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

Singapore’s recent digital retail banks are offering lower fees, more incentives and waiving minimum account balances to win over customers from traditional banks. But how profitable is it in the long term?

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SINGAPORE – Digital Retail banks in Singapore They do every little thing to get recent customers.

Trust Bank and GXS Bank – two online retail banks launched last yr – offer lower fees, more incentives and forgo minimum account balances to win customers from traditional banks.

But how profitable is it in the long term?

“It’s huge profits, but there is not any way it’ll be sustainable. It must be subsidized ultimately,” Zennon Kapron, founder and director of research and consulting firm Kapronasia, told CNBC.

Unlike traditional banks, comparable to DBS, OCBC AND UOB — which operate physical branches and ATMs, digital banks operate completely online.

Singapore’s New Digital Banks

City-state issued 4 digital banking licenses in December 2020.

Two digital, full banking licenses went to To catchSingle‘s GXS Bank i marine group‘s MariBank, which serve retail customers. The other two licenses for digital wholesale banks were provided by Ant Group ANEXT Bank and Green Link Digital Bank, serving small and medium enterprises and other non-retail segments.

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

On the opposite hand, Trust Bank didn’t must jump through hoops to use for a separate digital full banking license because it is backed by the banking giant Standard charteredwhich secured the additional full banking license organising a subsidiary to operate a digital bank.

Trust Bank, a partnership between Standard Chartered and Singapore’s largest supermarket chain FairPrice Group, appears to be making some progress since its launch on September 1.

This is helpful for a short-term customer acquisition history, but keeping those customers until they return will likely be an enormous challenge.

Zenon Kapron

director of Kapronasia

Trust Bank says it has reached over 450,000 customers and achieved a 9% share of the Singapore banking market in five months, based on data shared with CNBC.

New bank card customers get S$25 ($18.80) value of coupons to spend at FairPrice supermarkets and might proceed to earn reward points once they shop for groceries there. Within the primary month of launch, Trust gave up almost 60 tons of rice and over 11,000 breakfast sets – each value over 2 Australian dollarsin line with the bank.

The bank didn’t disclose its customer retention rate or profit margin to CNBC.

“While it is not uncommon in today’s marketplace to supply high ticket prices and huge prizes which are hard to grasp or have a poor experience, Trust offers easy, easy to grasp prizes which are all the time tangible and help to scale back the price of living and importantly are timely real,” Dwaipayan Sadhu, CEO of Trust Bank, told CNBC via email.

“This is helpful for a short-term customer acquisition history, but the large challenge will likely be to maintain those customers coming back,” said Kapron of Kapronasia.

Trust Bank doesn’t charge any annual fees or foreign transaction, money advance or card substitute fees to bank card customers. It also doesn’t require a minimum balance in a savings account, unlike traditional banks.

Its rival GXS Bank also doesn’t require a minimum balance for holders of savings accounts, that are currently the one product within the bank’s offer. GXS is a consortium between transport and food giant Grab and Singapore’s largest telecommunications provider Singtel.

The company says it targets an “underserved segment” – which incorporates gig economy staff, self-employed entrepreneurs and people who are recent to the job market.

The bank removed some fees, comparable to fall below fees, that are typically charged when your balance falls below the minimum day by day average.

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

“As a digital bank, we usually are not burdened with the price of maintaining a physical network comparable to branches or physical ATMs, leading to overhead savings,” explained Wong.

DBS Bank says it has a

In addition, Grab and Singtel have greater than 3 million customers combined, and the bank is “using [the] two giants for retail customers.

“We also don’t provide gifts to customers. By signing up, you are signing up since it’s relevant to you otherwise you’re a Grab or Singtel customer and it should make it easier so that you can make payments,” Wong said.

“Yes, you get extra rewards once you spend, which is smart since you spend inside the ecosystem.”

GXS Bank, nevertheless, expects its bottom line to be largely driven by interest income, Wong said.

I believe it should be difficult for these banks to essentially make an impact, especially within the retail sector [banking] places within the Singapore market.

Zenon Kapron

director of Kapronasia

2022 evaluation by Simon-Kucher revealed that the 25 largest neobanks, commonly generally known as digital banks, it turned out that only two of them – lower than 10% – became profitable. It also found that almost all earn lower than $30 in annual revenue per customer.

Kapron said traditional banks that provide bank card products give out welcome gifts comparable to travel luggage or Apple watches because they expect to be profitable after a while.

These banks have already calculated how much they must spend to accumulate a customer and expect to be reimbursed when the client defaults or charges interest, he explained.

Tough competition

Observers have raised questions before in regards to the need for digital banks in a largely banking population where only 2% would not have bank accounts.

There can also be strong competition between more established traditional banks.

I believe digital banks would have the next success rate if we were in a really low banking place just like the Philippines.

“If you have a look at DBS Bank, it isn’t like their digital offerings [lousy]said James Tan, managing partner of Quest Ventures, a Singapore-based VC firm.

Tan said he signed up with Trust Bank to see how it could be different from traditional banks. “I didn’t find any difference,” he told CNBC, adding that he eventually closed his Trust Bank account.

“I believe digital banks would have the next success rate if we were in a really low-banking place just like the Philippines,” Tan said.

Singapore's digital banks are unlikely to impact traditional banks in the short term: strategist

Kapron added that it should be difficult for these banks to make an impact, especially in the world of ​​retail banking within the Singapore market.

“The market is just overcrowded with banks, and the differentiator of those recent digital banks doesn’t really touch the needle an excessive amount of in relation to what they provide.”

“Until that happens, you’ve got bags of rice, high promotional discounts, or rewards which are useful in getting customers, but how do you retain them coming back?” Kapron asked.

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