Identity Verification Processes in Neobanks Across Asia-Pacific
The Asia-Pacific (APAC) region has seen a significant surge in the neobank market, with over 60 neobanks now operating in the space [1]. However, the growth has not been without its challenges. Key among these are regulatory compliance, customer due diligence, trust-building, and digital identity verification [2].
Regulatory Compliance and Customer Due Diligence
Neobanks in the APAC region must navigate a complex regulatory landscape, complying with regulations such as the Bank Secrecy Act, Anti-Money Laundering (AML) rules, and country-specific banking regulations like those from the Reserve Bank of India [2]. This includes identifying and verifying customer identities, ongoing transaction monitoring, and managing risks related to money laundering. The layered regulatory environment, especially where neobanks partner with licensed traditional banks, complicates liability and compliance responsibilities [1][2].
Data Security and Privacy
APAC neobanks face demands for strict data governance frameworks, including securing explicit user consent, data localization requirements, and protecting against cybersecurity threats. The growing cyber risks require robust defenses and innovation in securing user data and identities, critical for trust [2][4].
Digital Identity Verification
With limited or absent physical branch presence, neobanks must rely on digital and biometric identity proofing methodologies. Achieving seamless, secure, and user-friendly identity verification that meets regulatory standards is a significant challenge [1][3].
Building Consumer Trust in Digital-Only Offerings
Despite strong adoption of digital payments and mobile banking in APAC, consumers require assurance on security, service reliability, and privacy to transition fully to neobanks. Trust-building initiatives include transparent communication, ease of use, and partnerships with established financial players to lend credibility [3][5].
Solutions adopted or emerging include automated transaction monitoring systems, partnership models, advanced digital identity solutions, investment in cybersecurity and cyber innovation, user-centric mobile platforms, and the use of emerging technologies like AI and blockchain [4].
One such solution is Sumsub's document-free verification solution, Non-Doc, which verifies user identities by ID number only [1]. This is particularly beneficial for neobanks in APAC, as it addresses the challenge of verifying identities of people who aren't in existing databases, such as foreigners and immigrants.
The APAC neobank market is expected to reach USD 2.58 billion by 2029, driven significantly by the growth in the region [1]. Among the leading APAC neobanks are We Bank, Paytm, WeLab Bank, KakaoBank, and others [1].
In Singapore, the banking scene is influenced by three major local banks: DBS Group Holdings, Oversea-Chinese Banking Corporation (OCBC), and United Overseas Bank (UOB) [1]. Meanwhile, Thailand's Central Bank approved three virtual bank licenses in 2023 [1]. Hong Kong, however, lacks a similar digital identity database, and regulators there must rely on document authentication and identity matching without a specific checklist [1].
In conclusion, APAC neobanks face complex regulatory landscapes, security risks, and a need to demonstrate reliability digitally. Automated compliance technologies, trusted identity frameworks, collaborative partnerships with traditional banks, and focused cybersecurity investments form the core of solutions enabling effective customer verification and trust-building in the region.
- In the APAC region, neobanks like We Bank and KakaoBank operate in various areas of the industry, including finance, business, and personal-finance, offering digital-only services that cater to lifestyle needs, such as home-and-garden or shopping.
- With the surge in the neobank market, APAC consumers can expect a wider range of services in business and career-development, enabled by advancements in gadgets and technology, like smartphones and AI.
- To ensure security and privacy, neobanks collaborate with banking and insurance institutions to implement strong data protection policies, following strict guidelines set by regulations like the Bank Secrecy Act and AML rules.
- In addition to banking service offerings, the education and self-development sector can benefit from neobanks' digital platforms, as they may encourage financial literacy and learning through relevant courses and resources.
- Regulatory bodies in APAC countries must continuously adapt their regulations to accommodate evolving technologies and the emergence of innovative solutions like document-free verification systems from companies like Sumsub.
- As the APAC neobank market continues to grow, established banks, such as DBS Group Holdings, OCBC, and UOB in Singapore, must also focus on digital innovation and integration of neobank offerings to maintain their positions in the industry.
- To address regional disparities and ensure uniform growth, countries like Hong Kong must establish digital identity databases, similar to those in Singapore or Thailand, to support the development and expansion of the neobank market in the APAC region.
