Neobanks will represent a market size of over $2 trillion globally by 2030 and grow at a compound annual rate of 53.4% as digitally savvy users increasingly demand services easy-to-access financial resources, said the Boston Consulting Group.
Regulatory changes combined with the massive adoption of the internet and smart technologies will drive the growth of the sector, according to a report by the management consulting firm.
“The FinTech sector in the GCC is expected to be valued at $3.45 billion by 2026 as a direct result of a boom in digital payments and digital remittances growth rates,” said Bhavya Kumar, Managing Director and associate of BCG.
“As regulators ease barriers to entry, new businesses and established players are looking to capitalize on the demands of a young, highly connected population who want convenient, on-demand access to their finances and are acutely aware of what to expect in terms of sophisticated user experiences.
Often referred to as challenger banks, neobanks are financial service providers that operate solely online and have no physical presence.
They offer digital and mobile-first financial solutions for specific services long associated with traditional institutions such as retail banks, payment providers and international money transfer services, BCG said.
Neobanks are increasingly popular with Gen Z because they serve their needs better than traditional banks.
FinTech start-ups first emerged after the global financial crisis of 2007-2009. The ensuing upheaval in banking regulations and the rise of new technologies have enabled neobanks to disrupt the market with user-friendly services such as faster account opening times, faster peer-to-peer transfers, building up credit and payday loans.
Some traditional financial institutions have responded to the challenge of neobanks, including in the Middle East.
Banks such as Abu Dhabi Commercial Bank, Emirates NBD and Mashreq quickly launched digital operations with Hayyak, Liv and Mashreq Neo, respectively.
There are at least 333 neobanks worldwide, including start-ups and digital-only operations by incumbents, a tracker by The financial brand publication showed.
The number of neobanks has increased by more than 200% since 2015, according to BCG’s FinTech Control Tower report.
The growth of these institutions is driven by the need for on-demand, easy-to-access financial solutions sought by a young and increasingly digitally savvy population, BCG said.
“Traits that have often defined the success of neobanks include digital and mobile-centric services, exceptional user experiences, a lean and agile technology-driven culture, and building brands that users have an emotional connection with,” indicates the report.
More than half of the GCC population is under 30 years old. The region has one of the highest connectivity rates in the world, with more than 90% of its population connected to the internet, far exceeding the global average of 51.4%, according to the research.
It is expected that around two-thirds of the GCC population will have 5G connections by 2026.
This combination makes the region ripe for FinTechs and neobanks to accelerate their growth, according to the report.
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This year, Saudi Arabia licensed three digital banks and 19 fintech companies to provide microfinance, digital insurance and payment services to consumers, BCG said.
There have been regulatory advancements across the GCC, such as the FinTech Hive accelerator at the Dubai International Financial Center, as well as others in Abu Dhabi and Manama in Bahrain, the consultancy said.
“While traditional banks will maintain a strong position in the near term, particularly in terms of corporate banking and retail mortgages, neobanks will gain market share in specific product areas such as payments, loans , buy-now, pay-later, cards and digital wallets, and remittances, targeting specific customer groups such as young tech-savvy people, expatriate populations and women,” the report states. .
Updated: October 29, 2022, 04:00