Singtel bets on associates' track record to fulfil digital banking dreams

Lang, who manages Singtel’s relationship with its various regional associates as part of his portfolio, is the telco’s point man in this digital banking venture. Singtel has joined forces with “super app” company Grab in a 40-60 joint venture to bid for the licence.

The partnership is widely seen as most likely to win one of the two so-called digital full bank licences among a field of seven contenders, given the duo’s branding, backing and reach.

The auction for another three digital wholesale bank licences — which cannot enter the consumer market unlike the full licences — drew 14 bids.

“You know what? I’m a bit afraid, because everybody tells us that we are the frontrunner,” says Lang in an interview with The Edge Singapore on March 31. “We actually have very credible competitors. They have very strong ecosystems, and very strong technological capabilities. We are going in and putting our best foot forward.”

Finding the right partner

When the licences were first announced to be up for grabs, many interested parties sounded out one another for potential tie-ups, recalls Lang. Singtel and its regional associates, with a combined customer base of nearly 700 million mobile users, looked every bit a marriage partner worth wooing.

The interest in these digital banking licences is fuelled by the wider FinTech boom, with both existing established companies and upstarts eyeing for a piece of the action. “There were so many people who came to talk to us. It’s a bit like speed dating,” Lang recalls with a laugh.

However, according to Lang, many of Singtel’s potential suitors dropped out of the race when they realised they had to stump up capital of $1.5 billion over five years. Even for Singtel, the 40% stake works out to be $600 million — not an insignificant sum. According to Lang, this high capital requirement by the Monetary Authority of Singapore (MAS) is there for a very good reason — to deter fly-by-night operators. This is because digital banks will form a critical piece of Singapore’s financial infrastructure of the future.

Lang is quick to acknowledge that the three local lenders, as well as the other few foreign banks operating here, are already very strong in the FinTech arena. They have had a headstart by rolling our their own versions of digital banking services very early on. “And I would say, yes, they have been successful relative to some of the competitors and their counterparts abroad,” he adds.

Nevertheless, Lang believes new players like Singtel and Grab, with their clean slate and fresh perspective, can bring new benefits when it comes to running a digital bank. For sure, the partners have no plans to run a bank like the incumbents though. “We are starting from scratch, which has a lot of benefits because we are not being hampered by a lot of legacy systems,” he says.

With Singtel’s expertise in mobile connectivity and convenience, coupled with Grab’s ability to understand and tap consumer behaviour using Big Data analytics and AI, the partners hope their version of digital bank will be able to establish a tighter and stickier relationship with customers.

Lang describes a scenario where a person who is good at baking, decides to make a living selling cakes and bread from a home-based kitchen, instead of renting a shop. But as this is not a proper commercial entity, traditional banks are likely not keen to lend. The relatively small quantum of the loan required probably would not interest big banks either. “It is very difficult if you look at it from a traditional lens, but based on the data that we have, we are able to say that this person is someone whom we want to support,” he says.

While the bid is for a Singapore digital banking licence, the ultimate prize for the Singtel-Grab partnership is getting a major foothold in the region, although that will depend on the rules and regulations of each country. “The need that we are trying to address is very big, not only in the Singapore market but across the region. Financial services, in particularly mobile financial services, is an area we think has a lot of potential,” says Lang.

He raves about the way the smartphone is changing the way we work, live and play. Lang recalls how, as a young boy, his father brought him to the old Hoover cinema to watch his first movie, Jaws. Another fond memory he has is that of his mum bringing him to a POSB branch to open his first bank account and how he held his new passbook with delight.

“Now if you look at the young beyond Singapore and across Asean, their first movie experience is on a mobile phone; their first banking experience is a mobile app, where they either make a payment or take a loan. Every interaction is now moving to the mobile platform and the level of engagement has increased significantly and at a very quick pace. So, I see tremendous opportunities, not only in Singapore, but across the region,” says Lang.

So what will happen to the range of mobile financial services Singtel has developed, including its Dash mobile wallet and VIA, a “Star Alliance” of regional mobile wallets? Assuming Singtel-Grab wins the licence, does it mean these existing Singtel products will be subsumed under the digital bank?

Lang does not want to commit himself for now, except to say that the partners are “exploring all options” and will leave it to the digital bank’s new management team to decide. However, he believes support for the new team will be forthcoming whenever the decision makes business sense, like being linked to the existing customer ecosystems of Dash and VIA. “We want this bank to be run quite independently, with fantastic, well-qualified professionals,” he says.

Independent associates

Letting the joint venture run independently, says Lang, is in the same spirit demonstrated by Singtel when it started investing in the various regional associates two decades ago as part of its inorganic growth strategy. What Singtel did was to acquire stakes of not more than 50%, leaving the local partners in India, Indonesia, Thailand and the Philippines to retain the majority share. The only exception is Optus in Australia, which is fully owned by Singtel.

For example, when Singtel first invested in Globe in the Philippines, the latter was in some other businesses. Singtel then worked with Ayala, the local shareholder in Globe, to acquire the mobile licences and build up the company.

“We don’t need to control but we will give all the support that we can give, and our branding, our trust, our expertise and our whole DNA. Most importantly, we will let these people run and grow the company, which is the same thing we did for our telcos,” says Lang.

Indeed, Singtel’s investment in these regional associates has radically transformed the company from a Singapore-only telecom monopoly into one where the lion’s share of its earnings and user base come from outside Singapore.

For the three months ended Dec 31, 2019, Singtel’s associates contributed some $420 million in pre-tax earnings, up 13.4% from the year earlier period. Group bottomline came in at $627 million.

Among the various associates, Bharti, Singtel’s investment in India, has been a drag on the bottomline, as the market that suffered from a bruising multi-year price war. It was only late last year that cooler heads prevailed and telcos in the sub-continent started raising tariffs one after another. However, Bharti was ordered to pay a US$4.7 billion ($6.7 billion) so-called adjusted gross revenue charge, a court ruling brought against the Indian telco industry by the government.

In recent weeks, there has been reports that Facebook might be keen to back Jio, Bharti’s competitor in India that ignited the price war. If so, Bharti and Vodafone, the other major player in India, will face a whole new level of competition, a potential problem Lang acknowledges.

Nevertheless, he notes that Bharti has received strong backing of its own over the previous couple of fund-raising rounds totalling some US$11 billion over the last year or so. “All the financing has been done very successfully, with multiple times oversubscription,” he says.

Based on the most recent quarter ended Dec 31, 2019, Singtel’s share of losses from Bharti narrowed to $87 million from $129 million, partly reflecting operational improvement brought about by a few weeks of higher tariff rates.

However, Lang stops short of making a call on when Bharti will reverse back into the black and put away this “unprecedented” bleeding. But he is hopeful, though. “There will be some stability. However, we still feel that the industry has not fully stabilised yet, and I would say we are cautiously optimistic for this year,” says Lang.