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

SINGAPORE — Digital retail banks in Singapore are pulling out all stops to win latest customers.

Trust Bank and GXS Bank — two online retail banks launched last 12 months — are offering lower fees, more incentives and waiving minimum account balances to win over customers from traditional banks.

But how viable is that this in the long term?

“It’s tremendous returns, but there is not any way that’s sustainable. It needs to be subsidized in a roundabout way,” Zennon Kapron, founder and director of research and consulting firm Kapronasia, told CNBC.

Unlike traditional banks — like DBS, OCBC and UOB — which operate physical branches and automatic teller machines, digital banks operate entirely online.

The town-state gave out 4 digital bank licenses in December 2020.

Two digital full bank licenses went to Grab–Singtel‘s GXS Bank and Sea Group‘s MariBank which serve retail customers. The opposite two digital wholesale bank licenses were bagged by Ant Group’s ANEXT Bank and Green Link Digital Bank, catering to small-and-medium enterprises and other non-retail segments.

GXS Bank currently offers its service to customers and employees by invite only, while MariBank is simply available to employees of Sea Group.

Trust Bank, then again, didn’t must jump through the hoops to use for a separate digital full bank license because it’s backed by banking giant Standard Chartered, which secured an additional full bank license to determine a subsidiary to operate a digital bank.

A partnership between Standard Chartered and Singapore’s largest supermarket chain FairPrice Group, Trust Bank appears to be making some headway since its Sept. 1 launch.

Trust Bank claims to have reached greater than 450,000 customers and achieved 9% of banking market share in Singapore inside five months, based on data shared with CNBC.

Latest bank card customers receive vouchers price 25 Singapore dollars ($18.80) to spend at FairPrice supermarkets, and might proceed to build up reward points after they purchase groceries there. During their first month of launch, Trust gave out almost 60 tons of rice and over 11,000 breakfast sets – each price greater than S$2, in accordance with the bank.

The bank would not reveal its customer retention rate nor profit margin to CNBC.

“While it is not uncommon available in the market today to supply high-ticket and large rewards that are either complex to grasp or have a poor experience, Trust offers easy, easy to grasp rewards that are at all times tangible, which help bring down the associated fee of living and importantly, are in real time,” Dwaipayan Sadhu, CEO of Trust Bank, told CNBC over email.

“It is helpful for a short-term customer acquisition story but it can be a giant challenge to maintain these customers coming back,” Kapron from Kapronasia said.

Trust Bank doesn’t charge any annual fees or fees for foreign transaction, money advance nor card substitute to bank card customers. It also doesn’t require a minimum balance for its savings account, unlike traditional banks.

Its rival GXS Bank also doesn’t require minimum balances for holders of savings accounts, currently the one product the bank is offering. GXS is a consortium between ride-hailing and food delivery giant Grab and Singapore’s largest telco provider Singtel.

The corporate says it targets the “underserved segment” — which incorporates the gig economy employees, self-employed entrepreneurs and people latest to the workforce.

The bank has removed certain fees, comparable to fall-below fees which can be normally charged when the balance drops below the minimum each day average.

The bank has “a low price of acquisition and low price to serve,” its CEO Charles Wong told CNBC.

“As a digital bank, we’re unencumbered by the associated fee of maintaining a physical network comparable to branches or physical ATMs, leading to cost savings on our overheads,” Wong explained.

As well as, Grab and Singtel have a combined customer base of over 3 million and the bank is “leveraging on [the] two giants for retail customers.”

“We also don’t provide gifts for patrons. Whenever you enroll, you enroll since it’s relevant to you or you might be a Grab or Singtel customer and it’ll make it easy so that you can make payments,” said Wong.

“Yes, you get additional rewards as you spend which is sensible since you’re spending throughout the ecosystem.”

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

A 2022 evaluation by Simon-Kucher revealed that 25 of the most important neobanks, also commonly referred to as digital banks, discovered that only two of them — lower than 10% — have achieved profitability. It also showed a majority earning lower than $30 in annual revenues per customer.

Kapron said that traditional banks offering bank card products give out welcome gifts, like travel luggage or Apple watches, because they expect to be profitable after a certain period.

Those banks have already worked out how much they must spend to achieve a customer, and expect to recoup the prices when the client starts missing payments or incurring interest, he explained.

Observers have previously raised questions on the necessity for digital banks in a largely banked population, where only 2% would not have bank accounts.

There’s also strong competition among the many more established traditional banks.

“In the event you have a look at DBS Bank, it isn’t like their digital offerings are [lousy],” said James Tan, managing partner of Quest Ventures, a VC company headquartered in Singapore.

Tan said he signed up for Trust Bank to see how different it can be to traditional banks. “I discovered no difference,” he told CNBC, adding that he eventually closed his Trust Checking account.

“I believe the digital banks would have the next rate of success if we were in a severely underbanked place just like the Philippines,” said Tan.

Kapron added that it’ll be difficult for these banks to have an effect, especially within the retail banking space within the Singapore market.

“The market is just over-banked and the differentiator of those latest digital banks doesn’t really move the needle much when it comes to what they’re offering.”

“Until that happens, you might be having bags of rice, high promotional discounts or rewards, that are useful for acquiring customers but then, how do you retain them coming back?” asked Kapron.