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The Rise of Neobanks in Africa. Everything You Should Know

Many new ‘neo-banking’ startups have come up in Africa and have already risen north of million dollars! The global neobank market was worth USD 18.6 billion in 2018 and is expected to accelerate at a compounded annual growth rate (CAGR) of around 46.5% between 2019 and 2026, generating around USD 394.6 billion by 2026. according to facts and factors research

What are neobanks?

Neo banks are known as financial technology firms, virtual banks, online banks, internet-only banks, or digital banks that operate exclusively online without traditional physical branch networks. These ‘banks’ offer various digital financial services like current and savings accounts, payment, and money transfer.

 Examples of neobanks in africa

  • Eversend(Uganda)
  • Chipper cash(Uganda)
  • SOL wallet(south Africa)
  • Lidya(Nigeria), to mention but a few.

How do neobanks work?

Neobanks are entities that partner up with banks and do sourcing and front-end management while all the transactions are processed by the banks, As a rule, neobanks don’t offer a wide range of products and services in order to reduce both institutional risks and customer costs so they come up with a few niche products. Their services include – but not limited to – checking and savings accounts, payment, and money transfer services, loans for individuals or businesses, or other services like donation and fundraising

Neobanks aren’t identical in their offerings or structure they typically differ from credit unions and traditional banks because they;

  • NeoBanks Aren’t chartered with state or federal regulators as banks.
  • Don’t extend credit (such as overdrafts).
  • Partner with traditional banks to federally insure customer deposits.
  • Provide a streamlined process designed mainly for mobile devices.

Neobanks mostly work on the decision-making model which is driven by data-based decisions. They collect and analyze data, understand the patterns, try to calculate how their customers behave, and then create predictions/results. Its significant undertaking to become a chartered bank as some go through trouble becoming one, so many neobanks form alliances with existing banks. Imagine them being like the banks’ sales agents of sorts!

Neobanks don’t replace traditional banks for all customers as some customers crave the one to one presence with employees in the bank. Some neobanks allow you to link your traditional bank accounts to the neobank so you can enjoy the best from both words. They attract customers through their user-friendly platforms and diverse services which they offer.

This brings me to my other point of differences between neobanks and traditional banks.

Neo banks Vs traditional banks are often used as interchangeable terms but differ from each other.

Traditional banks are your brick and mortar structures offering you an in-person experience at banking, in other words, they are physical banking service platforms and have branches while neobanks are those which are 100% online without any physical branches thus they are fully digital mobile applications.

Traditional banks meet additional costs like rent and electricity which is collected from customers in form of bank statements while neobanks have few costs and are transparent thus they experience saving due to the business model which benefit customers as it allows neo banks offer lower loan interest rates and competitive savings accounts with minimal account fees

Neobanks customer support relies on a combination of chatbots(read about chatbots here)  and AI providing flexible virtual, online support while traditional banks rely on in-person or telephone for customer support.

Neo banks have either no, partial, or full banking license while traditional banks a full banking license is a must.

That’s about it to know from Neobanks. You will be finding out the demerits and merits of Neobanks from my next article.