As technological advancements seep into the financial sector, more companies are popping up to offer convenient financial services. One of the most popular branches of this digital disruption are neobanks.
Neobanks in Singapore are no secret. This buzzword has gained prominence in the fintech community and it seems like a pretty novel idea, a new-bank. But what exactly is a neobank?
A neobank is a financial institution that operates entirely digital with no physical bank branches. Typically, they operates through an online platform such as a website, a smartphone application, or even both. Unlike traditional banks which offer a wide-ranging list of consumer banking services, neobanks target more niche markets with their products.
Neobanks in Singapore leverage on the modern day obsession with technology and convenience, providing financial products such as foreign transfers, credit lines and payment solutions.
Traditional banks are well-known for having a robust and regulated financial system. Their trustworthiness has made banks the first place that comes to mind when consumers think of financial services.
However, as customer experience and satisfaction are pushed to the forefront of the financial landscape, traditional banks might struggle to cope with their rigid systems and rapidly evolving consumer demands. The same operating systems put in place now leave little to no room for innovation.
Here’s where neobanks differ. The slimmed down business model of a neobank allows it to target its intended audiences more effectively, reducing fees and increasing perks.
Against the backdrop of an increasingly digitised generation, neobanks offer quick solutions to the financial needs of up and coming businesses and consumers. Whether it’s tracking business finances, or transferring money to a family member overseas, neobanks are slowly infiltrating the financial sector.
Neobanking might still be pretty new to Singaporeans, but here are a few neobanks in the country that you should keep a lookout for:
Established in 2011, Transferwise is one of the world’s leading neobanks for internal transfers.
Users of Transferwise enjoy low international transaction fees and exchange rates, making it an amazing alternative for both businesses and consumers looking to transfer funds overseas.
The platform also offers international business account opening, which allows businesses to pay invoices and handle payroll in over 40 currencies. Now integrated with Aspire, users can also enjoy Transferwise’s low-cost and fast international transfers through their Aspire accounts.
💡 Tips: Did you know that Aspire became TransferWise’s first integration? With the Aspire Business Account, you can enjoy direct international money transfers with the lowest exchange rates.
This neobank has made waves amongst travel-addicted millennials. Youtrip is a neobank that offers a multi-currency travel wallet. Super fuss-free and easy to use, Youtrip allows users to make overseas transfers with no fees in over 150 currencies. The exchange rates offered by Youtrip are linked to real-time exchange rates, making them much better than the FX rates offered by banks.
Say goodbye to queueing up at your local money changer for good. Youtrip also provides an in-app money changer for 10 major currencies that works 24/7, allowing you to lock down competitive exchange rates weeks or months in advance.
Revolut is a neobank that allows users to spend multiple currencies, and transfer money internationally. Similar to Youtrip, Revolut offers ultra-low exchange rates and no transaction fees.
However, Revolut also comes with an in-built expense tracker, which allows you to categorise spending and budgeting. Revolut currently has three different plans: Standard (free), Premium, and Metal. Although Premium and Metal come with an additional charge, they do provide extended limits and more features.
There are many advantages of neobanks, but here’s a rundown of the most alluring features of one:
Smartphone penetration rates are estimated to reach 4.65 million in Singapore in 2020, which means over 90% of people in Singapore use smartphones in today's digital age.
Leveraging on the tech-savviness of its consumers, neobanks use algorithms and cloud-based tools to provide efficient and accurate financial services—all through a mobile application. With just a click of a button, consumers will be able to bypass the many processes required at a traditional bank.
The wealth of information that traditional banks provide might sometimes be confusing to those who have limited financial awareness. Neobanks break down financial processes into digestible bite-sized pieces, offering easy access to services such as loans, and peer-to-peer transfers.
As neobanks don't have physical branches, they have a significant cost advantage when it comes to operation. These cost savings are translated into lower application, account, and programme fees for their customers.
To give you an example: opening a business account with a traditional bank usually requires a minimum deposit and minimum monthly balance. This could be a hefty sum to fork out for a small business looking to get its feet off the ground.
Neobanks have less administrative costs than banks do, which is why opening a business account with a neobank provides more value for money. On top of that, neobanks often offer lower FX rates and transfer fees, great for SMEs and startups that are looking to expand overseas.
💡 Tips: From monthly minimum balance to fall-below fees, such account fees could quickly add up to your business expenses. Choose a business account with low account fees to generate more savings.
While traditional banks do offer a host of financial products such as credit cards, insurance and loans to a general audience, neobanks target more specific audiences. An example of this includes creating products that work on payrolls, expense management and automated accounting services for freelancers.
Neobanks also often offer add-on products as a way to offer solutions to corporate finance challenges SMEs face. Integrating APIs into their platform is just one of the many ways neobanks help to streamline business workflows.
Being entirely online, neobanks are able to easily analyse customer behaviour and pain points through data-driven processes. This provides an avenue for neobanks to swiftly update their interface, making their platform ultra-user friendly.
Despite the buzz around neobanks, they’re still relatively new in the country as Singapore is a place where financial regulations are rife. As such, many fintech startups looking to incorporate or obtain a license in Singapore might face a few hurdles.
Neobanks aren’t required to hold full-banking licenses. Instead, they could partner with a license holder bank or leverage on alternative license types to provide bank-like products through an application. These are different from the full-banking licenses that challenger banks such as Revolut possess.
In Singapore, the presence of a Digital Bank Licensing scheme has encouraged larger tech giants to enter the digital challenger bank arena. However, the barriers to entry for a digital bank license are high, with high capital requirements being one of the discouraging factors for smaller digital banks to contest licensing regimes.
With that in mind, this has led to a higher presence of Non-Financial Institutions and Consortium led challengers rather than neobanks.
Whether you opt for a neobank or a traditional bank for your financial services, both will provide financial tools for you to run your business processes and carry out your daily activities. If you’re a traditional business owner, a brick and mortar bank might be able to offer you financial solutions more suited to your company.
But if you’re a startup owner looking to automate and cut down on chunky financial processes, neobanks might have your dream product up their sleeves.