Singapore’s digital banking sphere is being fueled by groundbreaking innovation. With the Monetary Authority of Singapore (MAS) encouraging competition through digital bank licenses, we look at how banks are differentiating themselves, overcoming profitability challenges, and positioning for sustainable growth.
The digital banking landscape in Singapore has undergone significant transformation over the past few years, driven by both regulatory changes and innovative advancements. The Monetary Authority of Singapore (MAS) has played a pivotal role in fostering innovation and competition by granting licenses to digital banks. These licenses come with stringent requirements, including the need to demonstrate a clear path to profitability within a few years.
Against this backdrop, players such as GXS, MariBank, and Trust Bank are making strategic moves to differentiate themselves and carve out niches in Singapore’s highly competitive banking sector.
This article explores the strategies of Singapore’s digital banks, the challenges they face, and the lessons they can draw from global peers to achieve long-term profitability and relevance.
New investment offerings: Product diversification as a path to profitability
According to Simon-Kucher’s Neobanking Report, only a small number of digital banks globally have managed to reach breakeven. In Singapore, MariBank was the first digital bank to introduce investment offerings, with Trust and GXS expected to follow suit in 2025. This move reflects a global trend amongst neobanks to expand their product portfolios by offering higher-margin products, such as investments and loans.
Diversification allows digital banks to better monetize their customer base, which is often acquired at high costs through competitive saving rates or other rewards. Additionally, as the interest rate environment evolves, banks must explore new ways to sustain customer returns as market rates decline. Investment-linked savings products, for example, present a low-risk alternative to achieve slightly higher yields, making them an attractive proposition for both banks and customers.
However, the success of investment offerings depends on driving active product usage and client enablement. Many digital bank accounts remain inactive after they are opened, with customers failing to fund or utilize them. To counter this, digital banks can embed investment solutions into a broader customer-focused product roadmap. By combining these offerings with a superior customer experience, loyalty programs, and integrated ecosystems, digital banks in Singapore try to enhance engagement and pave the way for long-term profitability.
The roles of digital and traditional banks
Singapore’s traditional banks, such as DBS, OCBC, and UOB, maintain a dominant position in the market. These offer comprehensive services across saving, borrowing, and spending. The banks are expected to remain highly relevant and are at the forefront of digitalization efforts, with many prioritizing the enhancement of their digital capabilities and technological infrastructure. This is supported by Singapore’s exceptionally high online banking penetration. Most incumbent banks have also embraced advanced analytics, using AI and predictive analytics to support clients in managing their finances and investments.
Today, providing a superior customer experience and achieving strong customer endorsement are essential. Customers are more likely to switch to a digital bank if they are dissatisfied with their current bank’s offerings. However, Singapore’s accessible and continuously evolving banking infrastructure makes switching less appealing compared to other countries. Notably, Singapore’s banking apps enjoy high ratings on the Apple App Store, indicating strong customer satisfaction. This trend is encouraging, as it underscores the importance of digital banks in fostering market competitiveness and offering consumers more choices, ultimately benefiting Singapore’s financial ecosystem.
Carving a niche: Strategic advantages of digital banks
Digital banks, often unencumbered by legacy IT systems, can innovate products and enhance the banking experience more rapidly, providing them with a competitive edge over traditional banks. The modern IT infrastructure and absence of costly branch networks allow them to operate at lower costs, enabling them to offer significant benefits, respond with greater agility, and engage customers in fresh and innovative ways.
In Singapore, most banks, such as Trust Bank/NTUC or GXS, are integrated into broader ecosystems. This allows them to tap into an existing pool of customers. These partnerships help digital banks embed their services into customers’ daily lives, combining banking products with everyday services. This integration stimulates product usage, driving relevance at point-of-sale and generating data that can be leveraged for cross-selling opportunities.
Globally, digital banks often carve out specific niches and pursue distinct positioning and purposes. For instance, some neobanks in the U.S. target underserved segments, such as startups or the Asian-American community, allowing them to tap into profitable markets that traditional banks may currently be under-serving.
Expanding beyond ecosystems
Leveraging existing ecosystems, as GXS Bank and MariBank currently do, provides a strong foundation for digital banks. However, given the size of the Singapore market, expanding the customer base will likely become essential over time. While successful digital banks can cater to specific segments or niche markets, this often limits their overall potential. Without a ‘primary banking relationship’ with customers, digital banks face challenges in cross-selling additional products and services. Hence, it is crucial to embed banking services into customers’ daily activities to encourage regular usage.
