Neobanks are the vogue nowadays. Everyone across the world is talking about them and now everyone is starting to transact with them. But what exactly are they? And do we have any in the region?
Let’s start by explaining what they are – in essence they are financial service providers, just like the conventional banks we see. Where they differ is that they do not have any physical presence like the banks we are used to – with lots of branches, tellers, customer service personnel and ATMs to transact. Neobanks are essentially fintech firms that offer digital financial services either through websites accessed on web-browsers or through apps on smartphones. Their basic services include - checking and savings accounts, payments and money transfer services, and loans for individuals and businesses.
So, do we have any in the region? Indeed, we do. The charge is being led by UAE where Mashreq, CBD and Emirates NDB have all launched their own Neobanks. Meem backed by GIB, which started out in Saudi already has presence in Bahrain. There are others who are testing the markets out such as Bank Open from India. Furthermore, regulators such as the CBB, SAMA, ADGM and CBK have created Sandboxes for new entrants into the market to test and experiment with their products and then do a full roll out.
There are many young entrepreneurs who are now looking at this as a big opportunity with so many payment services and e-wallets already in the market, there are some ideas that are moving up the value chain. The barriers to entry have dissolved and the market has become highly inclusive. Some of the fintech success stories are astonishing be it Paytabs, Bwallet, Rain, etc. Neobanks promoted by young entrepreneurs are just around the corner and hopefully we will see some very innovative solutions that are developed indigenously.
It is thus, important for us to discuss critical success factors for new entrants in neobanking. These are:
The customer experience has to seamless – This is a hygiene factor, if the user experience is not smooth then you will not have many users.
Think beyond the ocean of overbanked people – The middle east is considered overbanked. There are more branches per 100,000 people in the middle east as compared to the rest of the world. A small population like Bahrain is served by over 30 banks both local and foreign providing conventional and Islamic banking services so one would wonder, who is left to target? Well, housewives are not catered to by the incumbent banks, students are barely looked at for services, SMEs barely get anything more than a checking account. So, there are various segments of the market that can be looked at. Find the segment you want to serve and understand it thoroughly.
Know who your customer is and solve core issues for them – This is your key differentiator. Understand who your customer is, discover their pain points and then solve them while delivering financial services. Going to the core is the right way to create a market for yourself. If you are looking to get housewives to bank with you then see what their core issues are, is it simplifying payments for groceries, is it budgeting of household expenses, or is there any other issues they face that makes their lives difficult. Then create a solution that will address any one of these for them. Once you have successfully addressed a core issue you create the entry barriers for others and make your own market.
After reading this, if you are wanting to become the next tech millionaire that will disrupt the incumbent banking giants around then you know where to find us.