Singapore's Virtual Banks Offer chance for Homegrown AI to Shine
Minister Tharman Shanmugaratnam, chairman of the Monetary Authority of Singapore (MAS), is going to hail new virtual bank licences, expected to be granted later this year, as the next chapter in Singapore's banking liberalisation journey. He also has good reason to be confident in the ability of local banks to compete with future digital upstarts.While it is undoubtedly true that virtual banking will represent a new chapter in Singapore’s journey as a world-class financial hub, it is also an important milestone in the city-state’s ambitions to be a leading artificial intelligence (AI) hub. If the connection at first does not seem obvious, it will become apparent upon closer inspection. Let me explain.
AI is playing an increasingly important role in global banking operations across areas such as Know Your Customer (KYC), anti-fraud, and credit scoring. For example, face-to-face identity verification is being replaced with AI-powered facial recognition technology. Small and medium-sized (SME) businesses, which have historically been underserved, are among the biggest beneficiaries of AI as banks’ costs are brought down and new customer segments expand.AI is enabling blacklisted databases to be cross-checked instantly across multiple institutions and jurisdictions. Human error is being eradicated and fraud reduced in a region that has been hit the hardest. Credit scoring is moving beyond traditional data sets to include substantial amounts of alternative data that provide a fuller risk profile. AI is at the forefront in all of this.
What this means is that the best banks of the coming decade will share a key trait in common: they will have the best AI. Aspiring virtual banks who want to make a real dent in the market will have to execute on these basic competencies as well – if not better – than their brick-and-mortar counterparts. For Singapore’s homegrown AI companies, it represents a hidden opportunity.As the battle between traditional and virtual banks takes off in earnest in 2019 and 2020, we are going to see a huge demand for more powerful AI technologies. Startups that have built AI solutions specifically for financial services will see their valuations grow. Market leaders will quickly be identified. Acquisitions will be made. Through it all, Singapore’s homegrown AI companies will be positioned well to reap the rewards of a burgeoning virtual banking ecosystem.
Singapore has been nothing if not vocal in its intentions to double up on efforts to build up its AI sector. For quite some time now, the technology has been earmarked as one of the most disruptive – and positive – forces of the future economy. While AI will inevitably displace some low-value jobs and tasks, it will also create new ones. Equipping the future workforce in financial services and other sectors with the tools to participate in an AI-powered economy remains a key government push.As you would expect, financial services continue to be one of the driving forces of Singapore’s economy – along with industries such as shipping, and oil & gas – where the nation has historically carved out a reputation as a regional and global powerhouse.
With its commitment to free-market economics and progressive regulation, I see no reason why Singapore’s global dominance in banking can’t be set to continue as we enter the coming decade, so long as it prioritises AI innovation alongside good regulation and appreciation for the invisible hand of the market.Indeed, Singapore has thrived because of its competitive free-market dynamics and pro-business credentials. The battle of the (virtual) banks will benefit consumers, yes. It will benefit the economy and business, too. But, it will also encourage innovation in new technologies such as AI, which this new breed of digital banks will need in spades – if they are to stand any chance of taking the crown from a long list of incumbents.