Hello, I'm Hus Linda Ahmed. Here's the central bank governor of what's considered to be one of the smartest and most progressive financial hubs in the world. Singapore's Ravi Menon is betting big on fintech, exploring digital currencies, looking to take the lead on what the future of banking will look like at a time of global uncertainty. This is a conversation with the managing director of the Monetary Authority of Singapore. Ravi Menon, thank you so much for your time today.
When it comes to Singapore's innovation efforts, one of the key areas is fintech and the Monetary Authority of Singapore plays a huge role in that. In fact, some of the initiatives include regulatory sandboxes in which fintech companies, selected fintech companies can test out their ideas alongside regulators. Since the initiatives were launched in 2015, what's been achieved? What do you view as the key successes so far?
Oh, well, we've come quite a long way since 2015. It's quite heartwarming how things have taken shape. The most important is that we now have a vibrant fintech ecosystem. If you look at financial institutions, now fintech is not only about non-financial players applying technology to financial services. I think a big part of fintech is the application of technology within financial institutions to create better products. And if you look at our financial institutions today, we've got more than 40 innovation labs. 2015 I think there were hardly any. Many of the global banks, insurance companies and asset managers have set up regional or even global innovation centers here and they're doing very interesting experiments using a range of technologies from blockchain to artificial intelligence to cloud computing and so on in a variety of use cases. So that's very interesting and exciting and a lot of collaboration is coming out of that. And if you look at the fintech community itself, 2015 we had about 50 fintech startups. Today we have more than 600 fintech startups. This is just over the space of four years and is still growing. Attracting a lot of interest. If you look at financing, 2015 we had about $400 million worth of investments going into fintech. That's grown two and a half times. We've just crossed a billion dollars in funding for Singapore headquartered fintech firms over the first three quarters. So, we're not done yet. We've got another quarter to go. So, we're going to be well in excess of a billion Singapore dollars of investments going into fintech firms.
In terms of funding, the MAS has allocated about $220 million over the next five years to develop fintech in Singapore. What's the funding plan for after those five years?
Yeah. So that's something we're reviewing right now. So this was announced in 2015 and the funding period is going to end soon. I think it has been money that is extremely well spent. Both in terms of supporting fintech infrastructure and architecture which has public goods nature for which this funding is required. We can't lay all the cost burden on the financial institutions. So this has been good. Second, the innovation labs I spoke about. Going forward I suppose we will have to take deep dives in certain areas of technology. Two areas that come to mind: cyber security and artificial intelligence. These are in a sense pervasive horizontal types of technologies with very multiple applications. We have the MAS grant where we support AI experiments directly and an interesting feature of the grant is that even as you employ artificial intelligence, it requires to qualify for the grant, it requires the financial institution to make sure you train the people so that they can take on the new jobs. So this is not about machines replacing people but machines enhancing the jobs that people can do. I think there is more scope to expand our horizons beyond that. Cyber is another area. We've given small grants to small financial institutions to upgrade their cyber security capabilities. But we can now think blue skies about what is the next quantum leap we want to make in building cyber resilience for the financial sector. So very tentative ideas. We've not completed the review. We'll probably announce it sometime next year.
Earlier you touched on digital banking and you're encouraging digital banks to further the competition within the financial sector space. How much traction has there been?
Well, referring to the digital bank licenses, we've just put out the requirements and we are now getting lots of interest. So, I think next year you'll see who will be successful. We've got five licenses, two full bank and three wholesale bank licenses out there. We want this to inject more competition and I think that's good. It's part of the purpose. We're not starting from a position of weakness. The banks here both the local and the foreign banks have very strong digital offerings. And I think some of them, the local banks have won accolades for being among the world's best with respect to digital infrastructure and offerings.
It's changed the banking landscape though, right?
It's already changed the last four five years. The last three years I think it has changed tremendously. It's been a big leap. So it's not as if we are lacking something and no banker you speak to in Singapore will say competition is lacking either. It's very keen competition. But we thought we could do even more. So the main purpose is not so much that the existing landscape is lacking but can it be made better.
Given all these developments, do you envisage a time when there needs to be consolidation within the banking industry? Because if you recall what Lee Kuan Yew said, the founding father of Singapore, he said that even three banks are too many for the Lion City. What are your views now as you sit here talking about digital banks?
