Saturday, 02 March 2024

Ganizo | Money & Finance

The Rise of Neobanking in Africa

The new generation of bank start-ups in Africa is just as those in any part of the world; all thanks to digital and the internet of things, called Neobanking.


Neobanking is a type of banking service that is offered exclusively through a digital platform, such as a mobile app or website. Neobanks do not have physical branches and offer many of the same services as traditional banks, such as checking and savings accounts, debit cards, and peer-to-peer payments. However, they often have lower fees and more convenient features than traditional banks, such as the ability to open an account and access financial services entirely through a mobile app.

Some neobanks also offer additional features such as budgeting tools, financial planning services, and investment options.

What brought about the rise of neobanks?
There are several factors that have contributed to the rise of neobanks. One of the main drivers has been the increasing availability and use of mobile devices and the internet, which has made it easier for people to access financial services online.



In addition, the proliferation of digital payment methods and the growing popularity of cashless transactions have made it easier for neobanks to offer their services without the need for physical branches or traditional banking infrastructure.

Another factor has been the increasing dissatisfaction with traditional banks among consumers, who have been attracted to the lower fees, greater convenience, and innovative features offered by neobanks. Finally, the rise of fintech (financial technology) companies has created a new ecosystem in which it is possible for neobanks to emerge and compete with traditional banks.

Fintech contributed in creating an Ecosystem
The rise of fintech has contributed to the creation of an ecosystem where neobanks emerge and compete with traditional banks in several ways. One of the main ways is by developing innovative financial technologies and services that have helped to make it easier for neobanks to enter the market and offer their services to consumers. For example, fintech companies have developed mobile payment platforms, online lending platforms, and other technologies that have enabled neobanks to offer a wide range of financial services without the need for traditional banking infrastructure.

Fintech companies have also helped to create a more competitive environment for neobanks by disrupting the traditional banking industry and forcing traditional banks to adapt to new technologies and changing consumer preferences. This has created an ecosystem in which neobanks are able to compete with traditional banks on a more level playing field.

Finally, fintech companies have helped to create an ecosystem in which neobanks can thrive by providing the necessary support and infrastructure for them to operate. This includes everything from technical support and security to regulatory compliance and customer service.

What is Fintech?
Fintech, or financial technology, refers to the use of technology to improve and automate financial services. This can include a wide range of products and services, such as mobile banking apps, online lending platforms, and digital payment systems. Fintech companies often use technology to make financial services more efficient, convenient, and accessible, particularly for consumers and small businesses.

Fintech has the potential to disrupt traditional financial services, and has been a driving force behind many of the changes that have occurred in the financial industry in recent years. This includes the rise of neobanks, the increasing use of mobile payment systems, and the emergence of new business models such as crowdfunding and peer-to-peer lending. Fintech is a rapidly growing industry, and it is expected to continue to shape the future of financial services in the coming years.

The largest Fintech industry in Africa
It is difficult to say which African country has the largest fintech industry, as the industry is still in the early stages of development in many parts of the continent. However, some countries that are considered to have strong fintech industries include South Africa, Kenya, and Nigeria.

South Africa has a well-developed financial sector and has been an early adopter of fintech. The country has a number of well-established fintech companies and a supportive regulatory environment.

Kenya is also home to a growing fintech industry, particularly in the areas of mobile payments and peer-to-peer lending. The country has a high level of mobile phone penetration and a strong culture of innovation, which has helped to drive the development of fintech.

Nigeria is another African country with a growing fintech industry. The country has a large and young population, and there is strong demand for financial services. In recent years, a number of fintech companies have emerged in Nigeria, offering a range of products and services including mobile payments, peer-to-peer lending, and online banking.

What does a neobank need in order to start in Africa?
There are several things that a neobank typically needs in order to start. These include:

A license to operate as a bank: In most countries, neobanks are required to obtain a banking license in order to offer financial services to customers. This typically involves meeting certain regulatory requirements, such as maintaining capital reserves and following strict security and compliance standards.

Funding: Neobanks typically need a significant amount of capital to start up and operate, in order to cover the costs of developing their platform, obtaining a banking license, and marketing their services. This can be raised through venture capital investment, crowdfunding, or other means.

