Disruptive Change in the Technology of Lending Sector in Singapore

In the SouthEast Asia region, Singapore has emerged as an undisputed market leader and considered as the gateway to the Asia market. The country is aiming to grasp the biggest portions of the lending sector of the world. The Monetary Authority of Singapore (MAS) is working on the outlined roadmap to attract startups and investments in the island. In July 2018, loans through domestic banking sector stood at $ 667.53 billion down 0.8 per cent from the record set in June 2018 $ 673.25 billion, but 6.9% higher from $ 632.60 billion in 2017. By 2020 the global volume is expected to reach $ 290 billion.

The lending marketplace is combining innovative cultures with advanced technology and data to disrupt consumer and small business lending to improvise the borrower’s experiences; reach of the underserved markets and decrease operating costs. In March 2017, bank lending in Singapore expanded by 5.4%, faster than the current year’s growth in February 3.7%. The largest segment in business lending – building and construction loan dragged down 0.4% to S$ 122.44 billion from 2017. The second-biggest segment – loans to financial institutions surged by 17.9% compared to growth of 9.4% in February.

In March 2018, the loans to manufacturers shrunk by 7.5% y-o-y last month and stood in the same position as it was in 2017, at S$ 26.26 billion. In March 2018, business loans up 5.4 per cent y-o-y, higher than the 2.9 per cent rate of growth seen in February and stood at S$ 397.83 billion. Consumer loans continued to expand slightly faster than the 5.2% growth in February and increased by 54% y-o-y to S$ 263.77 billion in March 2018. Housing and bridging loans raised 4.4% to S$ 201.66 billion from a year ago, in comparison to the last month’s growth.

Promoting Singapore’s Lending Sector in their Development:

It is hard for the Singaporean consumer to look for the distinctive financial service providers because of the country’s strong regulatory framework. The consumer in Singapore is eagerly looking for the alternative resources in finance, such as for personal loans and other non-credit options. Many of the small businesses and consumers do not have access to credit because of various reasons, one is, the inability to fulfil requirements practised by banks like formal financial information, credit bureau history or collateral, etc. Also, the majority of alternative financial services providers in Singapore, comprise licensed moneylenders only, the government make the space difficult to stay for the unlicensed services providers.

In this changing dynamic digital era, this is also changing the way of approachability each other by customers and banks. Digitisation in the lending sector is simplifying the work of the banking sector, many financial institutions and Fintech companies, etc. These lending institutes do not offer products that feature and terms, such as catering the diverse need of the customer segments or encourages micro-savings in an automated manner by those with limited disposable income. There is an immense challenge for traditional banks and lending institutes as the customers are opting non-traditional players such as fintechs and nonbanking payments players. To remain in the competition and sustain growth incumbent banks required to fit within this changing landscape.

Consumer Behaviour in Singapore towards Lending Sector:

Mapping consumer trends and behaviour helps lending sector startups and institutes in the better understanding needs of the consumers. In Singapore, Affluent Elegance and Cosmopolitan Central groups are the greatest proportion of high-income earners. The households incomes of consumers living in this region have $8,000 or more per month, where 41% of Singaporeans living in Affluent Elegance and 34% of Cosmopolitan Central. Both the groups have very different demographic profiles and credit behaviour. The rate of default on unsecured credit products for Cosmopolitan Central is more than 400% higher – 2.7% of all unsecured debt products are in default, whereas, Affluent Elegance is just 0.8%. The other group Clans and Cautious Community exist in between 13% to 14% of consumers, with incomes of $8,000 and above per month.

Consumers are becoming more and more digitally savvy and targeting the easy process and less chaos. Customers are increasingly adopting digital banking services; they rely quite heavily on the internet to evaluate banking products such as credit cards and auto loans and to compare products, benefits, and prices before purchase. 35% to 50% of customers trust these digital resources after considering or evaluating a product online. Building an online brand and presence and investing in customer acquisition campaigns and engagement through social media, internet advertising, and other media is the must to do activity for banks now. Through these advertisements, the consumer’s trust builds even faster on banks and such lending institutes.

Moolahsense:

It is a Singapore-based first digital lending, crowd financing and crowd lending platform, was founded in 2013. Moolahsense is the first digital lending platform that connects established businesses seeking loans for capital expansion, equipment purchases or other needs to the broad investor community. They address the gaps between everyday investors and small businesses that are looking for short-term business loans with prospective investors who are looking for high-yield returns.

Moneythor:

A Singapore-based software startup founded in 2013, provides a modern toolkit to banks and fintech firms to enhance their digital banking services, primarily focussing on the generation of data-driven personalised and contextual recommendations for their customers. Currently, Moneythor is presented in Paris and London and its solution is currently used by financial institutions in Australia, France, Hong Kong, India, Indonesia, Japan, Malaysia, Singapore and Vietnam. It provides more relevant and personal digital financial services to banks and fintech firms to wipe out the myth that you cannot get great financial insights when you visit your financial institution online.

Challenges Face by the Lending Sector of Singapore:

Now the banks do not only target to run the bank but also deal with the transformation of it to grow it in a sustainable manner. The transformation for banks is not an easy task; there are several challenges, such as complex and diverging regulations, legacy systems, disruptive models and technologies, new competitors, and a diverse customer base that has increased and greater expectations. The incumbent banks should focus on accelerating the transformation into more strategically, technologically modern, and operationally agile institutions, so that they may remain dominant in a rapidly evolving ecosystem. Banks are required to manage their portfolio of technology assets to emphasise activities that truly differentiate the bank through the bank CIOs to become more agile.

Mitigating cyber risk is one of the major challenges that required a definite solution for the constant running operations of the banks. With the development in the innovation and digitisation in the sector of financial services, cyber risk has also been increased. They should focus on building cyber resilience, where it is not just focused on preventing cyber-attacks, but also being able to respond, recover and adapt. Furthermore, banks are required to be reoriented towards existing workforces and provide them with more integrated employee experiences to be collaborative with them. This workforce experience would include accommodating a work-life balance, a purpose-driven career, and be digitally enabled.

Opportunities in the Singapore Consumer Lending Sector Services:

The competitive landscape for the retail banking sector has shifted significantly, so the consumer behaviour. Now consumers have more digital options than before, such as nonbanking companies and fintechs fulfilling all their banking needs. More and more people are engaging with digital channels for banking. Banks can tie-ups with the technology startups and work together in this area of the lending sector. The partnership between credit bureaus, fintechs, technology companies and third-party processors will fill the capability gaps and help in finding new digital capabilities that are required to redefine the consumer lending journeys and to expand its scope. The government is focussing on the innovative startups and investors to invest their efforts in Singapore.

Startups, banks and the lending institutes analyze the consumer demographic and lifestyle profiles. Mapping the credit behaviour gives the lender the ability to understand the rich picture of Singaporeans in greater detail how different consumer groups manage their money and their credit. Also, this data helps in gaining greater insight into the acquisition and management of their consumer credit portfolios. Whereas, technological advancements would be an excellent method for the startups to enable full-scale digitisations in operations, such as biometrics enabled authentication, e-signatures, e-mandates, AI, machine learning and block-chain that will enable ‘zero human touch’ lending and monitoring services.

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