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Virtual Banking: How Hong Kong and Singapore Compare


On the anniversary of the Hong Kong experience, the virtual banking licensing process will soon replay in Singapore. To the uninitiated, digital/virtual banks refer to institutions offering financial services online or through smartphones and without a physical branch network. The precepts of the approach adopted by the Monetary Authority of Singapore (“MAS”) are similar to Hong Kong’s, be it promoting financial inclusion and innovation, demonstrating a sustainable business model, a prohibition against minimum account balances and aggressive business practices as well as the need for an exit plan. But beneath the surface, a few notable differences set them apart. Here are some prominent ones.

Dual regimes: The MAS announced licensing mechanisms for full digital banks as well as wholesale banks. Though the Hong Kong Monetary Authority’s (“HKMA”) guidelines did not preclude applicants from targeting the non-retail segment, they did not create separate requirements. As the wholesale bank framework is bare bone, the points below will focus on the full digital bank one (the “Framework”).

Light touch: The HKMA’s guidelines are prescriptive, focusing on technology risk, outsourcing and general risk management. The Framework is comparatively light, stating simply that digital banks will have to comply with risk-based capital and liquidity requirements.

Setting the playing field: Much of the interest around the Hong Kong licensing process revolved around the identity of the applicants. Rumors swirled that global tech giants were ready to pounce on the opportunity; even renown investor Jim Rogers made a cameo. It’s unlikely however that Singapore encounters a similar brouhaha as the MAS will only grant two full bank and three wholesale banking licenses. This will dissuade many from showing interest given the scarcity. Also, the Framework does not target incumbent Singaporean banks; they have been able to create what the MAS refers to as “internet only banks” since 2000. Rather, the press release and Framework suggest that technology and e-commerce companies are the intended audiences.

Walking before running: The phased approach is what sets the Framework most apart from its Hong Kong sibling. Unlike the HKMA which does not set licensing restrictions in its guidelines, the MAS has asked virtual banks to prove themselves first, imposing initial limits on the amount of deposits, the complexity of the product offering and customer base. Once the MAS is convinced of management’s ability to properly manage risk, full-fledged bank status is granted and the restrictions lifted. Curiously, the Framework expects virtual banks to limit their geographic footprint to no more than two jurisdictions as it is silent as to whether this initial restriction disappears upon graduation.

Capital requirements: The Framework also employs a tiered approach to paid-up capital. At the onset, applicants are required to maintain S$15 million with the sum progressively increasing as the MAS sees fit. The amount escalates to S$1.5 billion upon becoming a full-fledged bank. This is in stark contrast to the HKMA’s requirement of HK$300 million (roughly S$52 million at the time of writing) which several respondents criticized during the consultation process. It’s noteworthy that the MAS has not solicited feedback to its Framework.

Though this last point is an onerous requirement, the Framework is nevertheless welcomed. As this new banking model gains ground globally and in South East Asia, the MAS has shown its willingness to embrace technology and open the door to unconventional entrants. This will surely force incumbents to double-down on their customer service and innovation agendas.


© 2020 by Abraham Tachjian

The thoughts and opinions expressed here are my own and do not reflect the views of my employer.