Complex Made Simple

The impressive rise of NeoBanking in the GCC

Neobanking making forays into the GCC region with fintech and traditional banks realising its potential

Fintech start-ups are expected to attract $2 billion in private funding over the next ten years in the Middle East region With a millennial population making 1/3rd to ½ of the total population in the GCC region, the popularity of neo-banking solutions is highly anticipated Saudi Arabia too has emerged as a front-runner in digital banking and was recently revealed as one of the top digital banking markets in the MENA

Challenger banks and neo banks are separated by the fact that the former are pure fintech entities holding a bank license, while neobanks have behind them a traditional bank, but hold no such license themselves. 

Regardless, they both aim for a fully digitized banking experience, not burdened by traditional banking technology and costly networks of physical branches.

Digital banking is not only for the masses and the unbanked. According to Business Insider (BI), Goldman Sachs recently revealed it's developing an investment platform that will be offered via its digital offshoot Marcus and targeting US's mass affluent segment, with liquid assets between $100,000 and $1 million, quoting American Banker.

Development of online and mobile payments 

Mobile P2P services like Venmo and Square Cash will propel digital P2P to $574 billion by 2023, according to BI.

Brett King, author of Bank 4.0 said that in China alone, more than $22 trillion worth of transactions were made in mobile payments. "Voice recognition will be the primary mechanism of payment in the future," King opined.

Global cryptocurrency expert Henri Arslanian, PwC’s Fintech and Crypto leader for Asia, pointed out that the industry would see stable coins – cryptocurrencies backed by real assets – coming up, citing the example of JP Morgan’s JPM Coin and now Facebook’s Libra.

 Fintech start-ups are expected to attract $2 billion in private funding over the next ten years in the Middle East region, reflecting the rapid acceleration of the industry across the region. By comparison, the entire last decade saw $150 million of investment.

How is Neobanking different from traditional banks?

The so-called neobank movement — digital startup challengers that deliver banking products outside the traditional system — can be said to have started in 2009, when John Reich, an Australian software developer and hedge fund quant who was appalled at the complexity of American banking, decided he wanted to start a "really boring, simple bank." He founded BankSimple to do just that.

How does it work now?

Neobanks offer innovative features and offerings that are different from traditional banks including fast account opening, free debit card, instant payments, cryptocurrencies, lower costs, mobile deposits, P2P payments, mobile budgeting tools, user-friendly interfaces, AI and etc.  

Account Opening: Neobanks offer simple and fast online account opening.

International Payments/Remittances: Neobanks offer the usage of their debit card in foreign countries for no fees and at live exchange rates.

Lending/Credit Products: Neobanks can provide credit products at lower charges and interest rates compared to traditional banks. 

Money Tracking/Account Aggregation: Neobanks can simplify money tracking and account aggregation. 

International Neo banking growth

Variant market research predicts immense growth in the neo-banking sector with the category growth going up by 45% in 2025 from 2017. As of 2017, Monzo neo-bank had raised over $93 million in a Series D round of funding, taking the valuation of the organization from $113.6 million to $366 million.

Neo banks such as Atom Bank, Monzo, N26, Nu Bank, Oak North, and Revolut have been raising huge amounts of funding.

Huawei and Forms Syntron have jointly released a distributed open platform solution “Fincube” for the global financial industry. Fincube will help banks to better meet the challenges of the "Bank 4.0" era, reduce innovation costs, optimize technologies, and continuously improve service openness capabilities that enhance the experience of bank customers.

The BaaS (Banking as a Service) capability library enables banks, to quickly innovate based on standard versions and continuously integrate and deliver new services.

Regional neo banking growth

Fatema is Bahrain Bank ABC’s and the region’s first emotionally-intelligent digital employee. Built by New Zealand-based Soul Machines, Fatema engages with customers using cutting-edge digital neurology and AI.

With a millennial population making 1/3rd to ½ of the total population in the GCC region, the popularity of neo-banking solutions is highly anticipated.

With the likes of Emirates NBD launching LIV, a millennial digital banking solution to Abu Dhabi Islamic Bank (ABID) partnering with Fidor Bank (of EU) to launch the regions first community-based digital bank, the entire GCC region is aggressively rising up to opportunities in the FinTech sector

Bank ABC, a Bahrain based international bank, is opening its gates in 2019 to neo-banking through the launch of its neo-bank, independent from Bank ABC. It has partnered with Jumio, the leading AI-powered trusted identity as a service provider, to Become First Bank in the Middle East to employ biometric-based digital KYC functionality.

Open, a neo-banking Indian startup which offers business banking solutions for startups and SMEs, has announced that it will expand into the Middle East market.

Dubai-based challenger bank Xpence is preparing to launch and engulf the Gulf region with its digital-only business current account.

It calls itself “Gulf region’s first neobank designed by entrepreneurs for entrepreneurs”

Xpence is targeting freelancers, solo entrepreneurs and start-ups – and combines bookkeeping and banking in an app.

In an interview with FinTech Futures. Xpence said it uses a variety of technology, including Microsoft and open source technologies like Apache and integrates with various third-party tech partners to deliver services to users, such as Paymentology from London.

“Xpence raised $1.1 million in its pre-seed round from investors in the UK, including UFP Fintech (an early investor in Revolut), as well as from UHNW family offices in Saudi Arabia, according to Fintech Futures.

Saudi Arabia too has emerged as a front-runner in digital banking and was recently revealed as one of the top digital banking markets in the MENA, with more than three quarters of banking customers using online or mobile apps.

Earlier this year, Saudi Arabia’s Alinma Bank launched a network of digital branches, the first in the kingdom. The world’s largest Islamic bank Saudi Al Rajhi Bank announced recently it has selected banking software company Temenos to drive its digital transformation.

Bahrain witnessed the launch of meem, a Sharia’-compliant digital bank, and the National Bank of Bahrain (NBB) launched in partnership with Almoayyed International Group its digital payment and trade finance portal for corporate use.

Neo banking for teens and students

French startup Kard is a challenger bank that works a lot like N26 or Revolut, but for teens or generation Z whose 70% of transactions happen online, yet remain forgotten by traditional banks. 

Kard wants to empower teens with their own bank account, their own IBAN and their own Mastercard debit card. The startup raised $3.4 million back in January from Kima Ventures

Social Finance (SoFi), an online personal finance company that provides student loan refinancing, mortgages and personal loans, is closing a $500 million round from the Qatar Investment Authority — which would put it at a $4.3 billion valuation.