Neobanks in Singapore are shaking up the banking landscape with a range of advantages for both consumers and businesses.
They are a result of technological advancements evolving the financial industry, empowering firms to come up with better solutions for more convenient financial services.
These digital banks partner with traditional banks as per the Monetary Authority of Singapore’s (MAS) requirement to store customer funds. This makes money held in a neobanking account as safe as money kept in a traditional bank account.
It may also help to assure wary consumers and promote this unique type of financial institution. In this article, we take a closer look at neobanks and why they have been gaining popularity.
What is a Neobank?
Neobanks, also known as challenger banks overseas, are financial technology companies that simplify online and mobile banking. They provide technologies and financial tools like software and applications to do so.
Operations are entirely digital with no physical branch nor in-person assistance. Neobanks typically operate on an online platform or channels like a website or mobile app.
You should not confuse a neobank with a digital bank as well, despite the terms being used interchangeably.
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What is the Difference Between a Neobank and Traditional Bank?
Neobanks and traditional banks have several differences, from the way they operate to the financial offerings they provide.
These modern banks differ in a few ways:
- They typically have a much smaller physical footprint as they rely heavily on digital channels for customer interactions
- Neobanks may not have the same level of trustworthiness traditional banks have
- They may offer a smaller range of products and services than traditional banks as they focus on niche markets
- They are usually much more nimble and agile than traditional banks, which allows them to quickly adapt to changing customer needs and preferences
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What Are Some Examples of Neobanks in Singapore?
Singapore is no stranger to neobanks. Some well-known examples include:
- Wise (formerly known as Transferwise): Incorporated in 2011, Wise offers online money transfers and global banking features with low transactional fees and favourable exchange rates
- Aspire: Aspire is a digital business banking platform for small and medium businesses (SMEs). These companies can manage their money, including making bill payments and expense management
- YouTrip: YouTrip is Singapore’s first-ever mobile wallet with multiple currencies. Users can exchange money and make payments in over 150 currencies without charges
Why Are Neobanks Becoming So Popular?
Neobanks are becoming increasingly popular for general consumers and companies that open business accounts for use.
Here are some reasons that may explain its surge in popularity in recent years:
Superior Customer Experience
They offer a better customer experience than traditional banks, thanks to their focus on digital channels and their ability to quickly adapt to changing customer needs.
Neobanks typically have a significant cost advantage over traditional banks as they don’t have the same overhead costs associated with physical branches.
Therefore, customers may incur lower fees as a form of savings that the bank passes on, resulting in more affordable digital financial services.
Although neobanks offer comparatively fewer products and consumer banking services to customers, their lean business models allow greater space for innovation.
Neobanks can also offer solutions quickly, whether to existing or upcoming consumers, which is effective in a rapidly digitising world.
More Attractive Interest Rates
Since they have lower overhead costs, they offer higher interest rates to customers, which can be more attractive, especially during periods of high inflation or a recession.
Greater Convenience and Accessibility
Going digital with mobile and online banking makes it highly convenient for performing daily activities like making P2P payments or bill payments.
Since they are digital, users can also access the platforms 24/7, anytime, anywhere, making them extremely accessible.
The Ideal Solution for Technologically Savvy Singapore
Singapore has a high mobile penetration rate of 88.4%, which is forecast to hit 93.39% by 2025. It is supported by robust infrastructure – in fact, it is the first country worldwide to reach country-wide 5G coverage.
Neobanks can leverage these trends and support to capture opportunities in a growing market.
As is, they offer efficient and accurate financial services perfected with algorithms and cloud-driven tools suitable for the growing digitally adept population.
How Can Neobanks Make Use of Opportunities?
Despite the benefits of creating and operating a neobank, challenges remain. Therefore, it is crucial to seize the opportunities available in the customer segment served.
For example, neobanks serving businesses have an advantage in corporate card issuance with higher interchange fees. They can also cross-sell products and services, like automated accounting services.
On the other hand, neobanks targeting individual consumers can ponder how they can grow with their customers by reshaping their finances so that they transact more.
It is important for neobanks to evaluate their niche target markets’ pain points and determine areas of value that they can provide that will be attractive to their customers.
They can also think about diversifying their offerings and meet various untapped customer needs or bridge gaps.
Neobanks Are Here to Stay
The rigid banking industry has long needed to revamp its offerings and processes.
Neobanks are a fresh new way for digitally savvy consumers to bank and are a welcome solution to the new digital era that solves the problems of conventional financial institutions.
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- Neobanks typically make money off interchange fees, but it is argued that they should consider other forms of revenue-generating means. Some examples are cross-selling products, establishing partnerships, and finding inspiration from successful fintech firms.
- You must obtain a banking license from the Monetary Authority of Singapore (MAS) and team up with bank partners in Singapore.
- There are several advantages of starting a neobank in Singapore. For example, there are lower overhead costs, more attractive rates, and a better opportunity to innovate solutions to meet customer needs.