal increase in payment delays, primarily due to the rise in slow payments by wholesalers of both durable and non-durable goods. It inched up by 0.96 ppt QoQ from 35.83% in Q3 2019 to 36.79% in Q4 2019. Slow payments in durable goods rose 0.22 ppt QoQ to 36.5% in Q4 2019, whilst payment delays in non-durable goods grew 0.99 ppt to 35.5%.

The manufacturing sector is the only industry that posted improvement in payments as slow payments slipped 0.09 ppt to 39.13% in Q4 2019 from 39.22% in the previous quarter, owing to a fall in payment delays by manufacturers of tobacco, chemical and leather products.

Manufacturers of tobacco products recorded the largest decrease, down 13.67 ppt to 33% in Q4 2019. This is followed by manufacturers of chemical products, which dipped 4.53 ppt to 31.5% in Q4, whilst payment delays by manufacturers of leather products fell by 3.98 ppt to 31.5%over the same period.

The article was contributed by Singapore Business Review.

P2P Lending Singapore: What Is It & Which Peer to Peer Lending Platforms Should You Choose?

P2P lending stands for peer-to-peer lending, which is one form of high-risk investment.

You can lend certain amounts to borrowers, which can range from SMEs to individual projects via online platforms. The goal, of course, is that the businesses or projects you lend money to would be successful, and you get returns from it.

What is peer to peer (P2P) lending?

P2P lending or crowdlending involves ordinary people lending money to other people or businesses, usually through an online platform.

It’s a win-win situation for both parties, as the lenders get to make some money in the form of interest, while the borrowers might be able to get loans more easily than going through traditional channels like banks.

What’s the difference between P2P lending and crowdfunding?

Both P2P lending and crowdfunding let you raise money by appealing to “regular people” rather than formal lending institutions.

But there is a big difference. With P2P lending, you’re borrowing money in exchange for repayment of that money with interest.

With crowdfunding, how you wish to repay your backers for the money really depends on how you’ve pitched your project and what agreement you’ve managed to come to.

Some crowdfunding platforms let you raise funds in exchange for equity in your business, which means you’re selling ownership in your business in exchange for money. On Kickstarter, people often try to raise funds for their projects by offering backers limited edition copies of their products or other freebies. You can even try to crowdfund while offering nothing in return if you have a good enough sob story.

How do you start investing with P2P lending?

If you’ve got some spare cash and are looking for ways to make it grow, lending it on P2P platforms is one way to do so.

Be warned, however, that the risks can be great as there is always the chance that the borrower will default and you’ll lose your money. In exchange, however, you’ll be able to rake in pretty high interest rates. As a high-risk, high-return way to invest, this is not something you want to throw your life savings into if you’re planning to retire tomorrow.

To start lending, you’ll first need to open an account on a P2P platform. You can then browse the various projects asking for funding, and decide who and how much you want to lend to.

 

7 P2P platforms in Singapore

P2P lending platformFeesDefault rate on loans disbursed in 2018Minimum investment
CoAssetsNone0%$1,000
Minterest15% on interest + factoring fee + other fees earned by investors0.68%$50
Seedin15% on every loan repayment + account management fee0%$1,000
Funding Societies18% on interest0%$20
Capital Match20% on interest repayments<5%$1,000
MoolahSense1% on repayments13.64%$100
Validus20% on returns-$1,000

CoAssets

CoAssets offers a relatively safe way to invest in SMEs. They offer longer term loans compared to the other platforms here, which is ideal if you don’t want to have to micromanage your portfolio. They also don’t charge investors’ fees upfront, which means that you get to keep everything you earn.

CoAssets P2P Lending Platform

The main drawback is their high minimum investment amount of $1,000, which is going to eliminate many newbies or small-time investors. Their processing time is also quite long at 45 days. All this makes them more suitable for those who are looking for (and have the cash for) big deals.

Minterest

Other than a catchy name, Minterest also has a user-friendly platform, which makes it more attractive to young investors. Their minimum investment amount of $50 makes them a bit more accessible to small-time investors, and they’ve also managed to keep their default rate low.

minterest p2p Lending platform

They offer tips and deals through a Telegram group as well as detailed analyses of every borrower, which makes them one of the best P2P Platforms in terms of user experience.

