Hi there! I am a finance professional and am interested in finance, technology, and everything in between.
"Transferwise is coming to Singapore!" I excitedly told my colleagues, while quickly Googling how to open an account online.
This is not a new concept. I also applied for a Revolut card when they started offering it in Singapore, and am already using YouTrip when I went on my holidays.
YouTrip made a splash when it launched the first non-bank multi-currency card to the mass market. Its strategy was to tie up with a well known local player, ez-link, to assure the public of its credibility.
The new players have no such qualms, being well-known 'challenger banks' in their own right. Revolut has a big market in the UK, and Transferwise competes in the remittance market.
It looks like all three are knuckling down and flooding Singapore with their multi-currency cards!
However, they are competing in a very crowded space. By any measure, Singaporeans are already way over-carded...
... and there is a thriving culture of miles hackers, cashback chasers, and loophole jumpers.
Such Fintech players are being lauded as the biggest challengers to the traditional banks. After all, they are smaller, more nimble, and operate with less regulation and oversight from the local regulator (the Monetary Authority of Singapore, MAS).
So, how can we (as consumers) benefit from this new wave of competition? How viable is this business strategy? And, what areas should the local banks watch as this development unfolds?
Let's Explore the Benefits to the Consumer
The key proposition of these Fintechs are lower spreads on foreign exchange spending.
Typically, a normal credit card will incur fees in the 3–4% range, since the banks will charge approximately 3%, and Visa / MasterCard will charge approximately 1%.
However, these Fintechs undercut the banks by offering the following spreads:
|Fintech||Basis||Example, US$100 = S$|
MasterCard Wholesale rates
Oanda (for control)
No spread (for control)
Oanda (credit card rate)
4% (typical credit card rate)
While the rates look good, just to highlight that Revolut will charge an extra 0.5% spread on weekends and Transferwise's rate is before any fees.
But, YouTrip's rate is what it says—no other considerations.
So, Who Can Benefit From This Spread?
This low spread will only work for you if you are only concerned about price, and nothing else.
Why do I say that? Because the banks will offer you other perks that the Fintechs do not offer. One key consideration is miles. If you are a miles hacker, you would rather pay the 4% to the banks to get your airline miles in return.
Other benefits could include more cashback than the foreign transaction spread of 4% (e.g., some cards give up to 6% cashback for certain types of spending), which would then more than cover the spread that the banks take.
So, this will only benefit you if you are able to combine the benefits from your existing credit cards with the multi-currency cards, i.e. double dip the rewards. This is because both YouTrip and Revolut don't charge any fees (for now) when you top up their multi-currency card with your existing credit card.
There are whole blogs dedicated to optimising such spend, so I will only cite certain examples anonymously:
- For certain cards that look only at dollar amount spent, you may be able to claim cashback on the card and enjoy the lower spread of YouTrip or Revolut by topping up the multi-currency card (subject to their T&Cs, of course).
- For other cards, you may be able to split up the transaction into interest-free installments, which allow you to enjoy the lower spread and the float in your interest account.
- Lastly, there are certain cards that require a minimum spending to unlock certain perks to your bank account. Depending on the T&Cs, this spend might be able to count towards your minimum spending requirement.
ALWAYS remember to check your credit card T&Cs before you double dip!
A Quick Note About Float
While these Fintechs seem to be targeting customers who are more tech-savvy and willing to try new things, one disadvantage for them (and thus, an advantage for us!) is how we manage the float.
With Revolut and Transferwise allowing direct transfers back to a bank account, this is less of a concern (if you can transfer for free, which remains to be seen). But, for YouTrip, this is an issue because the only way to utilise the balance is to spend it.
Thus, what I usually do is to only do big top-ups right before a big expense. For e.g., I would not top-up my YouTrip card with hundreds of dollars and leave it there to rot without interest. Instead, I will only top-up the card just before I make payment for airplane tickets and hotels. This is where the ease of topping up can backfire, because it allows us to optimise and only top-up where needed.