Not clear to me that we are aiming necessarily for consolidation. If some consolidation happens, it may not be an entirely bad thing but one needs to be also mindful about concentration risk. Three banks is not too many because if they were three local banks, I mean firstly we have to understand there are 150 banks operating in Singapore about 20 of them probably are very active in the retail business and have very large presence. Some of the foreign banks like Citibank and Standard Chartered Bank have almost as much headcount as the local banks. And in many areas of business, they're also dominant in the wholesale side, Deutsche and so on. UBS and Credit Suisse are the dominant players in private banking. So if you look at business lines, various business lines, foreign bank presence and strength is very strong. So we have quite a diverse landscape. It's not clear to me that we need to see a lot more consolidation. What we're more likely to see and what we like to see are interesting joint ventures and combinations between traditional financial services and non-financial players that really harnesses and synergizes rather than consolidation on its own which is mostly about cutting cost which I'm not sure is the paramount need for now.
Ravi, I want to touch on digital currencies. Not too long ago, central bankers would stay clear of digital currencies, but the landscape has changed. I mean, we have the likes of Sweden, the Bahamas, China, talking about potentially having their own digital currency in circulation. What's your view on whether central banks should be involved in digital currencies?
We should be involved meaning we need to keep abreast of the technology. We need to get our hands dirty in actually working with the cryptocurrencies and we've gained valuable experience from Project Ubin because we issue the Singapore dollar as a digital currency on the blockchain. So I think it's important for us to be immersed in it and not stay away from it. Then the question becomes a bit more, the answers become more nuanced. For what purpose? What is the digital currency supposed to do? So, we make a normal distinction between a wholesale digital currency and a retail digital currency. The wholesale digital currency is what you see in blockchains. Where as with any digital token, it does not necessarily have a life of its own, but it's used to effect transactions. And so, Singapore would issue a digital currency, Canada would issue a digital currency to effect cross-border payments, but it doesn't get outside of the banking system. What people hold on to are still traditional fiat currencies. So if the problem you're trying to solve is cross-border payments, you don't need a retail digital currency. A wholesale digital currency would work just as well. So our leaning is that for now we don't see a compelling need for retail digital currencies, which means central banks issue digital currencies directly to the public. That's not how money is issued in real life. For all these years it has always been through the banking system and there was good reason for doing that because the banks then create out of the monetary base create money through their lending activities through credit, through the credit creation process. If central banks were to be directly issuing digital currencies to the general public, what do the central banks do with this money? Central banks are not geared up to be the people who extend credit. That's the job of banks. So we need to think that through how that will work in practice. And then you have to also ask why is there a demand for central banks to issue digital currencies quite apart from the cross-border settings for retail and I think if there is, and this is probably less of a monetary policy question than a political one. If people feel they need to have a digital equivalent of cash with all the properties of cash, the two most important being anonymity and finality. What do I mean? Anonymity means today if I make an interbank transfer to your account is confidential. But if the authorities suspect some wrongdoing, they can actually lift and look into the transaction. And this is how we detect money laundering, tax evasion and so on because as a digital trail there's a transaction record. So when we go into digital payments you lose that absolute anonymity of cash because if I gave you a suitcase of cash there's just no way that can be traced.
That takes us to Libra. We've had Visa Mastercard pulling out. We've had the G7 signing a note of caution. Where do you stand on that? Because Facebook says that regulators are delaying regulation and that is tantamount to putting a lid on innovation.
We welcome the innovation. I think Facebook's proposal has generated tremendous amount of new thinking which I think is essential for the future. And all that you said earlier on about the interest that central banks are showing in digital currencies have been given a big boost by what Facebook has done. On the face of it, pardon the pun, Facebook's proposition is that it wants to make cross-border payments cheaper, faster, and better. And it wants to enhance financial inclusion because it's far easier to have a Facebook account than to have a bank account and Facebook can play that role. Now again on the face of it I think those are lofty ambitions and I think they deserve an answer that the central banking community and the banking community needs to work on. It's partly because we've not done too good a job at this that you have proposals like this emerging. Not that the proposal is bad but what I'm saying is that it is pointing to a real gap and I have empathy for that.
