Should you sign up with a digital bank that has no physical branches? | EP 13

operates entirely on your mobile phone. They're called digital banks and in Singapore, two of them have launched G X. S is developed by grab and Singtel and trust bank is a tie up with standard Chartered Bank and NtuC Fair Price Group. The aim is to work like a bank but be fully powered by technology. All of it sounds exciting. But can you trust a digital bank with your hard earned money? What can they do that traditional banks can't, should you sign up for one and move funds there to talk

all about this? I'm with Ho jin Chen, who leads PWC's financial services assurance practice pinch in. Thanks so much for joining us today. Thank you for having me Sarah. There's so much buzz around digital banks but there is mixed reactions are excited and people are curious then there are those who are quite skeptical about the whole thing. When was the last time you actually went to a physical bank branch for me. There must be at least six months ago.

That's not bad for me. It was like years. I can't remember why I actually went to the bank and so after my experience I might not step into a physical bank branch for a while. Do you have to queue for a long time? Two hours? No way it is true. Two hours. And I thought that the request I had was quite a simple one is just to change some standing instructions for the srs supplementary retirement scheme. Yeah so it was a mistake.

So I went in like you for a while, there were lots of paperwork so eventually it's only after two hours and I stepped out of the bank and I guess that's why we have all these digital banks now. We know that these digital banks would not have physical branches unlike traditional banks. But what are some of the other main differences between the two? So digital banks are quite similar to a tree National Bank. They provide banking services like loans, deposits, credit cards.

The only difference is that for digital banks, they do all their transactions online through apps, through the website, through mobile phones. They don't have physical infrastructure. You won't see a bank branch or a T. M's traditional bank. You have get so it's a fiscal banking for traditional banks at the same time system introduced now it's called digital banking. So people tend to confuse that and use it interchangeably with digital banks but

actually are not. Digital banks are virtual banks is a bank where doing all their transactions online, where digital banking is the act of banking. So, traditional banks, although they are fiscal as well, they also have digital banking through their apps through their website. There's a little difference on it, but if let's say I have a bank account with a traditional bank, but I do all my transactions online. How different is a traditional bank with a lot of

digital services prepared to digital banks. So in the recent PWC surveyed in Singapore, the statistics shows that seven of 10 people have some issues with their traditional banks. Right, Billy is online or is it physical? And because of this there are some pinpoints. So I just showed you earlier in terms of my experience in the fiscal branch. So can it be done online probably. But at the same time it is about the education where people may not be so familiar with

this whole digital banking. So there is still a point about people being comfortable. I could be doing all my banking services through digital means on traditional banks. But at this point in time, the digital banks in Singapore, they're still very, very much restricted. So they can only offer very simple products like the credit cards, very simple insurance. But there's still a lot of things that we have to do through the digital banking in the fiscal banks.

So it means we still need our traditional banks to do many other transactions that some of these digital banks are still not allowed to offer. Absolutely. The current digital banks has been launched. It is very limited. What's the point then of having digital banks Right. The digital adoption within Singapore is very high highest amongst the asian countries, 88%. But if you look at it within this population okay. We did a survey. So for the population 15 years and above only 60% 606 out of 10

are considered properly bank. By the traditional banks, properly bank means that they have access to bank accounts and they are also have access to the more sophisticated products. For example, Democratic cars, the deposit structure notes and of this population, 38% are considered what they call under bank. That means they have access to limited bank accounts, access to limited products they're under bank And the remaining 2% our call the bank means there's

absolutely no access to bank accounts in that respect. You can see that while we are very digitally entrenched there is still a proportion of the population that can be bank that can be reached out through digital means we have to defend Singapore's position as the leading financial center in Asia. And then with the evolution of the e commerce people

are getting more digitally savvy. There's a need for them to introduce this right to keep up with the paces of the U. K. The U. S. And the Hong kong's digital banking is getting more and more important and there's a part that digital banks can play especially if they can focus on what we call the underserved segments. Is that underserved segment more? The young people? What's the demographic who are these people that

