The news that a Singtel-Grab consortium had won a full digital banking licence in Singapore last week was a huge one, but you could say that it was overshadowed by another bigger item – a possible merger between Grab and rival Gojek in Southeast Asia.
It’s true the new licence – four were awarded last week – would open up a range of new businesses for both Singtel and Grab.
However, that vision of unbridled access to new markets is also tempered with growing suspicion and unease over these digital or Internet companies that are deemed too big to fail.
Just this week, the United States called for Facebook to be broken up, arguing that it had become a monopoly with its acquisition of rival social media networks WhatsApp and Instagram.
And in Singapore, Grab’s potential merger with Gojek, already written like it’s a done deal, is attracting criticism because of Grab’s 2018 deal with Uber, which led to higher prices and intervention by various regulators in Singapore and the region.
What, then, will Grab be doing with its new banking licence? Well, for sure, it will expand its financial services, which it had already been offering to small businesses.
More likely, it can integrate lending and borrowing into its products and services, reaching a customer base that even the existing Big Three banks in Singapore will be wary of.
What’s to stop, say, Grab from lending small sums or extending micro loans to someone who happens to be ordering some takeout or hailing a cab on the Grab app?
Or for Singtel to extend credit to someone who wants to buy a phone using instalments? Already telecom operators build that into a monthly price plan, but now Singtel can dangle even more carrots in front of consumers.
Why not throw in a smart TV with the sign-up of a TV subscription, with a friendly instalment plan?
It will be foolhardy for Grab and Singtel to go head-on against the established banks but their big strategy has to revolve around their customer bases, extending credit as a way to deepen the relationship. You can’t disconnect when you owe them money.
And that leverage is what this digital banking licence gives to both these companies. And it is also why regulators and consumers should watch how much market power they will be amassing, lest they become too big to fail, or regulate.
It is true the banking sector is more regulated than, say, the transport sector in terms of the types of entrants allowed to provide services to retail consumers.
Certainly, you do not want to have a case of a government and taxpayers having to bail out companies or clean up their mess when they do not end up with a viable business.
The 2008 financial meltdown should not be so quickly forgotten. It is a reminder that even banks, which have had safeguards in place for decades, can cause a cascade of unexpected, disastrous events.
What more the current crop of digital banks, which you could argue have businesses that are exposed to even more risk? Singtel makes money but Grab still does not and relies on venture funding, despite the outsized role its services play in society.
The other full digital bank licence awarded was to Sea, which runs online game service Garena and the Shoppee e-commerce shop.
The challenge for regulators is made tougher by the different sectors that these Internet or digital companies now operate in. How does their ability to cross-sell affect the new sectors they are entering and what exposure does this bring to them, and consequently, their customers?
This has to be balanced with the desire to tap into the fast-growing digital economy. By being too conservative, Singapore would hold back homegrown companies here in a global race that’s often more about scale and staying power than anything else.
Singapore, after all, is already behind regional rival Hong Kong in issuing digital banking licences. The Special Administrative Region gave out eight licences last year.
Yet, on the flip side, there is obvious danger in feeding already bloated Internet companies, allowing them to gain footholds in new markets that will become difficult to roll back.
Even in China, which has carefully nurtured its homegrown technology firms, such as Alibaba and Tencent, to challenge American rivals, regulators seem to be pushing back.
In Singapore last week, Chinese companies were awarded the other two digital banking licences, which are for wholesale banking.
One of them is a consortium comprising Greenland Financial Holdings, Linklogis Hong Kong, and Beijing Co-operative Equity Investment Fund Management.
The other is Ant Group, which was dramatically held back from launching the world’s largest public listing last month by Chinese regulators in the last minute.
The reason – stricter conditions were needed for lending to Chinese consumers. It’s a lesson that Singapore can learn from.