The Neobanking Market is set to grow from its current market value of more than USD 45 billion to over USD 600 billion, as reported in the latest study by Global Market Insights Inc.
With COVID-19 bringing the use of mobile and online banking to the forefront, the global neobanking market is slated to register momentous gains through the forthcoming years. While these services were witnessing rapid adoption even before news of the virus broke, their uptake has picked up significant momentum since the pandemic took hold.
In fact, according to Fidelity National Information Services, an American multinational financial corporation that works with more than 50 of the largest banks in the world, an unprecedented 200% increase in new registrations for mobile banking was reported in early April 2020, with mobile banking traffic jumping 85%.
A plethora of neobanks have successfully leveraged these conducive industry conditions to foray into the sector, so much so that prominent industry players, namely Brazil’s Nubank S.A., Germany’s N26 GmbH, and USA’s Chime Financial, successfully accrued valuations of $10 billion, $3.5 billion, and $14.5 billion respectively by Q4 of 2020.
Explosive growth of industry players
Since the meteoric rise of neobanks, including those aforementioned, during the pandemic, their growth trajectory has consistently risen. In fact, the three players mentioned above have gone ahead to raise their respective valuations in the two-year span of 2020, and 2022.
Nubank’s total valuation hit the $41.5 billion mark, higher than the nation’s biggest bank, as it made its Wall Street debut via an initial public offering in December 2021. The number made Nubank the most valuable publicly listed financial institution across the entirety of South America. In December 2021, the company also raised more than $2.6 billion through a minority stake sale.
Meanwhile, earlier in 2021, Chime raised more than $750 million through a Series G funding round in August, bringing its valuation up to $25 billion. The company managed to effectively raise its valuation by approximately $10 billion within the span of a year, showcasing an incredibly strong investor and consume appetite for neobanking.
The global financial inclusion imperative
A determinant that would be playing a major role in further proliferating industry revenue would be the global financial inclusion imperative. According to the World Bank, being excluded from a formal financial system is recognized as one of the biggest barriers to a society without poverty.
As per the most recent World Bank estimates, more than 1.7 billion people across the world do not have a bank account. The ratio of those banked against the unbanked is particularly more skewed in emerging economies, particularly ones in MEA and the Asia Pacific.
However, this does not necessarily translate to the unbanked leading an inactive financial life. In fact, the so-called gap in the system has made way for an informal financial ecosystem to prop up in such regions, one that heavily relied on physical transactions and did not give way to formal system inclusion for many years.
This scenario changed when COVID-19 spread across the world and crippled the physical transaction-heavy informal system. Neobanks have seen great success in bringing in the unbanked demographic to the fold through mobile money. Service providers and regional governments have both worked in tandem to eliminate hesitancy through favourable policies and offers, laying down the groundwork for neobanks to make the financial inclusion imperative a reality.
Final thoughts
Unlike conventional banking systems, neobanks have shown promise and are being hailed as tools for global financial inclusion. With such ambitious horizons to chase, and the strong investor-consumer appetite they are already witnessing, the neobanking market is ripe to experience a period of distinguished growth in coming years.