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Forward looking and flexible: How Singapore is setting the stage for digital asset innovation

Standing in first place on the scale of the most innovative fintech hubs in the world, Singapore has always taken pride in its forward-thinking culture, with a triumvirate of top-notch human capital, an open economy, and investment in infrastructure, all of which contribute greatly to its position.

Yet, within an increasingly turbulent economic climate, there has been much debate on how Singapore can sustain its dominance as one of the region’s leading financial capitals as it continues to establish its footprint across the global financial ecosystem. 

With increased innovations in digital banking taking place on the ground, the discussion is now on how Singapore can continue to pioneer such developments to remain at the forefront of the industry.

From positioning Singapore as an attractive fintech hub to taking a more progressive albeit granular view in its approach to cryptocurrencies, as opposed to its other regional competitors, to promoting the use of technologies like blockchain, Singapore has put in place multiple plans to stay ahead of the game. 

Tipping the balance scale in innovation

While the push towards open banking has been ongoing for a while now, the past two years have seen accelerated growth in the digital banking sector, with many projects in the pipeline. In order to stay on par and even to further its position from fellow financial heavyweight Hong Kong, the Monetary Authority of Singapore (MAS) has looked to further develop and promote digital banking in Singapore.

After all, to develop a thriving banking community that has both breadth and depth, one has to collaborate with multiple parties in order for the ecosystem to thrive.

With a view to this, Singapore launched the Bank of International Settlements’ (BIS) third innovation hub, following centres in Switzerland and Hong Kong, where the BIS-MAS partnership focuses on a two-pronged strategy of setting up a public digital infrastructure framework and creating a digital platform to link up regulators and solutions providers.

Additionally, efforts by MAS to innovate within the digital banking sector has seen positive results, with MAS providing open-source access to their codes from Project Ubin’s Phase 2, in which the South African Reserve Bank (SARB) employed this shared knowledge to develop Project Khokha

A significant talking point as of late is the much-anticipated digital banking licenses with major players such as Alibaba, a Singtel-Grab collaboration, and AMTD’s consortium which includes Xiaomi Finance all wanting a slice of the lucrative pie.

This move by MAS helps to lower the barrier of entry to the banking industry, giving room for non-banks and fintechs to play a larger role in the financial services arena. MAS’ efforts to ride the new wave of innovation through these licenses brought a breath of fresh air to a traditionally restrictive industry, now welcoming a proliferation of non-banking players who can now provide financial products alongside their core business offerings.

While this has perhaps caused some initial trepidation amongst legacy institutions who fear the loss of their dominion, a recent PwC digital banking survey found that 99 per cent of customers will intend to maintain their existing bank accounts rather than making a full transition, with only a reported 33 per cent transitioning to digital banking for their primary account.

Although we’re still months away from the estimated issuance date of the licenses this coming summer, what this shows is that the biggest winners of the day would be the customers. In truth, the digital banking licenses are less about competition and more so about choice, as customers are able to leverage the best of both worlds, combining the cutting-edge technologies of internet companies with the regulatory assurances offered by MAS.

This emphasis on a consumer-focused approach has extended to other countries across the region, with plans in the works by Malaysia’s central bank to issue five online bank licenses, and Bank of Thailand set to introduce more digital banking services to better serve its underbanked population.

Taking a regulatory stand

As Singapore looks to grow its financial ecosystem in the hopes of remaining in pole position across the region, it is also crucial to ensure that the industry is properly regulated so as to anticipate the risks of emerging technologies.

In line with this goal, MAS has laid the foundations through a series of regulations aimed at providing a structured framework for industry players. 

Taking a step forward towards an open banking future, the API (Application Programming Interface) playbook was mapped out, serving as a comprehensive guideline for financial institutions. This has provided a safety net for banks to experiment on API projects in a regulated environment, birthing an API economy. Lauded as the “World’s Best Digital Bank”, DBS inaugurated its Innovation Lab after the API playbook was released which saw the launch of its API developer platform, the largest by a bank anywhere in the world.

Customers are once again, the biggest beneficiaries of the open banking movement, as the introduction of APIs into the traditional banking system not only enables a far more seamless customer banking experience but also greater transparency and access. 

The recently enacted Payment Services Act is another such regulation that MAS has implemented, representing a pivotal step forward when it comes to progressive frameworks for digital assets. Designed to provide guidance and reassurance for companies and consumers in the country, the Payment Services Act addresses one of the most prominent financial innovations seen today, namely cryptocurrencies. With the Act, cryptocurrency firms and exchanges will have the ability to expand their operations in Singapore via applying for operation licenses, while ensuring their operations are MAS-compliant.

With guidelines to operate within, this promotes consumer confidence and trust in the next frontier of digital payments as consumers are reassured by the protection from risks associated with fraud and cybersecurity. As blockchain technology matures, this is an especially timely opportunity for digital payments as further explorations are made into its real-world utility.

It goes without saying that innovation is not without risk. As the finance landscape continuously evolves, institutions and tech companies alike will find themselves having to navigate uncharted waters in a regulatory environment where the pace of change varies greatly from economy to economy. 

As Singapore gradually transitions to a fully cashless society and progressive regulations follow suit to provide the necessary safeguards against the challenges of tomorrow, the future is certainly bright for financial innovation in the Lion City.

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