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Should you open a business account with Neobanks?

10 minute read

Traditional banking usually conjures images of massive brick-and-mortar locations, broken ATMs, and heaps of paperwork. On the other hand, neobanks, a new breed of non-bank fintech businesses, are bucking the trend with digital-first and, in many cases, digital-only banking platforms that offer smooth online customer experience as well as low or no-fee services.

But is the neobank customer experience really that good?

Let’s take a better look at the business banking evolution brought by neobanks and more importantly, if you should start a business account with one.

Overview:

Neobanks in Singapore

Neobanks, often known as “challenger banks,” are fintech businesses that provide mobile and internet banking apps, software, and other technology.

Fintechs typically focus on certain financial products, such as checking accounts, for instance. They’re also more agile and transparent than their megabank competitors.

Neobanks normally collaborate with a traditional bank partner that’s a member of the Singapore Deposit Insurance Corporation (SDIC) to ensure that your funds are maintained safely as they would be in a traditional bank.

The name of such a deposit insurance corporation varies from country to country, but the concept is almost identical everywhere in the world.

Neobanks typically provide financial services through a website or mobile app, with customer care being made available over the phone as well.

Money held in a neobanking account is just as safe as money held in a traditional bank account, as the underlying account is given by a regular bank. In Singapore, all neobanks work in collaboration with regular banks, to hold consumer funds in a bank account.

One key advantage they have over traditional ones is that they aren’t reliant on old legacy systems. Therefore, they prefer to construct their platforms with a strong focus on safety and security.

Furthermore, all of them must adhere to the same set of regulatory criteria, such as data localization standards and two-factor authentication (2FA) for card-based transactions.

Neobanks were also among the first to embrace innovative transaction security-enhancing models such as MCC blocks, single-use virtual cards, and tokenized online transactions. In short, you get the pros of both traditional banking and an added edge to speed for your business.

Advantages of neobanks

Neobanks employ algorithms and cloud-based tools to provide speedy and precise financial services through a mobile application.

To open an account, you can skip many of the steps required at a physical bank with only a click of a button.

Regular banking institutions provide a variety of information that might be bewildering to customers with less financial knowledge. On the other hand, neobanks cut down financial operations into easily consumable chunks, making financial services like loans and peer-to-peer transactions more accessible.

Neobanks also have a significant cost advantage in terms of operations because they don’t have physical branches. These cost savings are passed on to clients in the form of cheaper application fees, account costs, and program costs.

For example, a regular bank normally demands a minimum deposit and monthly amount to create a business account. For a small business attempting to get off the ground, this may be a significant investment.

Since neobanks offer lower administrative costs than banks, setting up a business account is generally free. Furthermore, neobanks frequently provide lower FX rates and transfer fees, which is ideal for SMEs and startups trying to expand internationally.

Last but not least, neobanks offer a more personalized approach. While old-school banks provide a wide range of financial services and goods to a broad audience, such as credit cards, insurance, and loans, neobanks cater to a more niche audience.

Creating tools that operate with payrolls, expense management, and automated accounting services for freelancers are examples of this. Add-on products are frequently offered by neobanks as a way to improve corporate finances and address difficulties that SMEs encounter.

One of the many ways neobanks help to streamline corporate procedures is by integrating APIs into their platform. Neobanks can readily analyze client behavior and pain areas using data-driven procedures because they are totally online. This allows neobanks to quickly adjust their user interface for user-friendly platforms.

Disadvantages of neobanks

Neobanks are ‘virtual’ banks which means they’re almost entirely app-based, so it’s no surprise that they don’t have physical locations.

While this allows neobanks and digital banks to cut costs and offer affordable rates to their customers, it also means they can’t give the same amount of in-person connection as traditional banks.

That is why, if you like to conduct your banking over the counter or want to speak with a real person about opening a new account or taking out a loan, a neobank is not the bank for you.
While it’s true that many neobanks don’t have (or are unlikely to have) branded ATMs, it doesn’t imply you won’t be able to withdraw cash using your phone or a neobank debit card.

