In this blog post, our CEO, Louis Volschenk will explore the impact of neobanks on traditional banks and how Traderoot’s fintech solutions can help incumbent banks compete effectively.
The banking industry across Africa is undergoing a significant transformation with the emergence of digital-only banks, commonly known as “neobanks.” These neobanks are disrupting the traditional banking landscape and are quickly gaining market share.
What is a Neobank?
A neobank, also known as a digital bank or an online-only bank, is a type of financial institution that operates entirely online without physical branches. Unlike traditional banks, neobanks offer their services exclusively through mobile apps or websites. They often focus on providing a user-friendly, seamless digital experience for customers, with features such as instant account opening, budgeting tools, and 24/7 customer support.
Neobanks typically offer a range of banking services, including checking and savings accounts, loans, and debit cards, but they do not have brick-and-mortar branches like traditional banks. Because they have lower overhead costs, neobanks can often offer more competitive fees and interest rates than traditional banks.
Impact of Neobanks on Traditional Banks
According to Traderoot Africa CEO, Louis Volschenk, “The emergence of neobanks has caused a significant shift in the banking landscape across Africa. These digital-only banks are leveraging fintech to offer customers a more convenient, affordable, and digital-first banking experience.”
One of the primary impacts of neobanks on traditional banks is the loss of market share. Neobanks have managed to attract a new generation of customers who value convenience, ease-of-use, and transparency over traditional banking services. For example, TymeBank, a neobank in South Africa, has attracted over 5 million customers since its launch in 2019, making it one of the fastest-growing banks in the country.
In terms of the financial impact, according to Statista, the transaction value of neobanks across the continent will reach $12.6 billion in 2023 and will enjoy a CAGR of 21.34% through to 2027. This growth is being fuelled by an influx of venture capital, with the top ten neobanks on the continent attracting $220 million in funding in 2021, according to WhiteSight.
Another impact of neobanks on traditional banks is the increased pressure to innovate and improve the customer experience. Neobanks have set a high bar for customer experience, which traditional banks must now match or exceed to remain competitive. For example, Kuda, a neobank based in Nigeria, has focused on offering a mobile-first banking experience that is easy to use and highly accessible, attracting over 1.4 million customers in just over a year.
Using Fintech Solutions to Compete
Fintech holds the key to helping traditional banks defend against disruptors and neobanks. By adopting new technologies and solutions that enable digital banking, developing more secure and faster payment gateways, and implementing better risk management systems, traditional banks can remain competitive and retain their customer base in the digital banking landscape.
As an example, Zenith Bank, one of Nigeria’s largest banks, made the move into the digital banking space to defend against the disruption of neobanks and, as a result, the bank increased its online customer base by 400% in just three months. The platform’s user-friendly interface and intuitive features allowed the bank to offer a seamless digital banking experience to its customers.
Another example is Kenya Commercial Bank (KCB), which rolled out a new payment gateway that helped the bank facilitate faster and more secure payments. The payment gateway reduced transaction times from hours to seconds and provided customers with a reliable and secure payment system, thus enabling the bank to defend against encroaching startups.
The development and deployment of world-class fintech solutions can be an expensive and drawn-out process, so it is in banks’ best interests to find trusted and established fintech partners who can offer plug-and-play and API solutions.
Traderoot Africa offers a range of fintech solutions that can help traditional banks reduce the impact of neobanks and compete effectively. Our digital banking and payment solutions can help traditional banks offer the same level of convenience and accessibility as neobanks while maintaining the trust and security of traditional banking.