Neobanks are leveraging technology and the power of seamless digital-first experiences to improve payments and the entire customer experience as we know it. With access to a wealth of data, neobanks can tailor their offerings to suit the ever-changing needs of their customers. Despite a global economic slowdown, there is a huge opportunity for neobanking to completely redefine how consumers manage their finances.
What is Neobanking?
Simply put, neobanks operate exclusively online without traditional physical branch networks. Through apps, software and other technologies, neobanks bring an experiential digital layer on top of traditional banking. Neobanks are to bricks and mortar financial institutions what Airbnb is to travel agents and what Uber is to the black (or yellow) taxicab.
With their digital agility, neobanks are disruptors in the fintech world, offering a wide variety of apps and websites that simplify, streamline and personalise online banking. Although they don’t offer as wide a range of services as traditional banks, they cater to a customer base that is looking for easier, affordable and transparent services.
In a world of digital nomads, increasing online connectivity, and high demand for contactless and streamlined user experiences, neobanks are gaining increased traction, especially with new banking customers.
Neobanking vs. Traditional Banking
Traditional banks are just that. Traditional, but with some recent add-ons to accommodate a changing world. Digital banks are often only an online iteration of a traditional bank.
Neobanks have not had to adapt, pivot or transform - they have created digital banking experiences from scratch using the latest technologies and innovative product offerings. Also, Neobanks are regulated differently and this has spawned a number of partnerships between them and licensed financial service providers. While some neobanks on the market can operate wholly independently, others that do not hold their own licences must operate in partnership with another institution in order to offer a full service to their clients.
Without the massive overheads of traditional banks including multiple premises, high staff complements and cumbersome legacy systems, neobanks are changing the face of banking, taking it to digital-only platforms.
Where does Banking-as-a-Service fit in?
Banking as a service (BaaS), where traditional banks leverage the advanced technological capacity of new fintech companies, has a significant role to play in the entry into the financial services sector of neobanks. Conversely, BaaS allows neobanks to offer more diverse products than simple transactional accounts to their customers. This symbiotic relationship can only be beneficial for the banking sector and its customers, as more options on more platforms become available.
Advantages of Neobanking
Neobanks have a number of weapons in their arsenal. Almost 300 institutions globally, representing millions of customers are beating out traditional banking rivals by offering:
Digital account opening (DAO) in a seamless onboarding experience. In the new paperless, contactless world of digital commerce, this ease of opening up a new account online on mobile devices or via an app is highly appealing to a new generation of customers.
Speed, security and simplicity are key drivers of neobanks’ growth, as they leverage the latest technology.
Real-time transacting
To serve the un- or under-banked – in Africa alone which has a cell phone penetration of 75%, as many as 57% of the continent’s population does not currently have a bank account. Neobanks offer an easy digital solution.
Appeal to the personal as well as the business banking sector, especially amongst SMMEs who have little time for complex, in-person transactions, and who are plying their trade in a global environment. Facilitating in- and out-going payments across borders is one of the many features of neobanking that appeals to this sector, which took approximately 65% of the total neobank revenue share in 2022.
In 2022 the global neobanking market was valued at $66.82 billion and is set to grow at a staggering rate of 54.8% (Compound Annual Growth Rate) from 2023 to 2030, making neobanks one of the most significant new entrants into the fintech market.
With a completely new business model from any other banking services on offer, neobanks must ensure that they align their market strategies and customer support with policy-making and new regulatory conditions if they are to be as profitable as they are innovative.