Singapore’s new digital retail banks are offering lower fees, more incentives and ditching minimum account balances to lure customers away from traditional banks. But how viable is it in the long run?

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SINGAPORE — Digital Retail banks in singapore do everything possible to win new customers.

Trust Bank and GXS Bank — two online retail banks that launched last year — offer lower fees, more incentives and waive minimum account balances to lure customers away from traditional banks.

But how viable is it in the long run?

“This is a huge profitability, but it cannot be sustainable. It needs to be subsidized somehow,” Zennon Kapron, founder and director of research and consulting firm Kapronasia, told CNBC.

Unlike traditional banks, I like it DBS, OCBC and UOB — that operate physical branches and automated teller machines, digital banks operate entirely online.

Singapore’s New Digital Banks

In December 2020, the city-state issued four digital banking licenses.

Two digital full banking licenses went to Grab itSingtelGXS Bank and Sea groupMariBank, which serves retail customers. The remaining two wholesale digital bank licenses went to Ant Group’s ANEXT Bank and Green Link Digital Bank, which serve SMEs and other non-retail segments.

Currently, GXS Bank offers its services to customers and employees by invitation only, while MariBank is only available to Sea Group employees.

On the other hand, Trust Bank did not have to jump through hoops to apply for a separate full digital banking license as it is backed by the banking giant Standard Charteredwhich secured an additional full banking license to establish a subsidiary to operate a digital bank.

The partnership between Standard Chartered and Singapore’s largest supermarket chain FairPrice Group, Trust Bank, appears to be making some headway after launching on 1 September.

This is good for a short-term customer acquisition story, but it will be a big challenge to keep those customers coming back.

Zenon Kapron

director, Capranasia

Based on data provided to CNBC, Trust Bank claims to have reached more than 450,000 customers within five months and achieved a 9% banking market share in Singapore.

New credit card customers receive S$25 ($18.80) worth of vouchers to spend at FairPrice supermarkets, and can continue to accumulate reward points by purchasing products there. In its first month of launch, the Trust produced nearly 60 tonnes of rice and more than 11,000 breakfast kits – each worth more than S$2, according to the bank.

The bank did not disclose customer retention rates or profit margins to CNBC.

“While today’s market typically offers high-ticket and big rewards that are either difficult to understand or have a poor experience, Trust offers simple, easy-to-understand rewards that are always tangible, that help reduce the cost of living and, importantly, in real time,” Dwaipayan Sadhu, CEO of Trust Bank, told CNBC via email.

“It’s good for the short-term story of attracting customers, but it’s going to be a big challenge to keep those customers coming back,” Kapron of Kapranasia said.

Trust Bank does not charge any annual fees or foreign transaction, advance or card replacement fees to credit card customers. It also does not require a minimum balance in its savings account, unlike traditional banks.

Its competitor GXS Bank also does not require minimum balances for savings account holders, currently the only product the bank offers. GXS is a consortium between ride-hailing and food delivery giant Grab and Singapore’s largest telecommunications provider Singtel.

The company says it’s targeting an “underserved segment” — which includes workers in the big economy, self-employed entrepreneurs and those just starting out.

The bank has waived some fees, for example, drop-below fees, which are usually charged when a balance falls below a minimum daily average amount.

The bank has a “low acquisition cost and a low maintenance cost,” CEO Charles Wong told CNBC.

“As a digital bank, we are not burdened with the costs of maintaining a physical network such as branches or physical ATMs, which results in savings on our overhead costs,” explained Wong.

In addition, Grab and Singtel have a combined customer base of more than 3 million, and the bank is “engaging [the] two giants for retail customers.’

“We also do not give gifts to customers. When you sign up, you sign up because it’s relevant to you, or you’re a Grab or Singtel customer, and it will make it easier for you to make payments,” Wong said.

“Yes, you get extra rewards when you spend, which makes sense because you’re spending in an ecosystem.”

GXS Bank, however, expects its profit to be mainly driven by interest income, Wong said.

I think it will be difficult for these banks to make a real impact, especially in retail [banking] place in the Singapore market.

Zenon Kapron

director, Capranasia

Simon-Kucher’s 2022 analysis revealed that the top 25 neobanks, also commonly known as digital banks, it turned out that only two of them—less than 10%—achieved profitability. It also revealed that most earn less than $30 in annual revenue per customer.

Capron said traditional banks that offer credit cards give away welcome gifts, such as travel luggage or an Apple watch, because they expect to be profitable after a certain period.

These banks have already calculated how much they have to spend to attract a customer and expect to recoup the costs if the customer starts missing payments or charging interest, he explained.

Fierce competition

Observers have previously raised questions about the need for digital banking in a largely unbanked population, where only 2% have no bank accounts.

There is also strong competition from the more established traditional banks.

I think digital banks would have a higher success rate if we were in a place like the Philippines that is severely underbanked.

“If you look at DBS Bank, it’s not like their digital offering [lousy],” said James Tan, managing partner of Quest Ventures, a venture capital firm headquartered in Singapore.

Tan said he signed up with Trust Bank to see how different it would be from traditional banks. “I found no difference,” he told CNBC, adding that he eventually closed his Trust Bank account.

“I think digital banks would have a higher success rate if we were in a place like the Philippines that is very underbanked,” Tan said.

Digital banks in Singapore unlikely to impact traditional banks in the short term: Strategist

Capron added that it will be difficult for these banks to make an impact, especially in Singapore’s retail banking market.

“The market is just flooded with banks, and the features of these new digital banks don’t really move the needle very much in terms of what they offer.”

“Until that happens, you have bags of rice, high promotional discounts or rewards that are good for attracting customers, but how do you keep them coming back?” – asked Kapron.

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