Singapore recently ranked top in the world for financial inclusion, according to an inaugural global survey. This means that Singapore provides its residents with the greatest access to financial products and services than anywhere else in the world.

The sole fact that it beat traditional financial powerhouses like Britain, Hong Kong, Japan, and the United States is remarkable.

As we celebrate this achievement in Singapore, it is crucial to take stock of the ingredients that made this recipe a success.

An important factor that drives Singapore’s access to financial services is neobanking. Neobanks are essentially digital platforms that offer banking services solely online. In many countries, people remain unbanked and underbanked due to a lack of financial literacy, education, or the fear of hefty hidden fees by banks for anything beyond essential services like opening and maintaining a bank account.

Having emerged around a decade ago, neobanks have transformed the banking space from bricks to clicks, operating exclusively online with no physical branches. This distinct advantage neobanks have over physical banks provides them with a lower cost model, which is passed on as lower costs for consumers to save and borrow money from the bank. Lower costs for services offered by neobanks drive more people to financial services, thereby increasing financial inclusion for the masses.

Technological advancements have also led to new-fangled neobanking solutions which integrate spending, sending, and lending capabilities all from one application – making traditionally tedious financial processes a breeze for consumers.

However, neobanks have not only disrupted and revolutionized the banking world at an accelerated pace, but the industry alone is also set to be an important driver of economic growth in Singapore.

Neobanks as a viable option to strengthen Singapore as a financial hub

Singapore is well-known as a global financial hub, and the survey’s results underscore that claim. On September 23, the island-state was reported to be Asia’s top financial center, overtaking Hong Kong and emerging as the third most important financial center in the world.

However, it cannot take that status for granted, especially when competition worldwide is keen and intense. In the ranking mentioned above, Hong Kong only slipped below Singapore due to its COVID-19 restrictions, which has driven talent away. The city that improved the most in the rankings was Sydney moving up ten spots.

With the financial services industry contributing nearly 15 percent to the national GDP and producing an income of S$73.75 billion in 2021, it is a crucial pillar of Singapore’s economy.

To strengthen its status as a global financial hub, Singapore needs to continue to do well in financial inclusion. The more people are accessing financial services and products, the more financial institutions will expand and invest in Singapore.

But that is not all. As technology continues to disrupt and fuel growth in the financial services sector, Singapore must ensure its digital financial ecosystem keeps pace, if not leading industry innovation. Deputy Prime Minister Lawrence Wong launched the Financial Services Industry Transformation Map (ITM) on 15 September, highlighting this push. The ITM, due by 2025, outlines the strategies for Singapore’s growth as a premier international financial hub in Asia and focuses on digital financial infrastructure as the main thrust.

A digital push will help Singapore offer more efficient listings, bond issuances, and settlement processes that aim to reinforce Singapore’s position as the preferred bond issuance and listing destination. This will attract more capital movement into and within Singapore, enhancing the nation as a global financial center.

Neobanks will help Singapore on this journey as the leading digital finance advocates and purveyors. As traditional banks still look to incorporate digitalization into their processes and DNA, neobanks have a natural advantage over tech companies and are constantly at the forefront of innovation. An ecosystem of cutting-edge neobanks could help place Singapore firmly at the top of the global digital finance map.

The neo way of doing business

On a broader scale, the advantages brought about by these fintech firms could significantly benefit SMEs, with some firms focusing on specialized services for SMEs.

A common struggle SMEs face is the difficulty of obtaining loans from regular banks, which rely heavily on credit scores, which are largely inaccessible to relatively new SMEs in rapidly growing economies. Even with audited financial statements, tax returns, and five-year projections, the chances of SMEs successfully applying for a loan remain slim. Not to mention, the loan application process can take many weeks, even if it’s just for them to reject your application at the end of it.

This is where fintech steps in. Using advanced software and artificial intelligence, neobanks can now inspect the creditworthiness and evaluate risks of loaning money to SMEs – within a much shorter time frame. SMEs can use this advanced fintech by submitting whatever data they have on hand, like a bank statement showing their company’s cash flow. This will then be evaluated by AI and the respective fintech programs to generate transactional and alternative data about the SME’s credibility, which can be used in exchange for access to credit to help these SMEs get approved loans for their company’s growth.

Neobanks are also coming up with financial services specific to SMEs, a prime example being automated payrolls for SMEs. This service removes human error from the equation, saving significant amounts of time once spent on administrative tasks that can instead be spent more productively on things like customer relationships and innovation, which are more fruitful in growing the business. Other services include expense management, API integration, and automated accounting services.

It goes without saying that SMEs are the backbone of the Singapore economy, contributing nearly half of its GDP, employing more than 70 percent of its workforce, and forming 99 percent of all enterprises here. With COVID disrupting the economy, the last two years has not been easy for many companies, especially SMEs. But with global headwinds and uncertainties coming our way and many predicting a long and drawn-out recession, SMEs could be in even greater difficulty. Not many will be resilient enough to withstand another slowdown just after we barely survived the previous one.

The cost of SMEs failing and falling could be severely felt, as seen by their share of the economy and hiring.

However, by helping them gain credit easily and cheaper, neobanks could offer SMEs a lifeline. As it stands, SMEs already have challenges in gaining financing. During an economic slump, access to credit becomes even more difficult as banks tighten lending and SMEs’ balance sheets weaken.

Neobanks will plug a key liquidity and financing gap for SMEs at a cheaper rate, giving them the financial muscle they need to fight another economic downturn and bolster the Singapore economy and workforce from an excessive shock.

However, every downturn could also be an opportunity.

If SMEs use this opportunity to restructure and digitally transform, the presence of neobanks could help nudge them along this path by streamlining some functional areas like finance and human resources.

Costs lowered through more efficient processes could help them survive and save jobs.

If SMEs can successfully integrate neobanking into their processes and business models, then, in the long run, they could pursue growth strategies when economic conditions stabilize. That is undoubtedly a good thing for the Singapore economy.

Shailesh Naik is the Chief Executive Officer of MatchMove.

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