DBS hits fintech firms with large fee hikes for custodian service

Photo credit: DBS Bank

DBS will increase the fees it charges fintech firms to hold customer funds under its custodian services, a move that means higher costs for fintech companies operating payment services in Singapore.

The fee adjustment, which will take effect in April, applies to a product called virtual accounts.

Under Singapore’s Payments Services Act, major payment institutions or payment service providers that handle customer funds must hold those funds in segregated bank accounts for safeguarding.

Firms that deal with a large amount of incoming funds or receive payments from many parties may assign unique virtual account numbers to each customer.

Now, firms pay DBS a flat annual fee ranging from between four digits to around S$10,000 (US$7,900) for the service. The fee includes the use of an unlimited number of dynamic virtual accounts.

From April onwards, these businesses will be charged S$1 (US$0.79) per month per customer account, according to one industry source. As a result, firms serving more users – and therefore require more virtual customer accounts – have to cover higher fees.

A firm requiring 10,000 customer accounts, for instance, will now be forking out S$10,000 (US$7,900) a month, or S$120,000 (US$94,800) a year.

Affected companies were notified about the change in October. Some firms have ceased to offer certain services and offboarded customers to manage the growing costs, Tech in Asia understands.

According to sources, DBS explained to affected customers that the price increase was due to the rising costs of maintaining the accounts, performing know-your-customer (KYC) and anti-money laundering (AML) checks, as well as transaction monitoring.

Previously, payments firms could ascribe unique virtual account numbers to individual customers themselves (dynamic accounts). Starting April, DBS will take over the creation of individual virtual customer accounts (static accounts).

The migration of “some fintech platforms from dynamic to static virtual accounts that embed additional controls and screening of end customers and corporates” is one of several steps the bank is taking to improve consumer protection, a DBS spokesperson tells Tech in Asia.

“As fintech adoption grows, some fund flows via these virtual accounts have become more complex. This presents a growing risk of scams and fraud which needs to be better risk managed,” the person adds.

It’s unclear how many firms are affected by the changes, though Tech in Asia understands that at least two firms will face higher fees as a result.

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