Minister Ong Ye Kung highlights opportunities for collaboration between Singapore and India in Fintech
Speaking at a recent symposium on "India's Changing Financial Landscape", Singapore’s Minister for Education (Higher Education and Skills) and Second Minister for Defence, Mr Ong Ye Kung provided an overview of important developments in India’s financial landscape, Singapore’s initiatives in the Fintech area andoutlined potential areas of cooperation between the two countries’ financial sectors. He noted that Fintech is possibly the most exciting area for cooperation.
Developments and policy decisions in India
To improve financial inclusion, the Indian government launched the ‘Prime Minister’s People Money Scheme’ (Pradhan Mantri Jan Dhan Yojana) in August 2014 aiming to provide universal access to basic banking, insurance and pension facilities for Indian citizens, particularly amongst the lower-income groups.
Today, more than 300 million people have benefitted from this scheme, with US$12 billion being deposited into the banking system. They are able to receive government subsidies directly into their bank accounts and to access a host of basic financial facilities and services.
The banking regulator, the Reserve Bank of India (RBI) issued new banking licenses to the IDFC Bank and Bandhan Bank, in April 2014, the first in the past ten years. The RBI also introduced two new classes of banking licenses - payment banks and small finance banks. This would enable smaller, nimbler players to offer services to remote community areas, underserved urban segments and small and medium enterprises (SMEs) that have difficulty accessing banking services.
Under these new licences, payment banks will offer last mile connectivity through mobile phones, offering small savings account, easy payment and remittances services.
Minister Ong also highlighted insolvency resolution as another area of major change. In 2016, the Indian parliament enacted the Insolvency and Bankruptcy Code as part of an overhaul of the insolvency resolution regime in India. Under the old regime, it took an average of 4.3 years to resolve an insolvency case in India. The Code consolidated and streamlined various unwieldy laws relating to insolvency resolution under a single legislation. Companies are subject to a 270-day time limit to implement a resolution plan.
This is part of a suite of economic reforms undertaken by the Indian government to make the country a more attractive investment destination, and to encourage enterprise and entrepreneurship. As a result, in the latest World Bank report, India climbed 30 points in the ‘Ease of Doing Business’ ranking, entering the top 100 for the first time.
In July 2017 India implemented the Goods and Services Tax (GST), which subsumes all indirect taxes that were levied on goods and services and unified 17 state and federal taxes, thereby creating a single market within India.
The Indian Government withdrew all existing 500 and 1,000 currency notes in November 2016, as part of its attempt to eliminate the circulation of black money in the informal economy. This led to some hardship and disruption - particularly amongst the rural community where most transactions are cash-based – but it helped to accelerate the digitisation of financial services in India.
The digitalisation of financial services and the ubiquity of mobile devices are changing the way financial services are consumed and delivered in India, said Minister Ong. This has enabled the entry of a new generation of FinTech firms offering a wide range of financial services. The Minister mentioned examples such PayTM and MobiKwik in mobile payments, and BankBazaar in personal finance management.
Fintech ecosystem in Singapore
The Singapore Government has put in place several programs and initiatives to foster the development of Fintech.
The Monetary Authority of Singapore created the regulatory sandbox in 2016 to facilitate live experimentation of new ideas in a contained environment. These may be in the form of untested technology or unconventional business models. Within the sandbox, some regulations are suspended for the Fintech firm, for a stipulated period.
One example is TransferFriend, a start-up that uses blockchain and data analytics to offer a secure and low-cost remittance service. Another example is PolicyPal, a start-up that helps consumers organise, understand and purchase insurance policies digitally through a mobile app. PolicyPal has since graduated from the sandbox, and is now an insurance broker registered with MAS.
The Singapore Government also recognises that Fintech is unbundling the financial services value chain, and regulations have to be right-sized accordingly. Hence, the Government is streamlining regulatory treatment of payments services and remittance services through a law to be introduced by the end of the year, switching to an activity-based, modular framework, from the current entity-based approach. Currently, there are separate regulations for payment systems and stored value facilities, and for remittance businesses.
The modular approach will allow the Government to regulate new business models that offer one or only some parts of the payments value chain in a more targeted manner. Ensuring that the regulations are proportionate to the risks of the activity will encourage new ideas, new business models and flourishing of innovation and enterprise.
Singapore has a Fintech innovation hub, located in the central business district, to house Fintech startups. Singapore is also investing in the development of talent in artificial intelligence, data and computer science. The Minister highlighted the recent establishment of an AI research centre at Nanyang Technological University by Alibaba.
Using digital platforms to reach out to underserved communities
Minister Ong cited a joint study conducted by the Associated Chambers of Commerce of India and Ernst and Young that reported that around 19 per cent of the population in India still does not have access to the formal banking system. Singapore banks can reach out to these communities, particularly through digital platforms.
In 2016, DBS launched Digibank, a mobile-only bank in India. Digibank has no physical branches and utilises a suite of biometrics and AI technologies to provide digital banking services to consumers. Within two years, more than 1.5 million customers have signed up for Digibank, and the customer base is expected to grow to five million by 2021.
Infrastructure financing and insurance sector
India will need an estimated US$1.5 trillion over the next 10 years for infrastructure financing, far exceeding the capacity and appetite of the banking sector. infrastructure projects seeking long-term institutional funds can also look to leverage the strong infrastructure financing ecosystem in Singapore, comprising multilateral development banks, private financiers, lawyers, accountants, and other professional services.
Till 2016, only 30 per cent of the Indian population was covered under life insurance India is the most exposed country in the world to natural disasters. This risk is further exacerbated by rising urbanisation in India, as larger communities are now concentrated in small populated urban centres, many of which lack adequate infrastructure. As the leading insurance and re-insurance hub in Asia, Singapore is also well placed to help address India’s risk management needs.
Minister Ong said that the development of Fintech has opened up new frontiers for cooperation between Singapore and India.
NETS, Singapore’s key domestic payment system operator in Singapore, is working towards establishing a payment linkage with the National Payment Corporation of India, or NPCI. NPCI is an umbrella organisation for operating retail payments and settlement systems in India. It is an initiative of RBI and Indian Banks’ Association (IBA) under the provisions of the Payment and Settlement Systems Act, 2007, for creating a robust Payment & Settlement Infrastructure in India.
In the coming year, a NETS holder in Singapore will be able to make online purchases on any NPCI e-commerce merchant website in India. In time, NETS users will be able to make payments at all 2.8 million RuPay point of sale terminals in India. Conversely, RuPay users will be able to make payments at all of NETS acceptance points in Singapore.
The Singapore Government is also working with the State Governments of Andhra Pradesh and Maharashtra to bolster cooperation on innovation and blockchain technologies, including cross border payments.
Minister Ong concluded, “I have highlighted a number of significant changes in India’s and Singapore’s financial landscape in the last decade. Technology, in particular, has been a key driver in this transformation. It has also opened up new and exciting opportunities for collaboration between our two countries. Done well, these initiatives will have a far-reaching positive impact on India - as well as Singapore, for the long term.”