Neobanks Compliance

Neobanks

Neobanking Landscape in Southeast Asia

Apr 16, 2024

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InnReg

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9 min read

Across Southeast Asia, the neobanking industry is on an established growth and innovation trajectory.

Accelerated by the COVID-19 pandemic, this trend can be attributed to several factors, including the increasing demand for convenient and accessible banking services, the rise of digital technology and the internet, and changing consumer behavior and preferences.

Overall, the neobanking sector in Southeast Asia presents significant opportunities for growth and innovation. In this article, we explore the neobanking landscape in Southeast Asia, challenges to overcome and relevant examples.

Subject-matter experts with decades of experience put together this analysis, not freelance copywriters, content manager, or AI. Our advisors work with multiple fintech startups and specialize in global fintech compliance.

Neobanking Landscape in Southeast Asia
Neobanking Landscape in Southeast Asia

What is a Neobank?

Neobanking is a novel concept that combines technology and finance to redefine traditional banking by offering streamlined and efficient financial solutions through digital platforms, thereby challenging the established banking model. 

A neobank is a type of fintech firm that operates exclusively online, leveraging advanced technologies, such as artificial intelligence and data analytics, to offer a fully digital and mobile-first banking experience. This allows a focus on innovative user experiences, personalized services, and lower fee structures due to reduced overhead costs. 

Below, we've outlined key distinctions between neobanks and incumbent banks. 

Digital Presence:
While traditional banks operate with a physical branch network, neobanks function solely in the digital realm, accessible through mobile apps and online platforms.

Cost Structure:
Due to their lack of physical branches, neobanks enjoy significant cost advantages, which translate into more competitive interest rates on savings accounts and reduced fees for banking services. 

User Experience:
Neobanks succeed in providing a seamless and highly user-friendly experience. Leveraging cutting-edge technology, they offer intuitive interfaces, real-time updates, and instant customer support.

Product Offering:
While traditional banks present a wide array of financial products and services, neobanks usually focus on core banking services with a digital-first approach. 

Personalization:
Thanks to data analytics and AI, neobanks are able to deliver personalized financial insights and recommendations to customers with unprecedented customization in financial services. 

Regulatory Compliance:
Though regulations apply to all financial institutions, neobanks will likely face additional challenges in complying with financial regulations, especially when operating in multiple countries.

What is the Neobanking Landscape in Southeast Asia?

Over the last few years, the neobanking industry in Southeast Asia has experienced significant growth, with a compound annual growth rate (CAGR) of 8% projected through 2027 and user penetration estimated to increase from 2.55% in 2024 to 3.16% by 2028. By 2028, experts predict the 50-plus neobanks in the region will serve 22.63 million users

The Southeast Asia neobanking market is geographically diverse, encompassing countries with varying levels of economic development, regulatory frameworks, and customer preferences

To succeed, neobanks must tailor their strategies and offerings to the unique characteristics of each market, by understanding local regulatory requirements, customer preferences, and cultural factors. 

Overall, Southeast Asian countries present immense potential for neobanking providers to enter and expand their market presence.

Key Drivers Behind Neobanks’ Growth in Southeast Asia

Below, we’ve listed several key factors driving Southeast Asia’s neobank growth in recent years. 

Increasing Smartphone Penetration:
Southeast Asia has witnessed a surge in smartphone adoption, enabling neobanks to reach a wider customer base.

Rising Internet Penetration:
The availability of affordable internet connectivity and the expansion of 4G and 5G networks have boosted internet penetration in the region, as customers can conveniently access financial products and services from their devices.

Changing Demographics and Consumer Behavior:
The rise of digital-native generations, such as millennials and Gen Z, who are more inclined towards digital channels, has fueled the demand for neobanking services.

How Does Southeast Asia’s Fintech Ecosystem Benefit from Neobank?

The neobanking market in Southeast Asia provides a number of significant advantages to stakeholders and industry players, such as:

Innovation and Technological Advancements:
Neobanks leverage technology and innovation to provide advanced financial solutions. They incorporate artificial intelligence and data analytics to offer tailored recommendations and automated processes, among others. 

Financial Inclusion:
Through their digital platforms, neobanks provide basic banking services, savings accounts, and microloans to individuals with limited access to formal financial services. This contributes to financial inclusion by reaching unbanked and underbanked populations.

