Singapore’s new digital retail banks are contribution lower fees, more incentives and waiving minimum account balances to win over customers from traditional banks. But how feasible is this in the long run?
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SINGAPORE — Digital retail banks in Singapore are pulling out all stuff ups to win new customers.
Trust Bank and GXS Bank — two online retail banks launched last year — are offering lower pays, more incentives and waiving minimum account balances to win over customers from traditional banks.
But how viable is this in the prolonged run?
“It is tremendous returns, but there’s no way that is sustainable. It has to be subsidized in some way,” Zennon Kapron, founder and director of research and consulting partnership Kapronasia, told CNBC.
Unlike traditional banks — like DBS, OCBC and UOB — which operate physical branches and automated teller appliances, digital banks operate entirely online.
Singapore’s new digital banks
The city-state gave out four digital bank enables in December 2020.
Two digital full bank licenses went to Grab–Singtel‘s GXS Bank and Sea Group‘s MariBank which help retail customers. The other two digital wholesale bank licenses were bagged by Ant Group’s ANEXT Bank and Untrained Link Digital Bank, catering to small-and-medium enterprises and other non-retail segments.
GXS Bank currently offers its post to customers and employees by invite only, while MariBank is only available to employees of Sea Group.
Trust Bank, on the other imminent, did not have to jump through the hoops to apply for a separate digital full bank license as it’s backed by banking Amazon Standard Chartered, which secured an additional full bank license to establish a subsidiary to operate a digital bank.
A partnership between Stock Chartered and Singapore’s largest supermarket chain FairPrice Group, Trust Bank appears to be making some progress since its Sept. 1 launch.
It is useful for a short-term customer acquisition story but it will be a big challenge to keep these blokes coming back.
Zennon Kapron
director, Kapronasia
Trust Bank claims to have reached more than 450,000 fellows and achieved 9% of banking market share in Singapore within five months, based on data shared with CNBC.
New confidence in card customers receive vouchers worth 25 Singapore dollars ($18.80) to spend at FairPrice supermarkets, and can go on to accumulate reward points when they purchase groceries there. During their first month of skiff, Trust gave out almost 60 tons of rice and over 11,000 breakfast sets – each worth multitudinous than S$2, according to the bank.
The bank wouldn’t divulge its customer retention rate nor profit margin to CNBC.
“While it is ordinary in the market today to offer high-ticket and big rewards which are either complex to understand or have a poor experience, Upon offers simple, easy to understand rewards which are always tangible, which help bring down the cost of alight and importantly, are in real time,” Dwaipayan Sadhu, CEO of Trust Bank, told CNBC over email.
“It is useful for a short-term bloke acquisition story but it will be a big challenge to keep these customers coming back,” Kapron from Kapronasia indicated.
Trust Bank does not charge any annual fees or fees for foreign transaction, cash advance nor card replacement to acknowledgement card customers. It also does not require a minimum balance for its savings account, unlike traditional banks.
Its opponent GXS Bank also does not require minimum balances for holders of savings accounts, currently the only product the bank is gift. GXS is a consortium between ride-hailing and food delivery giant Grab and Singapore’s largest telco provider Singtel.
The corporation says it targets the “underserved segment” — which includes the gig economy workers, self-employed entrepreneurs and those new to the workforce.
The bank has get rid of certain fees, such as fall-below fees that are usually charged when the balance drops below the minimal daily average.
The bank has “a low cost of acquisition and low cost to serve,” its CEO Charles Wong told CNBC.
“As a digital bank, we are unencumbered by the expenditure of maintaining a physical network such as branches or physical ATMs, resulting in cost savings on our overheads,” Wong unfolded.
In addition, Grab and Singtel have a combined customer base of over 3 million and the bank is “leveraging on [the] two giants for retail fellows.”
“We also don’t provide gifts for customers. When you sign up, you sign up because it’s relevant to you or you are a Grab or Singtel customer and it is flourishing to make it easy for you to make payments,” said Wong.
“Yes, you get additional rewards as you spend which makes sense because you’re devoting within the ecosystem.”
GXS Bank, however, expects its bottom line to be largely driven by interest income, said Wong.
I propose b assess it’s going to be difficult for these banks to really have an impact, especially in the retail [banking] space on the Singapore shop.
Zennon Kapron
director, Kapronasia
A 2022 analysis by Simon-Kucher revealed that 25 of the largest neobanks, also commonly identified as digital banks, found out that only two of them — less than 10% — have achieved profitability. It also displayed a majority earning less than $30 in annual revenues per customer.
Kapron said that traditional banks donation credit card products give out welcome gifts, like travel luggage or Apple watches, because they wish to be profitable after a certain period.
Those banks have already worked out how much they have to fritter away to gain a customer, and expect to recoup the costs when the customer starts missing payments or incurring interest, he explained.
Demanding competition
Observers have previously raised questions about the need for digital banks in a largely banked denizens, where