Digital-only, neobanks have been emerging at pace over the past decade or so to increasingly compete with and disrupt more established banking institutions across the world. Accelerated by the Covid pandemic in the early 2020s, the prevalence of neobanks continues to grow in response to strong and enormously widespread demand for ever more highly personalised and super easy-to-use banking solutions.

“As startups, neobanks benefit from an inherent agility,” explains Denys Boiko, a European entrepreneur and investor with extensive finance and banking experience, and founder of Erglis investment company. “They have a natural capacity to innovate in ways that match up well to what contemporary consumers worldwide increasingly want and expect from financial service providers.”

All to play for

For established players in the traditional banking sector, neobanks now represent a form of competition that simply cannot be ignored. According to Fortune Business Insights, the global neobank market was worth around $98.40 billion in 2023, but the sector is expected to explode in scale over the next five to 10 years as the digital banking revolution transforms huge swathes of the entire industry.

Counterintuitively perhaps, there are also major potential wins for traditional banks too, if they can respond well to the changing financial services landscape. In fact, McKinsey’s experts have said that the global digital banking transition represents a “$20 trillion opportunity” for established players. They insist that the banks that can make the right bets and “embrace the platforms of the future” could become bigger and more profitable than ever. Those who fail to adapt well enough, however, can expect to find themselves being outcompeted on every front.

Rising to prominence 

For neobanks, the future certainly looks bright. The likes of Chime in the US, Revolut in the UK, Nubank in South America, and WeBank in China, have all become major players in their domestic and regional banking sectors. Each of those businesses now provides an array of financial services to millions of customers, and their ambitions for the future tend to expand as quickly as their user bases.

With so much having shifted already across the banking sector, there is every reason to expect further advancement over the next few years and beyond, with neobanks close to the forefront of that change. Chime, for example, in the US, emerged initially after 2012 offering fee-free overdraft facilities and no monthly fees. In 2021, the company raised $750 million in a single funding round, now has an estimated 22 million users, and recently rolled out a new service offering up to $500 wage advances for cash-strapped consumers.

Meeting new demands

Keys to success for neobanks like Chime and many others include unique selling points and, often, lightning-fast responsiveness to shifts in consumer demands, with tech-savvy populations worldwide looking for easy access to the latest in tailormade financial solutions. People increasingly do not want or expect to bank via their local branches. Instead, they expect to encounter extremely easy-to-use digital services that present them with vivid illustrations of their own finances and allow them to manage their money instantaneously via their mobile phones.

“Neobanks can deliver on those demands, often in ways that traditional banks cannot, because they are generally created from the ground up specifically to do so,” notes Denys Boiko.

As banking has been transformed, so much has been enabled by big data and analytics, by the underpinnings of cloud computing and by robotic process automation. Increasingly, artificial intelligence and machine learning are instigating a new wave of change and innovation involving established neobanks, as well as more traditional finance firms, and new players entering the market.

Forging ahead

The specific character of digital banking markets and the functioning of neobanks within them varies from country to country. Some markets, such as the UK, for example, have taken quickly to neobanks and they are now very much set as an integral part of the financial services landscape.

One part of the world currently evolving dramatically as a neobank hotspot is the UAE, where there are several new digital fintech firms rising to prominence, generally to complement traditional banks rather than to usurp them, as detailed in a recent S&P Global report. The likes of Yap and Wio are growing quickly in the UAE, in collaboration with bigger, more established local banks. They are tapping into the growing demand for new services within a youthful, digitally-advanced population and benefitting notably from strong regulatory and central bank encouragement.

Denys Boiko: UAE just getting started as a hotbed of innovation 

“The Gulf region is a hotbed of fintech innovation right now and one of the most exciting digital banking markets anywhere in the world,” says Denys Boiko. “That’s especially true of the UAE, which defied a global slowdown of fintech spending in 2023 to deliver a massive 92 per cent uptick in investment activity across the sector. 

“There has been well over half a billion dollars invested into UAE fintechs since 2021 but I think that’s just the beginning for the country as a digital banking hub. The UAE, like much of the wider region, is transitioning away from a reliance on the energy sector for its economic growth. Within that evolution, new banking services, fintech innovation and digital startup activity are sure to feature prominently.”

A fundamental shift

The spread of digital banking is creating endless opportunities for agile service providers like neobanks, while also helping to significantly expand financial inclusion worldwide and support more SMEs in accessing the funding they need.

The changes taking place though are an expression not just of new businesses finding receptive audiences but of a fundamental shift in how individuals and businesses interact with financial services. The UAE looks poised to play a front-running role in that groundbreaking process.