Collaboration and Partnerships:
The neobanking ecosystem encourages collaboration and partnerships between traditional banks, fintech startups, technology companies, and regulators. This collaboration fosters knowledge sharing, innovation, and the development of new products and services. 

Market Growth and Expansion Opportunities:
With the increasing adoption of smartphones, internet penetration, and changing customer preferences, neobanks have the potential to expand their customer base and market share. 

These benefits clearly demonstrate the potential of neobanks to transform the banking industry, improve customer experiences, promote financial inclusion, and drive innovation and collaboration among industry participants and stakeholders.

Key Challenges for Neobanks in Southeast Asia

Neobanks operating in Southeast Asia face a number of unique challenges, including: 

Regulatory Environment:
Neobanks operate in a highly regulated and volatile environment that is constantly evolving. Compliance with financial regulations, data privacy laws, and anti-money laundering measures can pose hurdles for neobanking providers, requiring them to invest in robust compliance systems. 

Security and Privacy Concerns:
Neobanks face serious risks from security lapses and data privacy problems. Neobanks must continuously invest in robust security measures and educate customers about the security features and protocols in place.

Competitive Pressure:
Incumbent banks recognize the potential of neobanks and are increasingly launching their own digital platforms. Such competition can pose challenges around differentiation, customer acquisition, and market share.

Urban vs. Rural Divide:
To this day, there is still limited awareness and adoption in rural and remote areas of the region. Nearly 50% of adults in the region lack access to banking services, but digital banks are poised to bridge this gap.

Compliance Considerations for Neobanks in Southeast Asia 

Here are key compliance considerations that neobanks in Southeast Asia typically need to address:

  1. Regulatory Compliance: Neobanks are required to comply with the banking and financial regulations of each country in which they operate. This includes obtaining necessary licenses, adhering to capital requirements, and following rules related to lending, payments, and other banking services.

  2. Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF): Neobanks are required to have robust AML and CTF policies and procedures in place. This includes implementing Know Your Customer (KYC) processes, monitoring transactions for suspicious activity, and reporting suspicious transactions to relevant authorities.

  3. Data Protection and Privacy: Given the digital nature of neobanks, they are required to comply with the data protection and privacy laws of the countries in which they operate. This includes obtaining necessary consent for data collection and use, implementing measures to protect customer data, and complying with data breach notification requirements.

  4. Cybersecurity: Neobanks are required to have robust cybersecurity measures in place to protect against threats such as hacking, phishing, and other forms of cybercrime. This includes implementing secure systems and networks, regularly testing for vulnerabilities, and having incident response plans in place.

  5. Consumer Protection: Neobanks are required to comply with consumer protection laws, which may include providing clear and transparent information about their products and services, treating customers fairly, and handling complaints appropriately.


It's important to note that the specific compliance considerations for neobanks can vary significantly by country in the APAC region due to differences in legal and regulatory environments. Therefore, neobanks must understand the specific regulatory requirements of each country in which they operate.

Future Outlook for Neobanks in Asia

The future of Southeast Asia’s neobanks is promising, with several trends and factors driving its growth trajectory.

We’ve outlined the most relevant ones below. 

Market Expansion:
Factors such as increasing smartphone penetration, rising internet connectivity, and changing customer preferences will continue to facilitate the sector’s growth. Untapped markets, particularly in rural areas and emerging economies, offer significant growth opportunities for neobanks to expand their customer base and market share. For example, neobanks such as Vietnam's Timo and the Philippines' Tonik are leading providers of digital-only services tailored to the needs of the unbanked and underbanked populations in their countries. 

Regulatory Compliance:
Regulatory frameworks will continue evolving to accommodate neobanking and fintech growth. Regulators will focus on striking a balance between promoting innovation and ensuring consumer protection, requiring neobanks to remain agile and compliant with changing regulations by investing in compliance resources. An open and proactive collaboration and dialogue between neobanks and regulators will be crucial for shaping the regulatory landscape and fostering a conducive environment for digital banking.

Technology Advancements and Innovation:
Technological advancements will continue to drive innovation in the market. To remain relevant, neobanks must prioritize investments in technology infrastructure, data analytics, and cybersecurity measures.

