KYC for Neobanks in the APAC Region

Neobanks surpassed 1 billion clients worldwide as of October 2023, growing by 30% in 18 months. Industry revenues jumped by over 40% in the same period. The Asia-Pacific (APAC) region has been a key driver of this growth, and is widely considered a hotspot for neobanks. 

However, the proliferation of neobanks in APAC is accompanied by several challenges. This includes a lack of trust among the local population and issues related to customer verification. For neobanks to succeed in APAC, they need to earn the trust of both users and regulators. A reliable KYC solution can help them achieve these goals while combating fraud. Learn more below. 

What is neobanking?

Neobanking, or digital banking, refers to a new and innovative form of banking that operates exclusively online without physical branch locations. 

Neobanks (aka “digital banks” or “challenger” banks) offer a range of services, including savings accounts, payment processing, loans, and other financial products. Unlike traditional banks, neobanks only rely on mobile apps and online platforms to interact with customers.

Some neobanks may not have banking licenses, instead partnering with traditional banks to offer their services, and operate as technology-driven intermediaries relying on established banking infrastructure.

The key characteristics of neobanks include:

• Digital-only approach. Neobanks prioritize digital channels (mobile apps or web platforms) for customer interactions. They don’t have physical branches.
• Innovation and automation. Neobanks typically offer innovative features and services, such as real-time transaction notifications and integration with third-party financial apps. They may also involve artificial intelligence and machine learning to enhance the customer experience and personalize financial services. 
• Partnerships with other fintechs. Neobanks often form partnerships with other fintech companies to expand their range of services. 
• Better UX. Neobanks take a customer-centric approach, aiming to provide a more convenient, transparent, and responsive user experience.

Neobanks in the Asia-Pacific

APAC has become one of the leading hotspots for neobanking due to:

• A primarily young population to which neobanks appeal 
• Supportive regulations
• A plethora of tech giants
• The expansion of Internet of Things (IoT) devices and accompanying services.

According to Mordor Intelligence, the APAC neobank market size is estimated at USD 1.68 billion in 2024, and is expected to reach USD 2.58 billion by 2029. 

At the moment, there are more than 60 neobanks in the APAC market. While this figure may not seem high compared to Europe and America, the growth rate is substantial.

Among the leading APAC neobanks are We Bank, Paytm, WeLab Bank, and KakaoBank, among others.

India, Australia, and Hong Kong are home to the most neobanks, while China has the largest number of neobank customers. Another two notable jurisdictions that support the development of neobanks are Thailand and Singapore. Let’s take a closer look at them below.

Neobanks in Thailand and Singapore

Thailand’s Central Bank approved three virtual bank licenses in 2023, saying “the number is suitable to ensure stability of the local financial market and protect depositors from risk associated with new businesses”. The licensing regulations have already been completed, and the Finance Ministry is expected to vet the rules before approval. The license applications will be open in 2024, and business operations are expected to begin in 2025.

In Singapore, the banking scene is mostly influenced by three major local banks—DBS Group Holdings, Oversea-Chinese Banking Corporation (OCBC), and United Overseas Bank (UOB)—which jointly command a significant 65% share of all Singapore-dollar deposits. 

In 2020, the Monetary Authority of Singapore granted digital full bank licenses to GXS Bank and Sea Limited’s Mari Bank. Additionally, established foreign bank privileges were extended to Trust Bank. This move aimed to create competition for traditional banks, fostering innovation and digital banking. 

Later on, the MAS imposed a S$50m cap on retail deposit bases for Digital Full Bank (DFB) licenses during their first two years of operation. During the progression period, the DFB’s aggregate cap is expected to gradually increase. Deposit caps serve as a safeguard, creating a controlled environment for testing processes and customer engagement. However, if the goal is to support the digital banking industry, these caps are expected to evolve in tandem with the growth of the neobanking sector.

