The neobank market is set to grow from its current market value of over $45 billion to over $600 billion, as reported in the latest study by Global Market Insights Inc.
With COVID-19 driving the usage of mobile and online banking services to the fore, the global neobank market is expected to witness considerable gains over the coming years. While these services were seeing rapid adoption even before news of the virus broke, their adoption has gained significant momentum since the pandemic took hold.
In fact, according to Fidelity National Information Services, an American multinational financial company that works with more than 50 of the world’s largest banks, an unprecedented 200% increase in new mobile banking signups was reported in early April 2020, with mobile banking traffic jumps 85%.
A plethora of neobanks have managed to take advantage of these favorable industrial conditions to make inroads into the sector, so much so that leading players in the sector, namely Nubank SA in Brazil, N26 GmbH in Germany and Chime Financial in the United States United States, have successfully accumulated valuations of $10 billion, $3.5 billion and $14.5 billion respectively by the fourth quarter of 2020.
Explosive growth of industry players
Since the meteoric rise of neobanks, including the aforementioned, during the pandemic, their growth trajectory has steadily increased. In fact, the three players mentioned above have decided to increase their respective valuations in the two years 2020 and 2022.
Nubank’s total valuation hit the $41.5 billion mark, more than the nation’s largest bank, as it debuted on Wall Street via an initial public offering in December 2021. makes Nubank the most valuable publicly traded financial institution in all of South America. In December 2021, the company also raised over $2.6 billion through a minority stake sale.
Meanwhile, earlier in 2021, Chime raised over $750 million through a Series G funding round in August, taking its valuation to $25 billion. The company has managed to effectively increase its valuation by around $10 billion in the space of a year, showcasing an incredibly strong investor and consuming an appetite for neobanking.
The global financial inclusion imperative
One determinant that would play a major role in the proliferation of industry revenue would be the imperative for global financial inclusion. According to the World Bank, being excluded from a formal financial system is recognized as one of the greatest obstacles to a poverty-free society.
According to the latest World Bank estimates, more than 1.7 billion people in the world do not have a bank account. The ratio of the banked to the unbanked is particularly more skewed in emerging economies, particularly those in the MEA region and Asia-Pacific.
However, this does not necessarily mean that the unbanked lead an inactive financial life. In fact, the so-called gap in the system gave way to an informal financial ecosystem to sustain itself in these regions, an ecosystem that relied heavily on physical transactions and did not give way to the inclusion of the formal system. for many years.
This scenario changed when COVID-19 spread across the world and crippled the informal system of physical transactions. Neobanks have had great success in bringing the unbanked population into the fold through mobile money. Service providers and regional governments have both worked in tandem to eliminate hesitation through favorable policies and offers, laying the groundwork for neobanks to make the imperative of financial inclusion a reality.
Unlike conventional banking systems, neobanks have shown promise and are being hailed as tools for global financial inclusion. With such ambitious horizons to pursue, and the strong investor-consumer appetite they are already witnessing, the neobanking market is ripe for a period of distinguished growth in the years to come.