Singapore’s digital banks dangle incentives to win new customers — is it sustainable?

SINGAPORE — Digital retail banks in Singapore are pulling out all stops to win new clients.

Trust Bank and GXS Bank — two on-line retail banks launched final yr — are providing decrease charges, extra incentives and waiving minimal account balances to win over clients from conventional banks.

But how viable is that this in the long term?

“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 analysis and consulting agency Kapronasia, advised CNBC.

Unlike conventional banks — like DBS, OCBC and UOB — which function bodily branches and automatic teller machines, digital banks function fully on-line.

The city-state gave out 4 digital financial institution licenses in December 2020.

Two digital full financial institution licenses went to Grab–Singtel‘s GXS Bank and Sea Group‘s MariBank which serve retail clients. The different two digital wholesale financial institution licenses had been bagged by Ant Group’s ANEXT Bank and Green Link Digital Bank, catering to small-and-medium enterprises and different non-retail segments.

GXS Bank at present affords its service to clients and workers by invite solely, whereas MariBank is barely accessible to workers of Sea Group.

Trust Bank, however, didn’t have to leap by means of the hoops to use for a separate digital full financial institution license because it’s backed by banking big Standard Chartered, which secured an further full financial institution license to ascertain a subsidiary to function a digital financial institution.

A partnership between Standard Chartered and Singapore’s largest grocery store chain FairPrice Group, Trust Bank seems to be making some headway since its Sept. 1 launch.

Trust Bank claims to have reached greater than 450,000 clients and achieved 9% of banking market share in Singapore inside 5 months, based mostly on knowledge shared with CNBC.

New bank card clients obtain vouchers value 25 Singapore {dollars} ($18.80) to spend at FairPrice supermarkets, and might proceed to build up reward factors once they buy groceries there. During their first month of launch, Trust gave out nearly 60 tons of rice and over 11,000 breakfast units – every value greater than S$2, in response to the financial institution.

The financial institution would not expose its buyer retention fee nor revenue margin to CNBC.

“While it is common in the market today to offer high-ticket and big rewards which are either complex to understand or have a poor experience, Trust offers simple, easy to understand rewards which are always tangible, which help bring down the cost of living and importantly, are in real time,” Dwaipayan Sadhu, CEO of Trust Bank, advised CNBC over e-mail.

“It is useful for a short-term customer acquisition story but it will be a big challenge to keep these customers coming back,” Kapron from Kapronasia stated.

Trust Bank doesn’t cost any annual charges or charges for international transaction, money advance nor card substitute to bank card clients. It additionally doesn’t require a minimal stability for its financial savings account, in contrast to conventional banks.

Its rival GXS Bank additionally doesn’t require minimal balances for holders of financial savings accounts, at present the one product the financial institution is providing. GXS is a consortium between ride-hailing and meals supply big Grab and Singapore’s largest telco supplier Singtel.

The firm says it targets the “underserved segment” — which incorporates the gig financial system employees, self-employed entrepreneurs and people new to the workforce.

The financial institution has eliminated sure charges, corresponding to fall-below charges which can be often charged when the stability drops beneath the minimal every day common.

The financial institution has “a low cost of acquisition and low cost to serve,” its CEO Charles Wong advised CNBC.

“As a digital bank, we are unencumbered by the cost of maintaining a physical network such as branches or physical ATMs, resulting in cost savings on our overheads,” Wong defined.

In addition, Grab and Singtel have a mixed buyer base of over 3 million and the financial institution is “leveraging on [the] two giants for retail customers.”

“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 going to make it easy for you to make payments,” stated Wong.

“Yes, you get additional rewards as you spend which makes sense because you’re spending within the ecosystem.”

GXS Bank, nonetheless, expects its backside line to be largely pushed by curiosity earnings, stated Wong.

A 2022 evaluation by Simon-Kucher revealed that 25 of the most important neobanks, additionally generally referred to as digital banks, came upon that solely two of them — lower than 10% — have achieved profitability. It additionally confirmed a majority incomes lower than $30 in annual revenues per buyer.

Kapron stated that conventional banks providing bank card merchandise give out welcome items, like journey baggage or Apple watches, as a result of they anticipate to be worthwhile after a sure interval.

Those banks have already labored out how a lot they need to spend to achieve a buyer, and anticipate to recoup the prices when the shopper begins lacking funds or incurring curiosity, he defined.

Observers have beforehand raised questions concerning the want for digital banks in a largely banked inhabitants, the place solely 2% don’t have financial institution accounts.

There’s additionally robust competitors among the many extra established conventional banks.

“If you look at DBS Bank, it’s not like their digital offerings are [lousy],” stated James Tan, managing accomplice of Quest Ventures, a VC firm headquartered in Singapore.

Tan stated he signed up for Trust Bank to see how completely different will probably be to conventional banks. “I found no difference,” he advised CNBC, including that he ultimately closed his Trust Bank account.

“I think the digital banks would have a higher rate of success if we were in a severely underbanked place like the Philippines,” stated Tan.

Kapron added that it’ll be tough for these banks to have an effect, particularly within the retail banking area within the Singapore market.

“The market is just over-banked and the differentiator of these new digital banks doesn’t really move the needle much in terms of what they are offering.”

“Until that happens, you are having bags of rice, high promotional discounts or rewards, which are useful for acquiring customers but then, how do you keep them coming back?” requested Kapron.