The New World of Risks Faced by Digital Banks in Singapore

The digital banking sector in Singapore has grown in importance over the years alongside the established banks, improving the quality of financial services, albeit in a competitive environment with one of the most stringent licensing and regulatory regimes.

Recently, Singapore’s financial landscape has received a significant boost with the Monetary Authority of Singapore’s (MAS) commitment to provide up to S$150 million over three years under the renewed Financial Sector Technology and Innovation Scheme (FSTI 3.0). Initiatives such as FSTI will help foster innovation by new entrants developing new technologies and supporting the adoption of digital infrastructures and platforms. 

Concurrently, MAS continues to heavily regulate technology – with all digital banks needing to apply and adhere to licensing requirements to operate locally.  

In addition, unlike traditional banks which have always been subject to strict regulations to comply with legacy systems, digital banks are onboarding their customers at a much faster pace and at lower cost through new platforms and operating models.

To remain competitive, digital banks have to cope with two often conflicting forces. On the one hand, it is in the nature of digital banks to adopt new and rapidly evolving technologies. On the other hand, they must ensure regulatory compliance and protection of customers’ assets – and ultimately build trust with customers. Part of this balancing act will require the use of risk decisioning tools designed for digital banks that mitigate the risks of traditional credit management, while managing new, evolving risks to ensure sustainable growth, regulatory compliance, and a superior customer experience.

Risk decisioning tools leverage data and AI to power swift credit assessment and mitigate default risks
Next-generation risk decisioning platforms are more agile and user-friendly, employing low-code user interfaces to power automation and data integration technology to help access vast amounts of data from diverse sources such as credit reports, financial statements, transaction history and alternative data.

These new platforms also use AI to analyze all of this data, find patterns and provide insights into specific risk factors associated with each credit applicant, thus helping lenders to make more accurate decisions and offer personalised lending options based on a more holistic view of the customer. These tools can identify high-risk borrowers and help banks to implement preventive measures that can maintain a healthy loan portfolio. 

As such, the time required to assess an applicant’s creditworthiness can now be reduced from days to milliseconds, enabling faster loan approvals and reducing operational overhead.

Such personalisation enhances and elevate the customer satisfaction. 

In addition to streamlining the onboarding process, risk decisioning tools can automate compliance checks to ensure financial institutions adhere to regulations. For example, according to a report by MAS, customer onboarding is one of the most significant risk factors for money laundering and terrorist financing. Accordingly, banks must implement due diligence processes and KYC protocols at onboarding and beyond. 

Data and AI-powered risk decisioning platforms can incorporate such regulatory requirements into risk decisioning processes and models- in a way that does not require hard-cording so changes can be implemented quickly.  This agility ensures that lending decisions comply with existing and new laws as required, reducing the risk of legal and regulatory non-compliance. Explainability and transparency are key to delivering a superior customer experience as well as remaining compliant. 
Risk decisioning tools thus are the backbone of Singapore's digital banks, facilitating growth, risk management, and regulatory compliance in a highly competitive market. Leveraging data-driven insights, these tools empower digital banks to navigate change, optimize opportunities and differentiate themselves in the world of virtual banking.

Written by Bharath Vellore, General Manager, APAC, Provenir