Seedin

If you’ve got enough cash to fulfil the $1,000 minimum investment requirement and are looking for an easy-to-use platform that lets you invest without having to think too much, Seedin might be the answer.

seedin p2p lending platform

They’ve got a user-friendly interface as well as an auto-investment feature that lets you invest your funds automatically according to requirements you’ve pre-programmed ahead of time.

Funding Societies

If you’re broke or just don’t like the idea of throwing hundreds or thousands of dollars into the unknown Funding Society is the best platform to start with as you can invest with as little as $20.

funding societies p2p lending platform

On the downside, their commission isn’t the lowest, and they do not facilitate less risky secured loans. But still, if you’re looking for a platform to get started with at a very low cost, it’s worth giving Funding Societies a try until you get the confidence to move on to a platform with a higher minimum investment amount.

Capital Match

Capital Match lets you lend money in unsecured short-term loans or invoice financing. These loans tend to be repaid quite quickly and can earn high returns. Conversely, this is not really the platform to go to for longer term loans.

capital match p2p lending platform

Other than the steep $1,000 minimum investment amount, one of the main drawbacks is their higher-than-average investor fees.

MoolahSense

MoolahSense offers one of the lower minimum investment sums around at $100. Their investors’ fees are calculated a bit differently than most other platforms—they charge you 1% of the total repayment, as opposed to a percentage of the interest. But according to their calculations that usually works out to be below the standard commission fee of 15% of interest payments.

Due to their lower commission fees, they’re probably the best platform pick if you want to start investing with a low minimum amount.

Validus

Validus is one of the big boys when it comes to P2P lending in Singapore, so if this is your first time investing, you can forget about using them, as only accredited investors need apply–for individuals, that means having assets of at least $2 million or annual income of at least $300,000.

In addition to investing a minimum of $1,000 in each borrower, you also need to maintain a portfolio of at least $50,000.

Have you ever invested on a P2P lending platform? Share your experiences in the comments!

The article was contributed by MoneySmart.

SeedlyTV: P2P Lending Showdown

In collaboration with Seedly, Minterest along with three other P2P lending founders from Capital Match, CoAssets, and Funding Societies were gathered all in one room to give more context on the industry and how consumers can consider investing in the SME loans space.

The viewers were able to ask questions while the speakers answer them LIVE during the video session. They sat down to answer burning questions like “How does it work? Is it safe?! Why don’t the P2P companies raise funding from venture capital or angel investors to put into the P2P loans?”

p2p lending p2p lending

In a nutshell, these are the topics that were covered during the LIVE streaming:

  1. What is P2P lending about and how does it work

  2. Pros and Cons of P2P lending

  3. Risks involved in investing via P2P lending

  4. How safe is P2P?

  5. LIVE Q&A

Below are some snippets from the P2P Lending Showdown that was held on 27 June 2019.

Here we have our co-founder, Ronnie introducing Minterest!

He also shared about our Minterest story and how we have come this far. 😊

You may be also wondering what sets Minterest apart from the other P2P lending platforms. One of the questions that he answered during the LIVE streaming was “There are so many platforms to choose from. What is the main feature that sets you apart from your competitors?”

Many thanks to Seedly for organising this information session on P2P lending, and to all viewers who have asked insightful questions.

If you have missed the show, fret not, as you can still watch the full LIVE video session here.

Don’t forget to follow us on social media to keep up to date with the latest news and see what we’re doing.

p2p lending p2p lending p2p lending Instagram

NOTE: SeedlyTV is a series which will be covering topics in personal finance via LIVE video and Q&A on the Seedly platform.

MSc Finance Industry Engagement Day

Our Co-Founder and CEO, Charis Liau was invited to speak to Master of Science Finance students from Nanyang Technological University on MSc Finance Industry Engagement Day that was held on 23 May 2019.

