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

Singapore — Digital Retail bank in singapore We are doing our best to win new customers.

Trust Bank and GXS Bank, two online retail banks launched last year, have lowered fees, increased incentives and waived minimum account balances to attract traditional bank customers.

But how viable is this in the long run?

“There is a huge profit to be made, but there is no way to sustain it. told to

Unlike traditional banks, DBS, OCBC and UOB — Digital banks operating physical branches and cash machines operate entirely online.

city-state 4 digital bank licenses issued in December 2020.

2 digital full bank licenses grab–SingtelGXS Bank and sea ​​groupMariBank, which serves retail customers. Two other digital wholesale bank licenses were obtained by Ant Group’s ANEXT Bank and Green Link Digital Bank, serving small businesses and other non-retail segments.

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

Trust Bank, on the other hand, didn’t have to jump through hoops to apply for another digital full bank license because it’s backed by the banking giant. Standard Chartered, Additional Full Bank License Establish a subsidiary to operate a digital bank.

Trust Bank, a partnership between Standard Chartered and FairPrice Group, Singapore’s largest supermarket chain, appears to have made some headway since its September 1 launch.

Based on data shared with CNBC, Trust Bank claims to have reached over 450,000 customers within five months and achieved a 9% bank market share in Singapore.

New credit card customers will receive a voucher worth SGD 25 ($18.80) to spend at FairPrice supermarkets where they can continue to earn points on grocery purchases.In his first month of launch, Trust About 60 tons of rice and over 11,000 breakfast sets – each worth more than S$2according to the bank.

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

“In today’s market, it’s common to offer big rewards at high prices that are either complicated to understand or inexperienced, but trusts have always been tangible, simple and understandable, that help lower the cost of living. And importantly, it’s real-time,” Trust Bank CEO Dwaipayan Sadhu told CNBC in an email.

“While this is useful for short-term customer acquisition stories, retaining these customers will be a major challenge,” said Kapronasia’s Kapron.

Trust Bank does not charge credit card customers annual fees, foreign transaction, cash advance or card exchange fees. And unlike traditional banks, there is no minimum balance required for a savings account.

Rival GXS bank also does not require a minimum balance for holders of savings accounts, the only product the bank currently offers. GXS is a consortium of ride and food delivery giant Grab and Singapore’s largest telecom operator, Singtel.

The company says it targets “underserved segments” including gig economy workers, self-employed entrepreneurs and the new workforce.

Banks will eliminate certain fees, Such as the underpayment fee normally charged when your balance falls below the minimum daily average.

The bank’s CEO, Charles Wong, told CNBC that “acquisition and service delivery costs are low.”

“As a digital bank, we are not burdened with the costs of maintaining physical networks such as branches and physical ATMs, which saves us overhead,” Wong explains.

In addition, Grab and Singtel have a combined customer base of over 3 million, and banks are [the] Two giants for retail customers. “

“We also don’t offer gifts to our customers. When you sign up, make sure it’s something that relates to you or if you’re a Grab or Singtel customer and you sign up to make payments easier. is,” said Wong.

“Yes, we are spending within the ecosystem, so you can get additional rewards for your spending.”

But GXS Bank expects earnings to be driven primarily by interest income, Wong said.

2022 analysis by Simon Kuchar 25 of the largest neobanks, commonly known as digital banks, We found that only two of them (less than 10%) achieved profitability. It also showed that the majority had less than his $30 annual revenue per customer.

According to Kapron, traditional banks that offer credit card products offer welcome gifts such as travel luggage and an Apple Watch. They expect to make a profit after a certain period of time.

These banks have already calculated how much they need to spend to acquire a customer, and believe they can recover that cost when a customer defaults on payments or accrues interest. I hope so, he explained.

Observers have previously questioned the need for digital banking in a largely banked population. Only 2% of people do not have a bank account.

There is also fierce competition among the more established traditional banks.

“If you look at DBS Bank, their digital services are not that important. [lousy]said James Tan, managing partner of Singapore-based VC firm Quest Ventures.

Tan said he enrolled in Trust Bank to see what makes it different from traditional banks. “We found no difference,” he told CNBC, adding that he eventually closed the Trust Bank account.

“I think that in places like the Philippines where there is a huge shortage of banks, the success rate of digital banking is high.

Kapron added that it will be difficult for these banks to make an impact, especially in the retail banking sector of the Singapore market.

“The market is overbanked and these new digital bank differentiators don’t make much of a difference in terms of what they offer.”

“Until that happens, with bags of rice, big promotional discounts or perks to help you get customers, how do you keep them coming back?” Kapron asked.