In the race to create an e-bank you can almost hear the engines roar at the starting line, and no bank in Singapore wants to be left in the dust. Last week, OUB announced its joint venture with Dublin-based First-e to create Southeast Asia's first stand-alone bank. Not to be outdone, OCBC Bank then announced its own e-bank, claiming that it was the first, having done a soft launch days before the OUB announcement.
Virtual banks started sprouting in Europe and Japan a couple of years ago, most notably First-e and Egg Bank in Europe.áThe former was created by Enba and claims the title of Europe's first internet bank.áThe latter is a branch of Britain's Prudential, which to date has over 940,000 customers and has captured 22% of new deposits in Britain by offering higher deposit interest rates than standard banks. Virtual banks are able to offer such rates because overhead costs are a fraction of bricks and mortar banks.
Virtual banks' problems
But virtual banks have had their share of problems. In May of last year, it was reported that Egg's system contained a security flaw that allowed some users to see other potential savers' confidential financial information. A study released by Cybercitizen Finance in August 1999 revealed that although 3.2 million US customers opened an online account last year, 3.1 million closed theirs, mostly due to difficulties experienced in using complicated sites.
Virtual banks are also cause for some concern for government authorities. David Carse, deputy chief executive of the Hong Kong Monetary Authority expressed concern in April about virtual banks' liquidity and credit risks, as relationships with customers grow more distant and impersonal. He also said that banks going online could expect to see their profitability negatively affected because margins will come under pressure from greater price transparency.
Furthermore, given the speedy creation of some of these banks (OCBC boasts that it took them a mere 100 days), legal and regulatory authorities are floundering in their wake. E-banking throws up a range of jurisdictional and regulatory issues which may curb the growth of e-banks outside their home country, as many countries in Asia have yet to set their regulations in relation e-banking, including Singapore.
The race is on in Singapore
Backáto Singapore's e-bank race.áAnalysts are saying that OCBC's new e-bank has at least one significant advantage over rival Overseas Union Bank's joint venture with First-e. The OCBC e-bank will be operating under its wholly-owned Bank of Singapore licence, whereas OUB and First-e's joint venture e-bank has only been granted an interim licence to form a company and is still waiting on the go-ahead from the MAS in respect of a full banking licence.
Not to be deterred, however, OUB shares rose 2% and OCBC shares rose 2.6% the day after their respective announcements.