are not really completely banked? So if you look at it these underserved segments and depending on the strategy of digital banks, the one that I'm aware of is that they're looking at the young families. The cost of inflation has been going up quite rapidly. Our savings are being eroded because of the savings rates. They are looking at assignment of that. They're also a segment of the young the millenniums

by those who are starting work. They may not have the capabilities or they may not match the thresholds of traditional banks. For example where you need to maintain a minimum some in your deposits or for example you might need to make certain number of transactions on a monthly basis. There are some who will impose annual fees on your

credit cards. There are some of these and also the economy workers right where they may not have access to already access maybe because of the profile of their financial positions. If you go through the credit scoring system of traditional banks, they may not be eligible for a loan or credit card. I rest for the digital banks because of the innovation that they used to use a lot of artificial intelligence.

A lot of data crunching, they may be able to accept that, okay, while you may not meet certain criteria, but I can take the risk. I can still offer you a certain type of credit lower level. But at least I'm trying to bank you, Especially the millennials, right? And we're just starting off of work or my young daughter who is 16 years old now have absolutely no credit cards but increasingly when she's getting out to buy her things using all the pain now.

But is this a population that the banks may start looking into that? I see. So it's more targeting these people who may fall through the cracks through the cracks. Hi, my name is steve lie and I'm Teresa tang and we are the hosts of the new podcast CNN correspondent from new york to Bangkok join us as we kick back and chat with our colleagues across the globe about the latest news developments. Look out for our weekly episodes wherever you get your podcasts.

One bank that is out right now is g excess which is between grab and Singtel but it's only available to a select group right? The one that you mentioned, the bank only eligible to open an account on invitation

and they're opening up within the ecosystems. It means the grab drivers and delivery riders and if you have an account with the telephone and also the employees within that corporations, I tried to download the app to open the account but it's only by invitation when they allow me to open the account definitely the other bank that has launched is Trust Bank. Well it's showing 1.4% per annum. But really the draw seems to be, you know grocery savings link points with Ntuc loyalty program.

But there are other credit cards that could give you grocery cash back as well. So what do you think about their strategy and how they're trying to attract customers? It is very common for any new entrance to markets to offer very enticing sign up rewards. It's ready to gain the very strong foothold into the markets. The question is whether or not these are sustainable. Right? So if I can just reflect back to our right healing experience five years ago with all the vouchers and

all the vouchers. Our rights are heavily subsidized. You don't pay more than a couple of dollars to go to point to point B. It's a matter of them who has more money to burn for us. The consumers is honeymoon period and we enjoy it. We loved it. But you look at the current status now, where are we on that? The question therefore for them is that how are they going to use the advantage? So for digital banks, they have no physical infrastructure so they are fixed cost is much lower.

Are they therefore able to translate these savings into better perks for the consumers Higher rebates, high interest rates. And how long can you do that? The bank that you mentioned? I also downloaded that. Yes, it's giving you high interest rates but it's only for a period of time. But it sounds like if you can access many services from the traditional banks then there's no real need to go to a digital bank. Is that right? As I mentioned, the survey showed that seven out of 10 people,

They are not happy. Seven out of 10. They have some issues with the traditional banks. Is the customer experience? That may not be that good yet. Is that the battle then customer experience? Yes, definitely. The customer experience is going to be the battle. How long do you need to open an account? Just a couple of days ago, me and my wife were having coffee in our coffee shops. So then she received a text from a friend. Is a referral court. Yeah, I received. Yeah, she was pretty

excited about it. Yeah. And then she on the spot for having a coffee. She applied for the cut within minutes. She got the cut. Really? Yes. The way of applying cuts has evolved. But there's still some legacies in there. Do you still need to submit your monthly salary statements? Can you do it through the centralized mind force system?