Reaching out to younger generations and the newly affluent segments with targeted marketing strategies has been effective in other regions due to these customers’ lower loyalty to traditional banks. However, these segments may only engage with digital banks in specific situations, such as using cards for overseas payments (better FX rates) or for online shopping.
Strategic moves: Serving sole proprietorships and micro-businesses
GXS and MariBank’s decision to extend banking services to sole proprietorships and micro-businesses targets niche segments that are often underserved by larger banks. These customer groups share characteristics with retail clients but typically entail higher risks and costs for incumbents. We observe a financing gap in the MSME and SME segment, where business customers struggle to access loans at reasonable rates. As a result, while alternative SME lending platforms are active in these markets, borrowing costs remain high and loan durations are short due to the risks involved.
Digital banks, on the other hand, could offer cheaper access to funding—something that traditional lending platforms may only do with a limited extent as they need to pay returns to their investors for providing the liquidity. Additionally, digital banks benefit from being able to monitor customer payment activities, which allows them to assess the MSME clients’ overall liquidity situation. Some incumbent banks in Singapore have also attempted to indirectly target these MSME segments by channeling funds to businesses through specialized lending platforms.
Another way to serve these clients is through offering ancillary products, such as payment terminals, invoicing solutions, or IT and cyber security services. It is important that these product features resonate with the clients’ needs and preferences.
Profitability challenges: Why do legacy banks perform better?
Two years after their launch, digital banks remain in the red, with mounting losses while legacy banks report record profits. This disparity can be attributed to a gap between the high acquisition costs of digital banks and the low activity levels of their clients. A critical challenge is driving active product usage. Many customers open accounts out of curiosity but fail to fund them—especially in Singapore, where the process is streamlined with tools like Singpass.
To address this, enhancing client engagement is essential. Frequent campaigns and regular app notifications can help motivate customers to utilize their accounts. Furthermore, digital banks are usually relatively new and offer only a limited range of products and services in their early years, often due to regulatory constraints. In contrast, incumbent banks have established relationships, such as salary accounts, which provide them with better opportunities for cross-selling revenue-generating products. Legacy banks have also benefited from the recent interest rate environment, contributing to their overall higher revenues.
Learning from global success: Lessons for Singapore’s digital banks
Singapore’s digital banks can draw lessons from successful digital banks overseas. KakaoBank, for example, exemplifies the power of building an ecosystem (SuperApp) and integrating with popular platforms. The bank cultivates a strong, loyal customer base through a user-friendly experience, personalized services, and low-cost operations.
Here are key lessons that Singapore’s digital banks can learn from their successful global counterparts:
1. Serve a relevant gap in the market: Successful digital banks often target a specific lending segment, which is indeed highly profitable. By offering personal loans, home loans, and credit products through a fully digital platform, the digital banks maintain low operating costs while generating strong revenue from its lending activities.
2. User-centric design: The focus on offering a simple, intuitive, and mobile-first experience help attract millions of users quickly. Singapore’s digital banks can benefit from streamlining their user interfaces and making banking more accessible to a wider audience.
3. Leveraging technology and data: More digital banks are leveraging on AI and big data analytics to personalize services and optimize customer experience. The digital banks in Singapore can follow suit by investing in advanced technologies to better understand customer needs and provide tailored products and services.
4. Low-cost operations: By operating without physical branches and relying on digital platforms, digital banks can maintain relatively low operational costs. Singapore’s digital banks can continue to optimize their cost structures through a similar approach, ensuring competitive pricing and efficient service delivery.
5. Partnerships with ecosystems: Integrating into broader ecosystems where users engage with various services—such as messaging, gaming, and e-commerce—can enhance customer interaction. The digital banks in Singapore can build on existing partnerships to embed banking into customers’ daily lives.
6. Indirect revenue generation: Digital banks can leverage indirect revenue by tapping into the referral business such as selling media, advertising on their platforms, or partnering with third-party products aligned with the needs of their customer base. This approach opens new revenue streams by utilizing their customer base and digital presence.
Overall, the key takeaway for digital banks is the importance of integrating non-financial services to create a comprehensive customer experience. By offering a broader range of services beyond traditional banking—such as entertainment, social features, and lifestyle tools—digital banks can encourage more frequent interactions with their apps. Additionally, leveraging customer data from these services allows for more personalized banking products, enhancing customer loyalty and retention. This approach builds a stronger customer ecosystem, ultimately driving profitability.
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