In 2020, there were more than 250 neobanks around the world. Also known as digital-first or challenger banks, these purely digital banks rose up in response to consumer dissatisfaction with traditional banks and their authoritarian style of customer service. Customers wanted simple, seamless, useful, digital banking experiences.
Why Does it Matter
Around the world, well-known neobanks that were once the darlings of the venture capitalists (VCs) are now starting to run out of funding. Many had to put their expansion plans on hold because they are finding it hard to raise capital. It appears as though neobanks are no longer the flavour of the month. This is creating a vicious cycle of lack of funding leading to lack of innovation and shrinking marketing budgets. Even as the big banks are losing brand loyalty, mega fintechs like PayPal and big tech companies that are venturing into payments and banking services, like Applepay, are gaining more popularity. These companies are already profitable and still agile, which means they can keep innovating more regularly than the neobanks can.
Anyone who wants to start a digital bank today also needs to accept that they can’t act alone. They are coming into an ecosystem that can either support them if they are team players, or shun them if they are arrogant lone rangers. One South African bank that is using the partnership model quite successfully (despite an initially narrow product offering) is Tyme Bank, thanks to its clever retail alliance with Pick n Pay. Conversely, fintechs also need to realise they need the banks for banking licences, banking-as-a-service partners who can help them to plug into the national payment system and align their compliance and technology with industry requirements, and partners with ecosystem knowledge so that they don’t hit brick walls they never knew existed in the payments and banking ecosystem.