Co-Founder and CEO of Minterest, Charis Liau finance

Background

The MSc Finance is the largest specialized master programme at Nanyang Business School (NBS) and collaborates with Peking University in China for a double degree programme. There are around 110 participants every year, mostly from China.

This year, MSc Industry Engagement Day was a series of speaker sessions where they invited NBS alumni and industry leaders in Singapore to share the current landscape and advice for aspiring talents in their respective domain.

finance finance

During the dialogue session, she covered various topics such as the current FinTech scene in Singapore, the ASEAN market opportunity, along with the skill sets for the future of financial services.

She also shared with the students about Minterest on who we are and what we do. Last but not least, she touched on the opportunities and challenges for developing a career in the financial services industry.

After the talk, it was time to interact with the students during the Q&A session.

finance finance

Thank you to NTU for organising this event. It was an honor to be given this opportunity to join the event as a speaker and share with the students regarding the FinTech industry.

If you have any enquiries, feel free to drop us an email at [email protected].

Singapore chosen by Bank for International Settlements for innovation hub centre

SINGAPORE – The Bank for International Settlements (BIS), dubbed the central bank for the world’s central banks, will establish an innovation hub centre in Singapore in a move that Singapore’s central bank said reflects the Republic’s position as a leading international fintech centre.

BIS’ Innovation Hub will span multiple locations. It will first set up centres in Basel, Switzerland, and Hong Kong, making use of existing BIS facilities there. Singapore will host its third hub centre, also as part of the plan’s first phase.

Announcing this on Sunday (June 30), BIS said the role of the hub will be to identify and develop in-depth insights into critical trends in technology affecting central banking.

It will also develop public goods in the technology space geared towards improving the functioning of the global financial system and serve as a focal point for a network of central bank experts on innovation.

The move is the latest of recent fintech developments here. On Friday, Senior Minister Tharman Shanmugaratnam announced Singapore will issue up to five new digital bank licences, paving the way for non-bank players to break into the local financial service scene.

Global professional services firm EY reported last week that the fintech adoption rate among Singaporean consumers jumped from 23 per cent to 67 per cent in just the last two years, higher than the global average of 64 per cent.

Noting that the IT revolution has no borders, chairman of the BIS board of directors Jens Weidmann said: “The establishment of the BIS innovation hub will enable central banks to extend their existing collaboration with a view to identifying relevant trends in technology, supporting these developments where this is consistent with their mandate, and keeping abreast of regulatory requirements with the objective of safeguarding financial stability.”

“There are significant economies of scale in such an endeavour, and the BIS is the ideal vehicle to realise them.”

Mr Mark Carney, chair of the BIS economic consultative committee, added: “There is a new economy emerging driven by changes in technology, demographics and the environment.”

“While the private sector is driving these innovations, their efforts will be more effective if the hard and soft infrastructure of the global financial system support this innovation, promote resilience and level the playing field on which to compete.”

The Monetary Authority of Singapore (MAS), in welcoming the setting up of a hub centre in Singapore, said this “reflects Singapore’s position as a leading international fintech centre, with an advanced fintech ecosystem”.

“In collaboration with other central banks, the Singapore hub centre aims to develop the technology architecture for an efficient and secure digital global financial system and facilitate experiments in the application of technology to enhance financial regulation,” MAS added.

The Singapore centre will start operations once institutional arrangements – including its location and staffing arrangements – have been finalised.

In a statement, MAS managing director Ravi Menon noted the wave of technological innovations sweeping across financial services.

“To fully harness the benefits of these innovations while ensuring the resilience of the financial sector, central banks must also innovate – to modernise the technology infrastructure and regulatory arrangements that underpin digital finance and the digital economy,” he said.

He added: “The BIS Innovation Hub initiative provides a compelling platform for central banks to collaborate in this effort, so as to maximise the benefits of cross-border digital connectivity and commerce. MAS looks forward to working closely with the BIS and the global central banking community to advance this visionary and important agenda.”

BIS, which works to promote global monetary and financial stability through international cooperation, said hub centres will be added across the Americas and Europe in the second phase of implementation.

The article was contributed by The Straits Times.

