Neobanks have exploded onto the world scene, but what’s next?

By Puja Sharma

Neobanks have exploded onto the global scene over the last few years – digital-only banks with industry-leading capabilities that do not operate physical branches. It has made headlines by focusing on retail consumers, but its biggest impact could be on the $850b annual SMB banking segment since incumbent banks have struggled to serve it adequately, Amlegals reported.

As modern technology-based banks, neobanks have become more efficient at serving SMBs than legacy banks because they don’t have physical branches to maintain. To streamline SMB business operations, neobanks offer quick account opening, multitiered – and often fee-free – accounts, as well as integrations with third-party business tools.

The advantages of neobanks are as follows:

• Easy-to-use Application-Programming Interface (“API”)
• Transparency and real-time alert
• Automated accounting and taxation services
• Dashboard solutions with greatly improved interfaces

Banking is one of the most heavily regulated sectors in the country. To comply with regulatory frameworks, they use substantial resources, such as manpower, time, and funds. Technological advances have provided tech-enabled banking solutions over the past few decades. Introducing new technology to financial services has led to improved customer service for neobanks.

Neoanks, distinguish themselves from online banking services by diversifying from mere online banking to high-ranking customer services in addition to digital banking. Banks are struggling to keep up with the rise in innovative technology inventions. A crucial factor to consider is whether neobanks compete with traditional banks or are in collaboration with them.

Providing transparent and customer-centric financial services requires the integration of these two types of banking. The SMB sector accounts for 99% of all businesses globally, and these businesses are crucial to the economies of their countries.  As banks reduced their exposure to risky credit portfolios after the financial crisis, they have struggled to find the right balance between efficiently serving SMBs and delivering the customer experience these companies require.

In March this year, IBS Intelligence reported, 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.

A mature neobank ecosystem has developed in Europe, driven by regulations that have lower entry barriers, including Open Banking and PSD2. Regulatory obstacles have caused the American ecosystem to lag behind that of Europe for a long time, but that is starting to change. As far as the development of SMB neobanks is concerned, the Asia-Pacific region displays a huge variety among markets.

Key highlights

• Transaction value in the neobanking segment is projected to reach $43.12b in 2022, according to satista.com.
• Transaction value is expected to show an annual growth rate (CAGR 2022-2026) of 19.90% resulting in a projected total amount of $89.13b by 2026.
• Technological advances have provided tech-enabled banking solutions over the past few decades. Introducing new technology to financial services has led to improved customer service for neobanks.
• A mature neobank ecosystem has developed in Europe, driven by regulations that have lower entry barriers, including Open Banking and PSD2.