Singapore digital bank wannabes must prove they can profit

Bloomberg

Grab Holdings Inc and gaming company Razer Inc will need to demonstrate how their millions of users can help them generate profits if the two technology firms are to win one of Singapore’s coveted virtual banking licenses.
That’s because the Monetary Authority of Singapore is putting more emphasis on profitability and strong capital requirements than some other regulators inviting fintech firms into banking. Both Grab and Razer have expressed interest in submitting separate bids for one of the five digital banking licenses on offer, part of a government strategy announced earlier this year to strengthen competition in financial services.
“The Singapore requirements on digital banks will mean that profitability will have to be a key consideration” for potential applicants, said Zennon Kapron, managing director of Singapore-based consulting firm Kapronasia. In order to succeed “they will need to achieve scale very quickly,” he added.
That’s a particular challenge for Grab and Razer, two of the highest profile technology firms interested in the licenses. Razer and Grab’s Singapore ride-hailing unit have consistently reported losses in recent years.
In its guidelines, the MAS said financial projections that show a consistent or increasing trend in net losses won’t meet its requirement of demonstrating “a path to profitability.” It said it may consider favourably any applicant whose financial projections show an earlier break-even year.
The UK requires new banks to present a plan setting out their business viability and how they will make money. But digital banks in the UK have been more focused on acquiring customers than generating profits, Kapron said. London-based Monzo Bank, for example, reported a net loss of 47.1 million pounds ($62.6 million) for the 12 months to end February, four years after it was founded, compared with losses of 30.5 million pounds previously.
Singapore will be looking at the profitability of the core businesses as well as of the new banking operations, said Varun Mittal, an associate partner with the consultancy firm EY in
Singapore.
Though Grab doesn’t release financial statements for its Cayman Islands-based holding company, accumulated losses of its Singapore ride-hailing unit GrabTaxi Pte reached S$228.9 million ($169 million) in 2018, according to the latest filings to Singapore’s Accounting and Corporate Regulatory Authority. Hong Kong-listed Razer reported accumulated losses of $225.3 million as of June 30.
The MAS is also stricter than some other regulators in its capital requirements, which could pose another challenge for the business models of tech firms trying to get into digital banking. The MAS plans to award two full bank licenses and three wholesale licenses limited to serving corporate clients only.