Why is There a Growing Interest in Neobanking?

Ever since they were founded more than a millennia ago, traditional banks have always taken care of all our financial needs. From simple loans, checking and savings accounts, to more complex financial instruments such as debit and credit cards, mortgages and stock market trading, traditional banks have always been relied on for these various functions.

However, times have changed.

New companies in Singapore and across the globe have made use of technology and its innovations  to create a new, convenient, and often cheaper alternative to traditional banks — the neobank.

Since their inception, neobanks have become extremely popular and attracted many tech-savvy customers over from traditional banks. In this article, we will explain what neobanks are, why there is so much interest in them, how they differ from traditional banks, and the main advantages of using them.

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What are Neobanks?

Neobanks, sometimes referred to as “financial technology firms”, are financial institutions that offer online-only financial services. Neobanks do not have physical branches, which means that customers have to access their services through their website, an app, or both.

Neobanks make most of their money from interchange fees that merchants pay when neobank customers make purchases for goods and services with their cards. Neobanks are permitted to charge higher interchange fees than traditional banks due to their smaller size, which in turn allows them to offer free checking and savings accounts to their customers.

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What are the Main Differences Between Neobanks and Traditional Banks?

In contrast to traditional banks, neobanks are completely digital and have no physical branches. Although traditional banks have since added online banking services to their offerings, they still have physical branches where their customers can speak to the staff in person.

Neobanks have a limited suite of services that they offer to customers. Most of them only offer checking and savings accounts, payment and money transfer services, and budgeting assistance or other financial education tools, although this is rapidly changing as more and more neobanks are beginning to expand their services.

In contrast, traditional banks offer a much wider range of banking services such as credit cards; loans; checking, investment, and savings accounts; wealth management; retirement planning; financial and small business counselling, and more.

Another important difference between neobanks and traditional banks is that there are very few fully chartered neobanks. Given that the process of becoming a fully licensed bank is long and very bureaucratic, neobanks tend to rent banking licenses rather than acquiring them.

Lastly, traditional banks focus on building deep, long-lasting relationships with their clients while neobanks do not have as much physical interaction with their customers, due to the fully digital nature of their services.

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Why are People So Interested in Neobanking?

Neobanks have many attractive features that have made people leave traditional banks and sign up with neobanks instead. We list below the four main advantages of using neobanks, and why so many customers and investors are interested in them:

· Low fees. Neobanks have lower running costs compared to traditional banks because they are fully online, not chartered, and do not have physical branches. This allows them to offer their customers lower fees (and sometimes even none at all) as a result.

· Innovation. Since they are less constrained by government regulations, neobanks can innovate on and improve their features much faster than traditional banks can.

· Online payment services for small businesses. Neobanks specialise in financial technology, which means that they are perfect for small businesses that operate online and need billing software, payment gateways, and other digital financial solutions.

· Ease of use. Opening an account at a neobank is as easy as 1-2-3. You can open a checking and savings account in no time through their smartphone app or website. This means that you do not have to complete any hard copy forms or visit an office to complete your registration.

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Sprout with Us!

Sprout Asia wants you to focus on what you do best, while we take care of the rest. That is why we offer budget-friendly accounting services, so that our chartered accountants can manage your finances with ease and accuracy.  

Feel free to reach out to us with any questions you may have about our services, and we will respond to you within 24 hours.