(Of course, while I am travelling, I will have some emergency balance on the card, but this is just like carrying some cash in your wallet.)
Quick Edit: Security Benefits of the Multi-Currency Cards
In addition to the float, one added benefit of the multi-currency cards are the security features. Not only can you leave the card empty when you are not travelling, you can also disable your card via the Fintech's mobile application. This comes in useful if you have some balance remaining but don't intend to use the card for an extended period.
Why is this important? Well, in today's day and age, it is safe to assume that if you have used your credit card online or overseas, it is highly likely that your credit card details are floating around the internet somewhere, waiting to be picked up by scammers and the like. While the banks do have fraud detection systems and many different ways to counter these (transaction limits/notifications, enabling for overseas usage, etc.), should any amount get through, it is quite inconvenient to go through the whole investigation process.
Having a card dedicated to travel or online shopping will help here, and that is where the Fintechs can come in. It adds an additional layer, but security and convenience are always at odds.
Next, Let's Look at How Viable (and Sustainable) This Is
While we (as consumers) can enjoy the price war now, how long will it last?
We have seen this pattern play out before. When Uber (then Grab) made a splash in Singapore, they undercut the local taxi companies by offering so many vouchers and discounted rides, until Uber had enough and relinquished the market to Grab.
But, even though GoJek and other players are here to challenge Grab's dominance, the prices to the consumers have been increasing. Base fares (and surge pricing) have been going up, discounts and vouchers have been going down, and Grab even announced that they are terminating their subscription plans.
This leads us to the question on whether such undercutting can last. While they all do have financial backing (as can be seen from YouTrip's capital raise), we are not able to peer into their books (yet) to determine if such a pricing scheme is sustainable in the long run, or if this is another "cash burn for market share" type of pricing.
One way we can gather some insight is to wait for MAS to announce the digital bank licencees, since the applications will close at the end of 2019. If any of the Fintechs want to apply for a digital banking licence, they will need to demonstrate to MAS that they are not engaging in 'unsustainable banking practices' or 'predatory pricing', and I do wonder if such undercutting will trigger any red flags at MAS' end.
If their business model is to generate very small profits with mass volume, or to rely on other areas (such as Transferwise, whose main business is actually remittance), then this competition would last and only intensify as more and more players enter this market.
Lastly, How Should the Local Banks React?
Even though this opens up a whole new level of competition, the local banks have certain things going for them:
- They are already the custodian of the deposits that the consumers would need;
- They have a full suite of credit cards with various benefits, depending on what you want; and
- Some banks already have a multi-currency account tied to a debit card, albeit with higher fees than what the Fintechs are charging.
Of course, even with all that, the banks are stepping up their game against all Fintechs, not just the competitors in the multi-currency card space. This may seem like a small area to them, because they are fighting the other players trying to gain market share in the payments, investing, lending, and potentially deposits space.
(It's tough to be a bank nowadays.)
In my view, if the Fintechs continue to flood the market at this rate (with free cards and rock-bottom fees), they may end up killing each other before they get a chance to kill the banks!
However, that is where the real concern is. Amidst the ashes of the competition, there will likely be the same type of consolidation among the Fintechs that we see in the other Tech spaces, such as Uber/Grab in Southeast Asia. If someone manages to survive (and not all go bust like the bike-sharing saga), the survivor would be the battle-worn champion that has the customer base, deep pockets, and business savviness to fight the banks on their home ground, and do so well in that particular niche that consumers will use their services instead of the banks.
How close are we to this? Is this an eventuality, or just one of the possible scenarios? Only time will tell. The dangerous part is about how we (as humans) fail to foresee exponential growth in certain industries, because we tend to extrapolate based on a straight line instead of a true exponential function. Thus, while the multi-currency cards seem to only be competing on cost and against the multi-currency debit cards of the banks, you never know when a more innovative product will surface that also provides miles or cashback, and lure those customers away from the traditional banks.
Meanwhile, as a consumer, enjoy the competition while it lasts, and remember to check your T&Cs!
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