Singapore to issue up to 5 licences to digital banks in liberalisation push

SINGAPORE will issue up to five new licences to digital banks and begin taking applications from August, in one of the biggest liberalisation steps taken by the city-state in years.

The maximum of five new digital-bank licences to be issued in time will comprise up to two digital full-bank licences, and up to three digital wholesale bank licences. They must all meet the same capital requirements as local banks. This is in addition to any digital banks that the local banking groups may also establish.

This was announced on Friday night by senior minister and the chairman of the Monetary Authority of Singapore (MAS) Tharman Shanmugaratnam at the annual Association of Banks in Singapore (ABS) dinner.

“The new digital bank licences mark the next chapter in Singapore’s banking liberalisation journey,” said Mr Tharman.

The digital full-bank licence will allow licensees to provide a wide range of financial services and take deposits from retail customers. A digital wholesale bank licence will allow licensees to serve SMEs and other non-retail segments.

The aim, The Business Times (BT) understands, is to tackle the segments that may be underserved, such as small businesses. This is done without compromising the anchoring position of the local banks, which hold a significant market share collectively, to prevent systemic risk.

BT also understands there have been informal talks with potential applicants – from both Singapore and overseas – that are keen to tap this new licensing framework.

Application for the digital full-bank licences is open to companies headquartered and controlled by Singaporeans. Foreign companies can apply for these full-bank licences if they form a joint venture with a Singapore company. Applicants must have a track record in operating an existing business, or in technology and e-commerce fields. They must also show clearly how they can tackle unmet needs, and show it has a sustainable digital banking business model. Any competition deemed to be “value-destructive” will not qualify.

At the first stage, the digital non-wholesale bank – that is, the digital full bank – will operate as a restricted bank.

This restricted digital full bank will have an initial paid-up capital of S$15 million. Aggregate deposits will be capped at S$50 million and an individual’s deposits will be capped at S$75,000. To add, the bank can only accept deposits from a small group of persons such as business partners, staff and related parties. With that, it will have to participate in the deposit insurance scheme, which protects deposits of up to S$75,000 per depositor in the event of the bank’s failure.

Such a digital bank – at its restricted stage – can only offer simple credit and investment products. It cannot offer complex investment products such as structured notes, and cannot engage in proprietary trading. It will also be restricted in banking operations in no more than two overseas markets, and must be incorporated in Singapore. Its liquidity requirement will stand at 16 per cent of minimum liquid assets.

Once MAS deems that the restricted digital full bank performs to show, among other things, good quality of loans, and a well-managed business, the restricted digital full bank will be graduated to a full functioning digital bank by the regulator. No timeline has been set by MAS on this front. But at that point, a graduated bank will need to meet the minimum paid-up capital requirement of S$1.5 billion, and face the same liquidity requirements as local banks, which means a 100 per cent in net stable funding ratio, and 100 per cent in liquidity coverage ratio.

The application for up to three digital wholesale bank licences for SMEs and other non-retail segments is open to all companies – both Singapore and foreign ones. For such applicants, the minimum paid-up capital is S$100 million. They cannot take Sing-dollar deposits from individuals, except for fixed deposits of at least S$250,000. But they can open and maintain business deposit accounts for SMEs and corporates.

This comes as Hong Kong in March opened its doors to virtual banks, with some arguing that it is playing catch-up to the digital banking trend.

Singapore – a heavily banked country – has already seen several of the traditional banks here investing heavily in digital capabilities in recent times. The local banks are also fairly well-entrenched, with Singapore’s top three banks estimated to hold a combined market share of just over 50 per cent. The market will watch if virtual banks – with their nimbleness but a much smaller asset base – will be able to wrest market share from the big guns here.

Hong Kong has already issued eight licences, with the most recent batch of four licences given out to entities linked to China’s top technology companies including Ping An, Ant Financial and Tencent. The earlier batch of licences went to applicants that are joint ventures between traditional banks and non-bank entrants. These virtual banks in Hong Kong are roughly expected to begin operations in six to nine months.

The article was contributed by The Business Times.

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