Enhanced Collaboration and Partnerships:
Collaboration and partnerships between neobanks, traditional banks, fintech startups, and technology companies are likely to increase in the future. This should spur knowledge sharing, accelerate innovation, and create synergies to offer improved services, for example, by strengthening partnerships with non-financial platforms to provide embedded financial services.

What is Southeast Asia’s Preeminent Neobanking Market? 

As outlined in our 2023 article, the Southeast Asian fintech scene will evolve over the next few years due to changes in technology, rules, and competition as more fintechs leverage technology for a better customer experience.

Based on recent trends and industry developments, our analysis spotlights the region’s pre-eminent fintech and neobanking market, Singapore. Its neobanking industry has unique characteristics that differentiate it from other countries in the region. 

One of the key distinguishing features is the strong regulatory support from the Monetary Authority of Singapore (MAS). The MAS actively promotes the digital banking sector by granting licenses to a diverse range of players, including tech companies, fostering healthy competition.

Singapore's status as a global financial hub also contributes to the uniqueness of its neobanking industry. The city-state's robust financial infrastructure, high rate of smartphone penetration, and strategic location as a gateway to Southeast Asia provide a strong foundation for the growth and development of neobanks.

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Top 5 Neobanks in Singapore

The top 5 neobanks in Singapore are:


Aspire  neobank southeast asia

Aspire

Aspire is a digital bank focusing on accounts for small and medium-sized businesses (SMEs). It offers services like corporate cards, rapid credit lines, a bank account, credit card, invoicing, and expense management software.


Wise  neobank southeast asia

Wise

Formerly known as TransferWise, Wise allows users to send money internationally quickly and affordably. It offers a business account that’s easy to set up without high rates, hidden costs, or monthly expenses.


YouTrip  neobank southeast asia

YouTrip

YouTrip is the city-state’s first multi-currency mobile wallet with a prepaid Mastercard. It lets users pay using over 150 currencies without fees and allows 10-currency in-app exchanges.


Revolut  neobank southeast asia

Revolut

Revolut is a fast-growing fintech business specializing in banking and payment services. It offers a breakdown of expenditures by transaction type, allows users to set monthly budgets and spending targets, and provides instant money transfers between Revolut customers.


Sleek app neobank southeast asia

Sleek

Sleek’s business account is an all-in-one virtual account that allows businesses to start receiving and transferring payments right away. It offers features like local and international transfers, multiple corporate cards, and integration with bookkeeping and accounting services.


Read our recent blog post for more insights on fintech companies in Singapore.

In conclusion, the Southeast Asia neobanking market is on a path to sustained growth and evolution. Having disrupted the traditional banking landscape by offering convenient, user-friendly, and innovative financial solutions, neobanks have the potential to drive financial inclusion, shape the future of banking, and meet the evolving needs of customers in the region.

Our analysis highlights how neobanks play a crucial role in providing banking services to the unbanked and underbanked populations while regulatory support fosters healthy competition and innovation.

In the coming years, we expect customer education and awareness will be critical in driving the adoption of neobanking services and bridging the current divide between urban and rural areas. To this end, neobanks need to invest in customer education programs and partnerships with local communities to raise awareness and build trust among potential customers.

Similarly, as the regional landscape continues to evolve, partnerships between neobanks, fintech startups, and traditional banks will likely increase. Regulatory developments will remain a key factor shaping the market dynamics. So, neobanks must closely monitor regulatory changes, adapt their processes and systems accordingly, and engage with regulators to contribute to the development of a conducive regulatory environment for digital banking.

Overall, Southeast Asia remains one of the world's most promising markets for neobanks, with an enormous opportunity for value creation through financial inclusion initiatives and a digital economy redesign.

Need support and information on neobanks or the fintech sector in Southeast Asia? Reach out today for a free consultation.

How Can InnReg Help?

InnReg is a global regulatory compliance and operations consulting team serving financial services companies since 2013.

We are especially effective at launching and scaling fintechs with innovative compliance strategies and delivering cost-effective managed services, assisted by proprietary regtech solutions.

If you need help with neobank compliance, reach out to our regulatory experts today:

Published on Apr 16, 2024

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Last updated on Apr 16, 2024

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