April 18, 2024


Man hands using online banking and icon on tablet screen device in coffee shop. Technology E-commerce Commercial. Online payment digital and shopping on network connection.

The Next Banking Revolution

Digital technology is constantly evolving. Across industry sectors, consumers are in constant need of access to information quickly. In today’s digital age, one can get their food delivered in less than an hour and their shopping items delivered the same day; consumers expect the same from their banks as well.

In the banking space, this means that consumers are looking for bite-sized insights, something that one can’t necessarily find on a bank statement. Consumers are also moving away from the concept of physical cash and banks. They are inclined more toward online banking and wallets.

Neobanks are virtual banks that are entirely online, have no physical branches, and offer digital-only and mobile-first financial services to their end-users. They have become increasingly popular due to their innovative, virtual-only banking and financial services. They deliver better products and services through an excellent digital experience with benefits that include low costs and conveniences such as hassle-free account creation and personalization, amongst others.

Neobanks have continued to gain market share in the past couple of years. They are predicted to surge to roughly about 100 million users by 2024.

Why Do Neobanks Have an Edge?

As an emerging financial tool, neobanks have witnessed exponential demand driven by niche features that can tackle the challenges of traditional banking. Neobanks is fast expanding as their emerging, state-of-the-art technologies, such as completely automated online support, and their innovation-first attitude are winning customers. Some of the key differentiating factors include (but are not limited to):

  • Secure by design: Neobanks aren’t built on legacy systems, unlike traditional banks. They have integrated security and safety by design in their platforms. Neobanks have the first-mover advantage in adopting advanced security-enhancing models like single-use virtual cards and tokenized payments. Further, neobanks have integrated multi-factor authentication and biometrics to thwart phishing attacks. For example, Airtel Payments Bank has enabled an additional layer of security by introducing three-factor authentication (One-time password, password credentials/Unique Payments Interface PIN, and user authentication) in a single transaction journey.
  • One-stop shop: Neobanks offer convenience to customers by bringing all types of products and solutions in a one-stop solution. Instead of juggling multiple apps for various services, customers can now consume all services in a single app. For example, PayTM Mall, which integrates shopping, ticket booking, bill payments, insurance, etc., is helping customers consume services and transact via a single super app. 
  • Clarifying banking services: Neobanks enable building a network digitally that helps reach the masses. Further, they have redesigned and simplified banking services without compromising the process. Neobanks have, in particular, targeted the Micro, Small and Medium Enterprises (MSME) sector and simplified the credit disbursal process, which is a major overhaul in the financial sector. By bringing banking services to the underbanked community, neobanks have helped improve the credit inflow of small businesses, which helps support financial inclusion in developing countries like India, Brazil, Indonesia, Saudi Arabia, to name a few.  

Key Challenges and the Road Ahead

On the flipside, there is a significant trust gap amongst consumers, particularly those who are averse to the digital-first proposition. Since neobanks haven’t been around for long, their proven track record is short compared to the much older traditional banks. However, the “neo” factor will lessen, alleviating customer concerns regarding their shorter track record. Also, traditional banks are responding to the perceived threat from neobanks by introducing features that mimic those offered by their digital-only competitors. These improvements will ensure the competition remains intense and fiercer than before for these neobanks.

For neobanks to grow, it’s important that they widen their portfolio and offer value-added services over and above traditional banking institutions, making this a major selling factor. Also, neobanks need to ensure they reflect the core principles that future banks will operate on, including customer control and transparency. It is important to make it easier for consumers to have more control. Customers should eventually be allowed to control third-party access. Third-party aggregators will be able to access customer information, but the customer should have control over the flow of data to these sources or even turn on/off the access to these aggregators.

Existing regulations must be revised for licensing and operating neobanks across the globe. One of the reasons the U.K. claims to be the fintech capital of the world is its regulatory support and encouragement from federal institutions in the region. A number of countries like Saudi Arabia, Singapore, and Taiwan have made inroads in creating frameworks supporting digital-only banks. Countries that have not made headways in the GCC region must adopt a regulatory sandbox approach and reap gains from the significant growth potential the evolving fintech ecosystem offers.

Frost & Sullivan anticipates deeper penetration of digital-only banking in the coming years. The collaboration between traditional banks and fintech ventures and startups would serve as the key to the success of the fintech ecosystem in the future.

Authored By: Kiran Kumar V, Research Director, TechVision, Frost & Sullivan

Copyright 2021 for Contents, Images By Frost and Sullivan



real estate
Saudi Real Estate: A Global Transformation and Opportunity
A Fascinating Look into Saudi Arabia's Real Estate and Hospitality Industry
A fascinating look into Saudi Arabia's real estate and hospitality industry
Saudi Arabia's journey towards financial inclusion and solidarity
Saudi Arabia's journey towards financial inclusion and solidarity
  • BYDFi


LIBF proudly announces the appointment of Ehsan Razavizadeh as its new Managing Director for MENA and Asia, marking an important milestone for LIBF’s vision in MENA and Asian markets.
Medad Holding and Franklin Templeton (Templeton International, Inc.,) have entered a memorandum of understanding (MOU) to form a new joint venture in the United Arab Emirates.
Masdar and EGA will explore international opportunities to power new aluminium production facilities with renewable energy
Image used for illustrative purpose(Image from Unsplash.com)