In reality, many Singaporean online banking institutions already have mechanisms in place that allow users to withdraw money from qualified ATMs.

Neobanks may also be limited in their offerings as a service provider. Currently, bank accounts and savings accounts are the main products provided. This means that if you prefer to do your banking in one place, such as having a bank account, credit card, and home loan with the same bank, a neobank might not be the right fit for you.

At least, not for the time being.

TL;DR? Here’s an easy table for your understanding:

AdvantagesDisadvantages
Fast, efficient, and convenientReliant on technology
Comprehensible and budget-friendlyLack of physical branches
Niche, and personalized to your needsLimited service offerings

Neobanks vs. traditional banks

It’s important to note that neobanks aren’t the same as internet banks. In fact, some of them are closer to being financial technology firms.

The main distinction between a neo and an internet bank is how they obtain SDIC insurance and who their parent firm is.

Many traditional banks also offer internet banking services, such as digital-only bank accounts or a separate bank division that exclusively functions online. This form of internet bank will very certainly be SDIC insured.

Neobanks, on the other hand, get SDIC insurance for their customers by partnering with a conventional bank that is a member of the program.

The final result is the same for the customer: your money is guaranteed up to S$250,000 in the event that the bank or neobank goes bankrupt.

Traditional banks are known for having a well-regulated and secure financial system. They are top of mind for financial services because of their reliability.

However, they may struggle to cope with their rigid processes and fast-developing consumer demands due to changes in the landscape.

The same operating systems in place today allow little potential for innovation.

Here’s where neobanks are different from traditional banks. A neobank’s taut business strategy allows it to better target its intended clients, lowering fees and increasing perks.

Neobanks offer quick payment solutions to the financial requirements of up and coming businesses and consumers.

Here’s a quick summary of the aforementioned.

Neobanks Traditional banks
Presence Digital Physical
Fees Low and transparent High and often complex
Document submission Online In-person
Service type Digitized Manual
Customer support Online 24/7 In-person (with possible online tools)

Making the switch to digital business banking

Customers that want simple account services, internet, and mobile access, and inexpensive costs should definitely consider neobanks.

You might switch to a neobank totally or open a specific business account to take advantage of some of the perks we’ve listed above – and because accounts often have no monthly fees or low expenses, there’s likely no cost to get started.

It’s handy to conduct routine operations online, such as depositing checks or making peer-to-peer payments, without incurring a slew of fees.

As neobanks are more agile and have fewer regulatory hurdles to jump through, account setup and processing processes are often faster.

Neobanks, on the other hand, aren’t for everyone. When compared to traditional financial institutions, they tend to offer fewer services.

Customers usually get no or restricted credit from them. They concentrate on the fundamentals, such as checking and savings accounts, rather than providing mortgages or other loans. They also don’t create physical branches very often, so users won’t be able to get in-person help with their accounts.

You should also consider the ATM prevalence and accessibility, the financial products on offer, fees, and overdraft conditions, rates for interest-bearing accounts, and budgeting features before making a switch.

What about Sleek Business Account?

While neobanks are great and they work for thousands of customers worldwide, there’s another option that may be the solution you’re looking for – the Sleek Business Account.

Why choose a Sleek Business Account?

Your Sleek Business Account will be like no other business account before. With the Sleek Business Account, send and receive money instantaneously and never have to worry about bookkeeping because the account will do that for you.

With Sleek, you get a business account, bookkeeper, cash management service, and tax manager all in one. Account opening requires only a few minutes, there are no transaction fees and no minimum balance, and you will be able to reconcile finances all within one platform.

Wrap up

There is no doubt that neobanks and virtual banking options are the future of banking in all its forms, business included due to digital disruption.

There are a plethora of options and you should definitely consider all options that are on the market.

Need help with your account needs? Feel free to contact our helpful team to get your business account started today.

Start a business in less than 3 hours with us. Talk to our experts today.

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