A digital platform: Neobanks rely on a digital platform, such as a mobile app or website, to provide their services to customers. This platform needs to be developed and maintained in order to offer a range of financial services, such as opening and managing accounts, making payments, and tracking spending.

Partnerships: Neobanks often need to establish partnerships with other companies in order to offer a full range of financial services to their customers. This can include partnerships with payment processors, credit card companies, and other financial institutions.

Marketing and customer acquisition: In order to be successful, neobanks need to attract customers to their platform. This typically involves a combination of marketing and customer acquisition efforts, such as advertising, social media campaigns, and partnerships with other companies.

The neobanking industry in Africa is still in its early stages and there are many new players entering the market. Some of the more established neobanks in Africa include:

Chipper Cash, which operates in several countries across East and West Africa and has a diverse customer base. Chipper Cash collaborates with local traditional banks in the countries where it operates to ensure that customers can easily send and receive money across borders.

TymeBank, which operates in South Africa and has a large customer base. TymeBank is owned by Commonwealth Bank of Australia, one of the largest traditional banks in the world, which provides the necessary banking infrastructure for TymeBank to operate.

Kuda, which operates in Nigeria and has a growing customer base. Kuda has a partnership with First Bank of Nigeria, one of the largest traditional banks in Nigeria, which allows it to access banking infrastructure and services to operate.

Carbon, which operates in Nigeria and has a customer base focused on small businesses and freelancers. Carbon partners with Access Bank, one of the largest traditional banks in Nigeria, to access banking infrastructure and services.

Branch, which operates in Kenya and has a customer base focused on low-income individuals. Branch partners with Equity Bank, one of the largest traditional banks in Kenya, to access banking infrastructure and services.

There are however, a significant number of other financial services providers in South Africa that are evolving into Neobanks, over and above their original mandate. Names like Mukuru come to mind, the leading MTO in Africa away from the global giants - Western Union and MoneyGram. Mukuru is fast converging in the space of neobanking by offering banking services within confines of its licensing. They are leveraging on the power of their customer base.

Some commonalities among the neobanks mentioned include:

They are all digital-only banks, meaning that they do not have physical branches and customers interact with the bank primarily through mobile apps or online platforms.

They are all relatively new players in the banking industry and have only been in operation for a few years.

They all operate in Africa, specifically in East and West Africa and South Africa.

They all target a specific segment of the population, whether it be small businesses, low-income individuals, or a general customer base.

They all offer a range of financial services such as account opening, fund transfer, bill payments and airtime top-up, debit card and other services.

Additionally, these neobanks are all relatively small compared to traditional banks and are still expanding and growing their customer base, but they have been able to disrupt the traditional banking industry by providing more accessible and convenient services through their digital platforms.

What are the drivers of growth for Neobanks?

From my observations, some key drivers of growth for a neobanking financial services provider include:

A user-friendly mobile app and website that makes banking easy and convenient for customers.

A wide range of products and services, such as savings and checking accounts, personal loans, and investment options.

Competitive interest rates and fees to attract and retain customers.

Strong security and fraud prevention measures to protect customer information and assets.

A strong digital marketing strategy to increase brand awareness and acquire new customers.

Providing additional services like budgeting tools, debit card rewards, cashback, and other incentives.

Good customer service and support.

Building strategic partnerships and collaborations with other companies to expand their reach and offer more services.

Keeping up with the latest trends and technologies to stay ahead of the competition.

Good governance and regulatory compliance.

The rise of neobanking in Africa is driven by the increasing availability and use of mobile devices and the internet, the proliferation of digital payment methods, and the growing dissatisfaction with traditional banks among consumers.

Fintech has played a major role in creating an ecosystem where neobanks can emerge and compete with traditional banks, by developing innovative financial technologies, disrupting the traditional banking industry, and providing the necessary support and infrastructure for neobanks to operate.

The fintech industry in Africa is rapidly growing, and it is expected to continue shaping the future of financial services in the coming years.

Oscar Habeenzu is a Business Analyst and founder of GetAPlan.Africa, a business planning and strategy firm that has formulated strategy and plans for startups and medium scale businesses in South Africa, raising over R400 million since 2020 in multiple industries, including Neobanking and Fintech.

Sources: Fintech News, EG Scholars, Behaviour Report