FinTech in Singapore
Information & Communications Technology and Media | 27 Oct 2020
Singapore is seen as among the top 10 FinTech hubs, where innovative financial services technologies play a vital role. The evolution and growth of FinTech in Singapore is crucial for the nation to continue as a major international financial centre. FinTech in Singapore will promote the financial services sector, which contributes about 13 percent of Singapore’s GDP and employs about 200,000 workers.
According to Findexable, InsurTech, lending and payments are driving FinTech growth. 2019 saw 94 deals valued at $735 million and Singapore FinTechs were taking 51 percent of ASEAN funding as of Q3 2019. In addition, based on key facts from the Monetary Authority of Singapore (MAS), the red dot has over 40 innovation labs, more than 1,000 FinTech firms, record-high FinTech investments in 2019 exceeding SGD1 billion, and a 19 percent year on year increase for the first half of 2020, despite the pandemic.
2020 and beyond for FinTechs in Singapore
Equity funding in Singapore hit S$462 million in 2020 to June 15. Banking services for SMEs made up the biggest chunk of fund-raising at S$223 million, fueled by the payments and lending product verticals. Retail banking was next biggest cluster for investors, attracting S$67 million in equity funding and technology providers pulled in some S$65 million.
The data also showed that more investments were made in mid-stage FinTech companies than in seed and early-stage funding. Some observers say this is because of the maturing of the FinTech ecosystem announced by MAS after five years, where the policies are “now coming to fruition”.
MAS chief FinTech officer Sopnendu Mohanty said, “As we come out of the coronavirus pandemic, FinTech has the great opportunity to make a meaningful impact in 2020 and beyond by accelerating digitalisation of financial services. In spite of the challenging environment, investors’ confidence in FinTechs demonstrates a deep understanding and appreciation of the long-term value FinTech firms will create.”
We look at some note-worthy projects/initiatives that helped and continue to help drive the development of FinTech in Singapore. You can also read more about the uses of FinTech in our previous article.
Issuance of up to five digital bank licenses
In June 2019, MAS announced that it will issue up to five digital bank licenses and extend to non-bank players in 2020 and beyond. These are in addition to the digital banks under the existing internet banking framework introduced in 2000 by Singapore banking groups.
Of the five licenses, up to two will be digital full bank licenses. These licensees will be allowed to provide a wide range of financial services and take deposits from retail customers. Up to three will be digital wholesale bank licenses, allowing licensees to serve SMEs and other non-retail segments.
The entry of new digital players will add diversity and strengthen Singapore’s banking system. The new players can also provide for the under-served through innovative business models and strong digital capabilities, pushing existing banks to enhance their digital offerings to stay competitive.
Industry-wide research platform supporting FinTech investments
Announced in November 2019 was a collaboration among MAS, Deloitte, and S&P Global Market Intelligence. They aim to develop a prototype for an industry-wide FinTech Research Platform to help investors and financial institutions connect with FinTech start-ups.
An internal analysis by Deloitte found that investors and financial institutions currently do not have access to reliable and up-to-date company information of FinTech start-ups. They rely on informal networks to source for investment opportunities. With the digital FinTech Research Platform, companies will have a more complete view of all the businesses they might want to invest capital in. In 2020 and beyond, companies can expect increased transparency, enhanced investors’ confidence, and even accelerated decision-making.
BIS Innovation Hub Centre to develop solutions for financial systems
The Bank for International Settlements (BIS) Innovation Hub Centre in Singapore aims to foster innovation and more collaboration amongst the central banking community globally. It will enhance the understanding of FinTech and aid the development of innovative solutions for financial systems.
2020 and beyond, there will be two projects to look at. First, is a framework for public digital infrastructures on identity, consent and data sharing. Trusted digital identities for individuals and corporates will help with the development of inclusive digital financial services. The second project is the creation of a digital platform connecting regulators and supervisors with digital and technology solution providers. Central banks can expect to put up regulatory problems and challenges to source solutions from the FinTech communities through the platform.
Besides being BIS’s first global expansion, the Hub Centres in Hong Kong and Switzerland will collectively identify and develop insights into technology trends affecting central banking, develop public technology goods to improve a global financial system, and serve as a focal point for a network of central bank experts on innovation.
Framework for responsible use of AI
Since November 2019, MAS has been working with financial industry partners to create a framework for financial institutions, known as Veritas, to promote the responsible adoption of Artificial Intelligence and Data Analytics (AIDA). Veritas will enable financial institutions to evaluate their AIDA-driven solutions against the principles of fairness, ethics, accountability and transparency to foster trust and confidence in AIDA-driven decisions and financial services. Veritas aims to focus on use cases in three areas first: customer marketing, risk scoring, and fraud detection.
We also look at AI in Singapore in a previous article.
Central bank digital money using distributed ledger technology
Project Ubin is a collaborative project with the industry to explore the use of Blockchain and Distributed Ledger Technology (DLT) for clearing and settlement of payments and securities. The project aims to help MAS and the industry better understand the technology and the potential benefits through practical experimentation. The ultimate goal is to develop simpler to use and more efficient alternatives to today’s systems.
Project Ubin is a multi-year multi-phase project. Each phase is aimed at solving the pressing challenges faced by the financial industry and the blockchain ecosystem. Project Ubin concluded its fifth and final phase in Jul 2020. Mr Chia Song Hwee, Deputy Chief Executive Officer, Temasek, said, “Blockchain technology has great potential in transforming businesses and opening up new business opportunities. Phase 5 of Project Ubin has demonstrated the commercial applicability, viability and benefits of blockchain technology across industries, beyond capital markets and trade finance.”
The financial sector is an integral part of Singapore’s ambition to be a smart nation. 2020 marks the beginning of a new decade of FinTech innovations and breakthroughs, perhaps accelerated by COVID-19. We leave you with some insights from UOB’s FinTech in ASEAN: From Start-up to Scale-up (2019) whitepaper.
Singapore continues to dominate funding and is the top regional base for FinTech firms and that bodes well for the future of the nation. Following our point on digital bank licences, UOB found that 21 per cent of FinTech firms surveyed expressed an interest in applying for one. FinTech companies will do well to be ready to offer innovative solutions and collaborate with the region’s new digital banks.
FinTech firms should consider taking a phased approach in valuing the company to continue attracting funding from investors. While it is exciting to see your company’s valuation soar, Venture Capitalists and FinTech firms both warn against overvaluing your Fintech company.
Lastly, while we see huge potential in FinTech, talent remains a challenge for more than half of the FinTech firms surveyed. The talent crunch indicates that this was an inhibitor to many firms’ expansion regionally. Singapore will do well to ramp up building relevant manpower capabilities to sustain its lead in regional financial services.
IndSights Research also publishes industry insights from conferences. Click HERE for our presentation on the future of blockchain in Singapore.
We also talked about the basic understanding of FinTech in our first article HERE.