Challenges

APAC has has a number of challenges with the rollout of neobanking, including:

• Lack of trust in neobanks among the population
• Reluctance to transfer from existing institutions
• Low consumer awareness. A large proportion of customers either unaware of the existence of neobanks or having no idea how they work, which is a common obstacle for a neobank market in its early phases of development
• Lack of infrastructure and high enabling costs in rural areas, making neobanks inaccessible for a substantial number of people.

Other challenges in the region include a plethora of regulations, compliance requirements, and strict fines that vary considerably across the region: 

APAC regulators understandably seek to protect consumer funds and data privacy, imposing strict rules on fintechs, including those related to anti-money laundering (AML) compliance and customer verification. Since these regulations are often subject to change, they can be a stumbling block for neobanks without the proper compliance tools in hand. Accordingly, Deloitte identifies onboarding and Know Your Customer (KYC) as particular challenges for neobanks in the region. 

Compliance infrastructure varies by country. For instance, Singapore has a MyInfo digital identity database that streamlines verification, eliminating the need for additional checks once access is granted. Hong Kong, meanwhile, lacks this sort of database, and regulators there must rely on document authentication and identity matching without a specific checklist. Malaysia’s Bank Negara follows a similar approach to Hong Kong. 

APAC neobanks also face challenges verifying identities of people who aren’t in existing databases, such as foreigners and immigrants. However, it’s still the responsibility of neobanks to verify all clients. To enter the APAC region successfully, scale in the market, and achieve high pass rates, fintechs should ensure that their KYC provider is compliant, can easily detect fraud, and offers a simple and pleasant user experience. Successful remote onboarding is crucial for managing Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) compliance and reputational risks.

KYC for neobanks

Neobanks in the APAC region should adopt a reliable KYC solution to: 

• Maintain a flawless reputation
• Increase customer trust
• Attract more clients
• Prevent fraud
• Ensure AML compliance

The specific KYC procedures for digital banks in the Asia-Pacific region can vary based on regulatory requirements and the jurisdiction in which they operate. However, in general, KYC procedures for neobanks typically involve the following procedures:

• User identification. Neobanks collect personal information from customers during the account creation process. This may include details such as name, address, date of birth, and government-issued identification numbers.
• Document verification. Users are often required to upload scanned copies or images of official identification documents, such as passports, national IDs, or driver’s licenses. Neobanks may use automated technology or manual review to verify the authenticity of these documents.
• Address verification. Neobanks may verify the customer’s residential address by requesting utility bills, bank statements, or other documents that confirm their place of residence.
• Biometric verification. Some neobanks use biometric data, such as fingerprints or facial recognition, for additional identity verification. This adds an extra layer of security to the KYC process.
• Risk assessment. Neobanks conduct risk assessments on customers based on their financial activities, transaction history, and other relevant factors. This helps in identifying and monitoring potentially high-risk accounts for anti-money laundering (AML) purposes.
• Ongoing monitoring. Neobanks continuously monitor customer transactions and behavior for any suspicious activities. This ongoing monitoring is crucial for detecting and preventing fraudulent or illegal activities.

For neobanks in APAC, it’s crucial to have a KYC service that can process rare documents and provide verification access for all users in the region—including foreigners and immigrants. Therefore, a document-free verification option that verifies users by ID number only would be paramount for neobanks.

Sumsub offers a document-free verification solution—Non-Doc—which verifies user identities by ID number only. It has multiple use cases, including ID, address, phone number, age verification.  

Non-Doc is also capable of user pre-verification—where data is pre-screened before the full onboarding process—and user post-verification, which double-checks information submitted during the onboarding process.

A combination of Non-Doc and a document-based verification method could be a bulletproof option for high-risk cases, where regulations require checking the customer’s identity against multiple sources. Non-Doc may be used for continuous monitoring, with reliable data instantly updated in user profiles.

In APAC, Sumsub’s Non-Doc Verification is compliant in Australia, India, Indonesia, and New Zealand.