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Is This a Threat to Singapore’s Banks?

With advancements in technology, we have seen many traditional businesses get disrupted.

Over in the U.S. for instance, e-commerce giant Amazon.com has done it with the brick-and-mortar retail industry; movie streaming and DVD-by-mail outfit Netflix has turned the movie-renting industry on its head; and LinkedIn has changed the face of the recruitment industry.

It was perhaps only a matter of time before young technology startups would set their sights on another traditional field – banking.

In the current status quo, banks serve as a very important avenue for both businesses and individuals to access capital.

When a company requires funds, it would have to either get a loan from a bank or engage a bank’s help to sell its shares (in initial public offerings, or IPOs, for instance) or issue bonds. On a personal level, borrowers go to banks for personal loans, mortgage loans, car loans, and even credit card loans, just to name a few; meanwhile individual savers and investors also go to banks to deposit their money to earn some interest or to buy financial products.

These are, in essence, the very business of banking: 1) Taking in deposits and in turn lending the money out to individuals or businesses that require capital; and 2) providing important advisory services in the financial markets.

But, things may be changing. There are now more and more online platforms appearing that help to link borrowers directly with lenders, bypassing the banks.

For instance, there are platforms like kickstarter.com, which link entrepreneurs to their final consumers even before any product or service has been developed; the entrepreneurs can gain access to funding in this way without ever needing a bank loan.

There are also peer-to-peer (P2P) lending sites such as Lendingclub.com and Yooli.com; such sites allow individual borrowers to consolidate all their debt and get a loan directly from investors who are willing to provide the funds (more specifically, an individual with different loans from different banks may be able to consolidate all of his loans and refinance them all at once).

Fortunately for the banks in Singapore, including the big trio of DBS Group Holdings Ltd (SGX: D05)Oversea-Chinese Banking Corp. Limited (SGX: O39) and United Overseas Bank Ltd (SGX: U11), they would not have to face these threats now given that the new websites and platforms I had just described are operating predominantly in the U.S. and China.

But, the growth of these lending and crowdfunding sites might be an indication of where the world is heading in the future. And so, it’s important for investors in Singapore’s banks to think about their capabilities in adapting to changes which might sweep across the banking landscape in the years ahead.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim doesn’t own shares in any companies mentioned.