Analyzing Asia’s current Fintech situation reveals how the leading digital banks managed to raise over

$6.7 billion in capital in aggregate funding. As the markets became more open to the lack of regulators, it was easy for neobanks and digital banks to prosper.

In the past decade, there were numerous examples of successful neobanks such as Revolut, Starling Bank, Fidor, Monzo, Simple, and Moven. But are regulators going to start changing the game to ensure that traditional banks don’t suffer?

How Are Neobanks Different Than Traditional Banks Going Digital?

Many financial regulators have showcased a desire to work together on a global scale to standardize the neobank practice worldwide. Lately, many traditional banks have been trying to catch up with the tempo of innovation coming out from their new competitors.
How are neobanks still different from traditional banks?

According to Andrew Beatty, the head of Global Banking Solutions, the majority of successful neobanks don’t rely on their own solutions but instead look for third-party software solutions that offer it all. In return for an investment, these solutions can
easily give a ready solution with a working API, machine learning, databases, and even regulations. This approach saves start-ups a considerable amount in terms of costs and resources, leaving more room for innovation.

This way, the core technology is flexible and can overcome unforeseen circumstances on a broader scale. Ironically, this age of competition also requires more cooperation. 

There are a number of key foundations like APIs, clouds, and microservices,  to be developed individually. Moreover, some of the more advanced neobanks use blockchain levels of military grade security. Because of the constantly rising customer expectations
and regulations, there is a possibility that fintech and financial institutions will become one in the future. And that could give them an unprecedented amount of control. 

What are Regulators Doing About it?

It is getting increasingly harder to balance digitized and globalized banking services with financial stability. According to the chairman of the Bank for International Settlements’ Financial Stability Institute, central banks should start contributing to
the efforts of digitizing regulatory requirements and frameworks. 

On the other hand, some regions like Singapore look at the capital in a different way. They shook the local market by granting fintech bank licenses to offer various banking services. They can now serve small and medium enterprises with loans and full banking
services.

Other regional regulators looking at that example started issuing licenses for more digital banking platforms and neobanks in order to prevent fintech from taking over the market, which is a reasonable concern. 

Are Regulations Going to Tighten Up For Neobanks?

From an empirical perspective, the last time financial regulators tightened up their requirements was after the last financial crisis back in 2008. From this point of view, regulators can expect to bombard financial institutions with new requirements and
tighten the regime once again directly following the next financial crisis.

On the other hand, there are fintech solutions that greatly help businesses stay in touch with regulatory standards in terms of anti-money laundering, risk management, compliance, and cyber security.

Can Fintech Ever Replace Banks?

Even if regulators fail to stop the domination of fintech in the neobanking world, banks will still have the upper hand. Customers and investors will be less willing to trust their funds with start-ups and instead safeguard their money through banks with
a proven history and guaranteed security.

What is the Best Case Scenario?

The best-case scenario would entail fintech and neobanks working together to meet the operational standards for operation brought by regulatory institutions on the global scale. As previously noted, the majority of neobanks currently don’t rely on their
own architecture and instead entrust several core aspects of their business to third-party solutions.

These solutions that neobanks and white label digital baking could offer include but are not limited to:

• All in one package banking as a service (BaaS), including licenses and regulations.

• Security orientated (blockchain military level security.)

• Machine learning and artificial intelligence models to decrease risk and analyze key processes.

• Document verification (KYC) 

• Biometric Login and authentication

• Data storage systems

• Business automation

Final Words

Fintech in regions where regulatory institutions allow it is looking forward to offering banking services. While consumer expectations increase, there will always be a demand for innovative features in banks and neobanks. Fintech can provide these as third-party
solutions.

Regulators are joining forces to draw a roadmap for the future decade, in which fintech will be limited in terms of its available offers and services to banks. However, if that doesn’t happen, traditional neobanks won’t go out of business. Customers and
investors are more willing to entrust their money institutions with proven history and security than start-ups right away unless they offer something new.