A digital wallet might be considered an alternative payment option, but it is fast becoming a choice for cash storage too. Local start-up Neat is using the technology to help millennials and small businesses access traditional banking services not available to them.
Neat services the “underbanked” – students, freelancers, first-time jobholders and expatriate entrepreneurs with difficulties opening a bank account. It allows them to receive and pay money with a digital bank account and a prepaid Mastercard.
Traditional banks often see these customers as “unprofitable” because they tend to earn low incomes, have a low credit score, and have no interest in purchasing high-value products, such as structured investment products.
“A student has no money so banks do not really care about them. And typically, banks don’t give a credit card for businesses on their first year. That’s a big problem,” said David Rosa, a former banker who founded Neat in 2015.
“We went through the same emotions everybody has as a start-up. We had a long dialogue with the bank before we managed to open an account.
“Even if businesses have corporate credit cards, the cards have very low limit. The statement comes once a month. It’s like driving a car using just a rear view mirror.”
Neat is one of the 13 mobile payment companies that received a license under the “stored value facilities” regulation introduced by the Hong Kong Monetary Authority in November. It is the only company that targets the “underbanked” segment.
The “underbanked” segment is largely underserved worldwide. It is estimated that 12 percent of Hong Kong’s population, and close to 1.2 billion people in the Asia Pacific, lack adequate access to formal banking services, according to local start-up Fintech HK.
With Neat as an alternative banking option, users can make deposits to their digital account through internet banking or the Bank of China’s ATM machines. Each Mastercard that Neat issues has a deposit limit of HK$100,000.
Opening a digital account, peer-to- peer money transfer and real-time balance check are done entirely via a mobile app.
To open an account, users have to provide passport details and proof of residence, as well as taking a selfie to verify an account applicant’s identity. Neat will do due diligence and turn down applicants who might use their accounts for money laundering and terrorist financing.
Neat does not charge individual account holders, but fees will apply to corporate account holders. Many users are expatriates currently working in the SAR. And since the start-up was launched in December, it had a 55-percent monthly growth on new registration.
“We are 15 times cheaper than a bank in terms of acquiring and maintaining a customer because we don’t have a physical branch. That’s meaningful because we can afford to deal with customers who are not normally attractive from a revenue point of view,” Rosa said.
The start-up’s monetization model relies on taking a cut of the transaction fee paid by Mastercard merchants, selling anonymized users’ behavioral data, as well as pushing promotional deals to users on its mobile platform.
It is adding a multi-currency account service, allowing customers to pay in US dollars when they shop online or travel overseas. More currencies, such as the British pound, Japanese yen, as well as the euro, will be included in the near future.
If travelers to Britain use Neat’s Mastercard and pay in local currency, they can save two to four percent on transaction fee, Rosa said.
The article first appeared in the Standard on August 7, 2017.