Do I Need To Set Up A Local Bank Account Or Can I Use A Neobank?

Photo by Eduardo Soares on Unsplash

Singapore is an amazing place to set up a business. It’s politically stable, has excellent incentives for entrepreneurs and businesses creating employment opportunities for Singaporeans, and is a wonderful place to live.

But a key step in setting up a local company - opening a local bank account - can be a long and complicated process, especially if you’ve come from a country where you’re used to a much simpler process.

Increasingly, Singapore-based businesses are finding solutions other than relying on a local bank account by banking through a neobank. Curious if this might be a solution for your business? Read on for more information on what neobanks are and how they work.

What exactly is a neobank?

First used in 2016, the term neobank refers to a digital bank that operates online only, without any physical branches. Neobanks are also referred to as online banks, virtual banks, or internet-only banks.

These Fintech companies help you store and manage your money on a cloud-based platform, allowing you to make online payments, transfer money to other people and bank accounts, and easily exchange your money into different currencies.

Some of the neobanks you might have heard of are Wise (formerly Transferwise), Chime, Aspire, Monzo and Revolut, but there are hundreds of others.

What are the differences between a neobank and a banking institution like DBS or OCBC?

The first obvious difference is that neobanks are entirely online, so there is no local branch office you can walk into. Customer service support is given via online chat, email or over the phone. With no branches and no ATMs, you also can’t deposit cheques at a neobank.

Because of this, they have much lower operating costs, so customers pay much lower fees than they would at a traditional bank. It’s often also much easier and more affordable to move money between currencies and borders as they tend to offer much lower transfer fees.

Neobanks don’t have banking licences like traditional banks, but they can partner with banks to offer services like credit cards. 

Some neobanks also offer different services like expense trackers and currency exchange wallets.

If they don’t have banking licences, are neobanks safe?

Part of what makes opening a bank account in Singapore take so long are the security checks on the Directors and beneficial owners of the company. Much of this requires in-person meetings at banks for verification, and inked signatures on documents, which can be difficult to procure in a world where people are increasingly working from overseas. 

A neobank still undertakes robust Know Your Customer and Anti-Terrorism/Criminal Activity security checks, but all documents can all be submitted digitally and checks are done via video conference.

Operating online and via an app means a greater degree of security risks falls on the consumer, for example keeping passwords safe and verifying the recipient of a transaction.

In Singapore, digital banks can apply for licences to operate here, and these are approved by the Monetary Authority of Singapore (MAS). Four banks, including the Digital Full Bank and Digital Wholesale Bank were awarded these licences in December 2020.

At the beginning of 2022, the MAS and the Association of Banks in Singapore (ABS) introduced a set of new measures to increase the security of digital banking, following a series of SMS-phishing scams on bank customers. This June, additional measures were announced in collaboration with the Singapore Police Force (SPF) which will be in full effect by 31 October, including additional customer confirmations to process significant changes to accounts, decreased default transaction limits for online funds transfers, providing emergency self-service “kill switches” to quickly suspend accounts, rapid account freezing, and fund recovery operations at the SPF Anti-Scam Centre, and enhanced fraud surveillance systems.

So which should I choose?

If you have a more traditional brick and mortar business or are looking to employ people on Work Permits who require a banker’s guarantee, then you might want to consider a traditional bank, but you can also obtain that banker’s guarantee from a bank you do not hold an account with.

You’ll also want to consider whether or not you’ll be depositing cheques into the account. If you do, then you will want to choose a local bank. Another practical matter is whether you need direct debit services, as some neobanks are not able to support such arrangements. The CPF Board, for example, prefers CPF contributions to be paid via GIRO, however will also accept payments via PayNow or eNets.  As long as the neobank has one of these services, they can still be a good choice.

If your business is payment light, primarily online, and mobile, then a neobank can be a great option. This will also allow you to set up your bank account quickly, without having to spend several hours at the branch.

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Whichever option you choose, Accela Finance can help you set up your bank account as part of our Company Incorporation service. Contact us at [email protected] to chat through your options with our experts.