Can neobanks succeed in Singapore?

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neobanks in Singapore

Neobanks have reached Singapore.

Now they must find a path to profitable growth. New players are entering the Singapore banking market, driving competition and accelerating innovation across the entire sector. These latest competitors, also known as challenger banks or neobanks, have no physical location and serve their clients entirely through online or mobile platforms.

Digital banking is creating exciting new growth opportunities in Singapore – both for traditional and neobanks. And thanks to steps taken by the Singaporean government and Monetary Authority of Singapore (MAS), the market is primed for profitable growth.

Known as the Asia Fintech Hub, Singapore has a unique set-up:

  • First, the Singaporean government has invested in building up a strong payment infrastructure for both domestic and cross-border payment networks.
  • Second, the MAS has strict eligibility criteria. Approved banks only have five years to demonstrate a clear path toward profitability.
  • And third, regulators have set restrictions on the number of digital banking licenses that can be issued, meaning that competition amongst new players will not be as high as in other countries.

Neobanking has already had strong adoption rates in other APAC countries, especially in China and South Korea. Singapore has also recognized the opportunities, which include better financial inclusion, better service levels, and better financing options for SMEs.

Are traditional banks ready for digital competitors?

By and large, traditional banks in Singapore are ahead of the curve with their digitalization endeavors. Many have more in common with modern tech firms than the highly conservative institutions we knew from the past. Singapore’s DBS Bank, for example, uses AI and predictive analytics to help clients better manage their finances and investments. Others have started testing digital-only banking in other markets, sending out “digital speedboats.” These pilots allow the bank to gain experience and then bring back the findings to Hong Kong and Singapore.

It’s also not unheard of for midsized global retail banks to add new sub-brands. For example, Standard Chartered Bank partnered with FairPrice Group to back the digitally native bank Trust. Meanwhile, they continue to enhance their banking-as-a-service propositions and financial services offerings to third parties.

In the digital world, a holistic customer experience and strong customer ratings are vital. Clients are more likely to switch to a digitally native bank if they are dissatisfied with the digital offerings of their local bank. But in contrast to other countries, Singapore boasts an accessible and ever-innovating infrastructure, which makes switching less attractive for customers. Interestingly, Singapore’s banking apps receive comparatively high Apple App Store ratings. DBS Paylah is rated 4.9 out of 5, UOB TMRW 4.8 out of 5, and Citi Mobile SG 4.5 out of 5. The average rating for a finance app on the Apple App Store is 4.04. This high level of customer satisfaction is an encouraging signal.

Yes, traditional banks are ready. Still, they should keep an eye on the challenger banks, especially those that achieve profitable growth.

Neobanks must grow profitably

Our recent report on “The Future of Neobanking” shows it is crucial for challenger banks to grow at pace and achieve profitability within the first five years. This is especially true in a mature market like Singapore, where online banking penetration is over 77 percent.

Neobanks focus on innovating products and enhancing the banking experience, which creates some competitive advantages over traditional banks. However, the initial strategy isn’t necessarily to steal market share. Neobanks will have a hard time directly competing with traditional banks on basic products and will need a different positioning and purpose.

For example, it may be more profitable to target niche client segments which the traditional banks are currently underserving. This has been the case in the US, with neobanks like Mercury which serves startups, Cheese which targets the Asian-American community, and Daylight built for the LGBTQ+ community.

Most neobanks are heavily investing in acquiring clients, for example by offering high interest rates or incentives for referrals. Engaging these clients and driving product usage will be key. Beyond “getting reach”, neobanks must ensure they “get rich” by laying out a path to long-term profitable growth. This means professionalizing quickly and finding ways to monetize their growing client base. Since there are limited options to monetize the “underbanked”, neobanks must develop a robust profitability strategy.

In our report, we describe how “building a bank is easy, building a profitable one is not.” Only five percent of the world’s 400 neobanks have turned profitable so far. So, what can neobanks do to steer their ventures toward profitability? Enter our neobanking profitability playbook. It includes best practices at the three life stages: launch, growth, and monetization, and describes how to upgrade to industry-leading monetization once a neobank has reached scale.

Reach out to Silvio Struebi today to find out more!

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