Remember those days when we had to stand hours in an ATM queue to withdraw cash? Imagine such a situation now- do you still prefer long queues or would like to go cashless? The obvious choice is the latter one, and neobanks have leveraged this mindset of the current generation in developing a digital-only bank. Indeed, it wasn’t an overnight success, there was/is a lot of struggles and innovation behind the growth of the massive neobank tree and time has come for it to bear a sweet fruit.
The target audience for neobanks is primarily the millennials, who are disinterested in traditional banking methods and keen on everything digital. The aim of neobanks is to serve and support these target customers and also help SMEs sustain their businesses as well. Globally, these are the major regions where neobanks are progressing:
- North America
Neobanks started on a high note in the US competing with the UK. However, the complicated regulations and lack of profits made its growth almost stagnant. Also, the dependency of neobanks over other established banks restricted the former’s growth. The post pandemic scene narrates a different story as majority of North American population realized the need for digital banks. Adding to this was their frustration over legacy-backed traditional banks. Neobanks, on the other hand, are exploring different ways to enlarge their offerings, like Marcus by Goldman Sachs has entered the lending industry apart from their low-cost offerings. Such situations and initiatives have created a ray of hope for neobanks in North America.
Some popular Neobanks are: Simple – American digital-only bank founded in 2009. Currently, this bank has approximately 3 million customers and is one of the STAR network. Chime – This FDIC insured bank started in 2013 and has attracted approximately 7 million customers and its user base is growing rapidly. Other major banks include Varo, Level, etc.
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Europe created a red-carpet welcome to neobanks with supporting regulations and advanced security like PSD2, etc. Due to these initiatives, neobanks gained early popularity and increased their user base rapidly. Germany alone had approximately 700 neobank startups, and is predicted to increase. These neobanks are backed specifically by the open banking regulations in the EU and in the UK, and almost 20 million customers are actively using a neobank account.
However, the increase in user base does not help these neobanks as many incurred losses due to the ever-increasing user base and according to Forbes, the post pandemic season also hasn’t really been helpful. Evidently, Monzo, a digital-only bank witnessed a 40% valuation drop from $2.6 billion to $1.6 billion and Revolut, another neobank, faced up to $139.6 billion loss.
Overall, currently, neobanks in Europe are struggling with increasing user base and demands. Although, there are innumerous neobanks, only a handful of them have achieved success. Hence, neobanks in Europe are currently dormant regarding growth and are concentrating on their offerings and innovation.
Contrary to the situation in the Europe, APAC has seen significant growth and potential for further innovation. Neobanks are not as stable in this region compared to the US or the UK, but, in some like Australia and China, a bright ray of light is definitely shining for these banks. This is majorly because around 63% of APAC population is ready to choose neobanks over traditional banks due to the latter’s tedious banking process. According to ASEAN today, around 73% of Southeast Asians are unbanked and only 5% in Cambodia have bank accounts. Also, Indonesia and Philippines have an untapped population that might show interest in neobanks.
The setback, however, for neobanks, are the regulatory norms, which has forced them to collaborate with the large banks inhibiting the birth of a new platform with innovative offerings. However, neobanks are getting ready to take the race a level further with technology-packed foundation, including AI and ML for improved customer engagement through personalized offerings. Also, the pandemic has helped these neobanks with the sudden increase in demand for digital banks. But, in order to reach masses, neobanks have to analyse the requirements of local population and cater to their needs accordingly. Some popular neobanks are WeBank and MYbank in China, Digibank in India, Xinja and Judo in Australia.
- Middle East
In the Middle Eastern countries, there is a higher percentage of millennials and hence neobanks have a higher chance to succeed. Compared to other regions, Middle Eastern neobanks provide diverse offerings, and this adds to their fame and demand. As an icing on the cake, the regulations here favor a customer-centric banking platform aiding neobanks in several ways. However, in the UAE, neobanks are forced to adapt to a partnership model with established banks where the latter owns 51% of the collaboration. This is a hindrance for neobanks, as they have to face legacy systems and have minimal decision-making control.
Overall, Middle Eastern region has both digital front-end neobanks and stand-alone neobanks. Some digital front-end neobanks are ila bank by Bank ABC, Mashreq Neo by Mashreq Bank, etc. Stand-alone neobanks include Hala, ADQ, etc.
An interesting aspect of Middle Eastern neobanks is their keen eye to capture the attention of their target customers and personalize banking products to individuals. For eg., Xpence, a Dubai based bank, launched specifically to help freelancers, solo entrepreneurs, and startups. Considering the range of services offered by Middle Eastern neobanks, there is no harm to say that they can replace traditional banks in the future soon.
In LATAM, where the financial industry is still in its adolescence, neobanks have a perfect opportunity to launch and sustain. As of 2025, the predicted number of mobile users in this region might rise to approximately 78%, which means there is a high probability for digital banking success. Also, one of the primary reasons for neobanks’ birth is to assist the SMEs and almost 99% of LATAM companies are SMEs, hence, by targeting these enterprises, neobanks can rule the financial world in LATAM.
Major population in this region has a lack of trust in traditional banks and is exhausted with costly and tiresome financial process. On the other hand, neobanks like Nubank, a digital-only bank in Brazil, is receiving foreign investments, which help in stabilizing the offerings and in turn help SMEs in their growth. With such facilities, Nubank launched a set of various financial offerings, which include free mobile credit card, etc., and by 2018, it raised around $527 million. Following this success was Albo, Mexico’s branchless mobile banking app, Argentina’s Ualá, etc.
It is understood that neobanks have saved their spot globally and are determined to grow and expand their boundaries. However, the lack of offerings and understanding customer requirements has reduced the speed of their growth. In order to reach customers effectively, it is important to take every step whilst analyzing the pros and cons of those steps. While most regulations around the world are allowing neobanks to take third-party assistance and are supporting the open banking culture, it is now the time for neobanks to think ahead and multiply their offerings accordingly.
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