As banks partner to launch Neobanks, market growth is accelerating

By Puja Sharma

The global Neo banking market size was valued at $47.39b in 2021 and is expected to grow at a compound annual growth rate (CAGR) of 53.4% from 2022 to 2030. The rising demand for convenience among customers in the banking sector is expected to drive market growth, accoding to a suvery conudcted by Grandviewresearch.

Neo banks offer banking solutions without the need for physical branches or offices. They help users validate their service offerings in real-time through online channels and mobile sites. In addition, the growing adoption of smartphones and the internet across the world for online banking is expected to further accelerate the demand for neobank platforms.

The increasing number of partnerships of banks and organizations to launch neobanks platforms is also accelerating the market growth. Such partnerships are aimed toward providing a better customer experience and enhanced safety and stability.

Last year in April, Google pay co-creators announced the launch of Fi, a neobank, in partnership with the Federal Bank to provide an instant savings account with debit cards for salaried millennials. Technological advancements and the notable increase in internet penetration globally allow financial service providers to offer novel digital services to customers. Moreover, the growth in digital wallets has also been driving the demand for online banking platforms.

According to Visa, a multinational financial service company, there are more than one billion mobile money wallets worldwide. Many financial service providers are collaborating with mobile money wallet providers to offer affordable money transfer services. Neobanking is gaining popularity among retail customers and Small- and Medium-sized Enterprises (SMEs).

Free debit cards, digitised account opening, personal finance advisory, instant payments, e-bill generation, invoice management, account integration, and GST-compliant invoicing are some of the key features propelling retail customers and SMEs to adopt neobanks over traditional banks and use the digital services offered by them efficiently.

Challenges

Neobanking is characterized by a low-cost structure, easy accessibility, and advanced services. Cost efficiency is largely driven by reduced real estate and distribution costs, less complex IT systems, and streamlined operating models. Investors are focusing on the market opportunities for neobanks and investing in them. India’s neobank startups raised more than $200m in 2020, according to the MEDICI India FinTech report 2020. Nonetheless, neobanks offer fewer products than traditional banks, which is expected to constrain market growth. Neobanks also struggle with profitability as they offer services at a reduced cost to attract new customers.

Way ahead

Market segments have been created based on application types, including enterprise, personal, and others. In 2021, the enterprise segment dominated the market and accounted for more than 52% of global revenue. Enterprise-related services such as transaction management, credit management, and asset management are provided through these platforms. Many neobank service providers for SMEs are making efforts to enhance their product offerings with acquisitions aimed at improving the customer experience. In December 2021, Open, an SME Neobanking platform provider, announced the acquisition of Finin, a consumer Neobanking platform, for $10m in cash and stock deal.

Over 30% of global revenue was generated by the Europe region in 2021. Growth in the regional market is attributed to the rapid adoption of new technologies and the development of multiple innovative technologies. The companies are also looking to launch product platforms and engage in partnerships to strengthen their positions in the marketplace. In the region, several neobanks launched brick-and-mortar distribution channels to establish a type of O2O distribution, creating growth prospects.