So the customer experience is the very critical ones are deposits in these digital banks protected and insured because right now, deposits in your traditional bank are insured up to $75,000. Is that right? That means if the bank goes under, for whatever reason, you still get $75,000 of your deposit. Yeah, but with these digital banks, is that the same? Yes, it is.

So all these banks are under the regime of the S. D. I. C. Singapore deposit insurance scheme for all banks issued license by the M. A. S. You're on the scheme. So you're right, even your digital banks are insured up to 75,000. If it goes belly up, your deposits are protected up to 25,000. But there are obviously some limitations to that if you are losing your money because you have been scammed for example,

so, those are not being protected. That's another issue though with digital banks because these are new entities and they're fully online. How safe is it from security breaches and these online scams? I think there are two dimensions to that. The first one is my money safe. The other one is my data safe. Right? So, in terms of the money safe, as we discussed earlier, up to $75,000 of the deposits are being insured at this point in time, the digital banks, they are not at

that level yet. So that should be quite all right. The other one is when mes issued the licenses to digital banks as part of the assessment, they will make sure that the licenses have got very strong financial backing that they have a very good business proposal, value proposition and they've got a very good track record And more importantly as part of the issuance of license M. S. Of impose a minimum capital requirement.

The question then is is my data safe? You have to adhere to a lot of banking regulations as part of this things like the technology risk management, your cyber resilience, outsourcing, data protection recoveries. All these are all encompassed within the regulations. So for a bank to be launched, you must make sure that you comply with regulations.

You mentioned earlier about how customer service is the main draw of these digital banks but how seamless do you think these transactions will be if there's no physical bank branch and there's no physical tellers. Especially those transact. They're a bit more complicated and complex like insurance and credit cards. Let's face it by and large humans are still social beings. We like familiar things so face to face interaction is still very important. Another joke, my daughter

was having a gathering with your friends. They have not met for one or two years when they are sitting at the cafeteria across each other on the table. They were all not talking, they're all looking at their phones. Right? So so you're quite curious and say you are together, Why aren't you interacting then she looked at me, we're talking about, we're interacting, we're doing the WhatsApp. They're chatting among themselves in the WhatsApp group? Although they are facing one another.

To your point. A lot of us are familiar. We want the social interactions but we never know the evolution of time whether or not you become a bit different. So for those who wants a face to face interaction, the traditional bank still allows that through your fiscal ones. And it's very important during times of stress where it's very complicated products you need to talk to somebody. The challenge then for the digital banks is whether or not you can simplify

your products right? And making it very easy for people to assess it to understand it. So if I were to receive different referral codes, what would you tell me about whether I should sign up for a digital bank. If I already have a traditional bank that I go to, nothing is stopping us from signing up for digital bank. It's not just the digital banks. There are so many apps at the health apps, the

payment payment apps, e commerce app. We have received a lot of referral codes and we have signed up a lot of it and after we use the voucher, let's be honest, how many times have you gone back to the app? So it's going to be an overwhelming loss of SmS or WhatsApp referrals that you get. Yeah, go ahead utilize it. It helps but eventually goes back to whether or not you felt that this digital bank or the service that

they're offering you. Does it cater to you? So you put yourself as the category of the under surf. So if I want to really squeeze the returns of my deposits, if I really want to get the best rebates out of my purchases, my spending, does this offering cater to your needs? If it does eventually, you go back to those apps to the digital banks. If the traditional banks are able to offer this as well, we have as consumers, no complaints. You have more choices. Thank you so much. Thank you.

Thank you for having me. Thanks to my guest ken chan and we hope you enjoyed this episode of money, talks the team behind this podcast. This Jacqueline chan, Joanne, chan, daniel lee and Christina robert. We've gotta refresh slate of audio material you can listen to on your commute or your work out, go to the C. N. A. Website or app. Look for the listen button and subscribe to the podcast you like If you have thoughts, ideas or even stories you'd like to share. Please write to us.

The details are in our episode notes. Until next time. This is Sarah called