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Expert's Insight: Neo-Banks in Southeast Asia

16 December 2022

SEA Consulting Service

Expert's Insight: Neo-Banks in Southeast Asia

Neo-Banking Industry Background

The banking and financial industry has been significantly shaped by the introduction of cutting-edge technological solutions, which have given rise to fully digital banking services. Providers of digital banking services are referred to as either Direct banks, Challenger banks, Neo-bank, or Digital challenger banks, with the aim to be more innovative, customer-centric, and user-friendly than typical banks. 

Neo-banks are quickly emerging as a popular banking method among the tech-savvy who require straightforward banking requirements around the world. Neo-banking first emerged in 2013 and gained traction in the UK around 2016. Neo-banks have since become more mainstream in Europe and the Americas. However, Neo-banks, in the strictest sense, are essentially fintech companies that offer banking services, and many would have started out without any full banking license. Consequently, Neo-banks are reliant on partnerships for a more complete ecosystem, and this can also be achieved by being part of a traditional bank’s initial digitization effort. (Source: SPEEDA Spotlight Report - Outlook on Digital Banks in Southeast Asia 2021)

SPEEDA spoke to Lesner Chua, a Singapore-based expert on Neo-banking and Fintech to find out more about the opportunities and prospects for Neo-banks in South East Asia. Below are the key takeaways from this interview:

Tech Savvy and Underbanked Consumers are the Target Demographics of Neo-banks in ASEAN

There are three key factors that determine whether a particular market is ready for Neo-banks services adoption. Lesner said  that any market that has consumers that are digital savvy is key because most of the solutions are on our mobile phones. The second factor is the underbanked population and the third factor is regions where traditional banking services are more cumbersome and there are a lot of barriers that could be just replaced by digitalization. He believes that these three would be areas that are good for any digital bank to penetrate and disrupt to acquire consumers. Lesner added that there are opportunities within both the banked and unbanked markets and ultimately it depends on two success factors: (1) whether the market conditions are right and (2) whether the Neo-bank propositions can meet the customers' needs. One particular underbanked segment that Neo-banks can target is foreign laborers, and according to Lesner ”We see a lot of foreign laborers overseas and a huge issue is that they would need remittance. I think when it comes to the idea of remittance, that's a huge penetration for the underbanked market for most of the fintech players”. Lesner added that “Indonesia is a good example. They are championing the likes of the underbanked market. I think there is huge potential in the underbanked markets” and players like Revolut “have huge plans for this market”.

Neo-banks Stand to Benefit from being Available 24/7; However, Regulatory Roadblocks Challenge Competition with Traditional Banks

Certain services of traditional banks are usually only available during their opening hours (i.e. nine to six), whereas digital banks are basically open 24/7. “I can basically access the app itself, I can send money at 3AM, I can potentially do an FX transfer within the app itself at 5AM, for example. There's just so many things you can do at times where traditional banks are closed” said Lesner.

On the other hand, regulations are a “blocker” for most digital banks, at least in ASEAN in general. For example, in Singapore. “It's not easy to get a banking license and that alone limits a lot of stuff that a Neo-bank could do” mentioned Lesner. To obtain a banking license, a banker must invest a significant amount of capital. In addition, there is still the question of security and trust for Neo-banks from the consumer’s perspective. Compared to traditional banks, and with less regulatory oversight, consumers will be more concerned about reliability in having access to their money or on the continued operational stability of the Neo-banks.

Businesses Can Integrate with Neo-banks to Build Super Apps

Neo-banks face a specific set of opportunities and challenges in their current operating landscape. When looking at the positives, Lesner believes that Neo-banks can provide more value by working with various merchants from industries like fashion, F&B, and even “gifting” services into the app itself. Instead of a banking app doing everything purely banking, consumers are able to secure other services or product that “is intertwined” with money, in the form of payments through the app as well. Fintech players are then able to blur the lines between what a “Bank” gets to be and have it all within a lifestyle app. Lesner added that consumers can mix travel, shopping, and everything, even bookings, and pay utility bills, in one place itself.

Therefore, digital banks like Neo-banks strive to be more than just a bank by providing lifestyle services like paying bills through the app even when traveling overseas, could buy the auto-roam trait, FX wallet, digital payments, loans, booking, and so on, mentioned Lesner. For example, “Revolute has gone beyond just competing on digital payments or the likes of customer payments. Basically Revolute wanted to acquire mass markets. Ultimately, they have one app for everything money touches. Their full suite of services include FX payment, shopping, rewarding, cryptocurrency, even booking hotels and stuff like that, airport lounges, and so on”, said Lesner. Consequently, Neo-bank apps may eventually evolve into Super app.

Branding is Key to Differentiate in the Face of Increased Competition

Lesner opined that “There is no exact answer for how many players the Neo-banking market can accommodate,'' Lesner added that as long as consumer needs continue to evolve, there is enough room in the industry for new market players. For new entrants, an important factor would be branding, and in the words of Lesner, ‘What this means is, when you enter the market, that positioning needs to be flexible or adaptable enough to cater to innovations and growth.’’, Secondly and in reference to the industry in general, Lesner believes that “as long as we are adopting a customer-centric approach, always catering to the what is next, catering to what they need and we know our target segment very clearly, there will always be room for more players to value-add into the market”.

Lesner has shared more in his video about the industry and the feature potential of growth. Watch the full video for more insights sharing.

Interview Questions:

  1. What Markets are digital banks in ASEAN targeting? Are Neo banks competing with traditional banks?
  2. Compared to Licensed Banks, are Neo-banks better positioned to operate globally in the digital finance space?
  3. Should businesses worry about the role that licensed digital banks can play?
  4. How can Neo-banks expand services beyond digital payments?
  5. Are Neo-banks planning to actively target the “unbanked” as potential customers?
  6. How many digital payments companies can the regional market accommodate?


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