With more than 90 per cent of the GCC’s population connected to the internet, neobanks that offer a wide range of online banking services are expected to record accelerated growth in the region to hit $3.45 billion in terms of market size by 2026.

Globally, neobanking market size is expected to reach $2.048.53 billion by 2030, growing at a CAGR of 53.4 per cent from 2022 to 2030.

According to fintech experts, factors such as a faster process of loan approval and funding, compared to traditional banks, with low-interest rates via banking applications are driving the growth of the market. Increasing technological advancements, such as Artificial Intelligence and IoT, in online banking platforms, are also expected to boost the market growth over the forecast period. The rising popularity of mobile-based applications for making international fund transfers and online payments is also propelling the market growth. Governments in various countries are making efforts to promote internet services across rural areas.

Tremendous impact
A report by Boston Consulting Group shows that neobanks, often referred to as challenger banks, have had and will continue to have a tremendous impact on consumer finance, the economy, and society at large. In the GCC, which has some of the highest connectivity rates in the world with more than 90 per cent of its population connected to the internet, far surpassing the global average of 51.4 per cent, the new generation digital banking space expects to grow at a phenomenal pace, especially with nearly two-thirds of the population is expected to hold 5G connections by 2026.

“With GCC regulators indicating their readiness to challenge existing norms and fast-forward the development of policies and frameworks to foster an environment conducive to fintech advances by easing requirements for new market entrants to enter, launch and promote innovation, the sector is expected to surge ahead,” BCG said in a report.

The sector’s valuation is expected to grow to $3.45 billion by 2026 as the result of a boom in terms of growth rates for digital payments and digital remittances, BCG said in a report.

The BCG report delves into the changes in the regulatory landscape combined with the mass adoption of the internet and smart technology as being key reasons for this growth spurt.

The report shows that neobanks have had and will continue to have a tremendous impact on consumer finance, the economy, and society at large. For neobanks, traits that have often defined success include digital and mobile-centric services, great user experiences, cloud-based platforms with a modular architecture, a lean and agile technology-first culture, and building brands that users have an emotional connection with.

“Internet-enabled digital finance has emerged at a time when proponents of the change behind the ‘new internet’, or Web3, are arguing for user-centric innovation -- where the end-user is the ultimate arbiter of a platform’s evolution and viability. And we see this directly translating across neobanks. The sector is expected to be valued at $3.45 billion by 2026 as a direct result of a boom in growth rates for digital payments and digital remittances,” said Bhavya Kumar, managing director & partner, BCG.

'Developing rapidly'
“The GCC fintech sector is still early in terms of fintech maturity but is developing rapidly. As regulators relax barriers to entry, new companies and established players are looking to capitalise on the demands of a young and highly connected population that wants convenient, on-demand access to their finances, and is keenly aware of what to expect in terms of sophisticated user experiences,” he said.

Global examples of how neobanks have built such differentiated digital-only propositions shed important insights into how financial sector market entrants can capture market share in the region. BCG’s Fintech Control Tower Report, which monitors and maps the latest trends in the industry, tracks more than 26,000 fintech firms globally and reports a more than 200 per cent increase in the number of neobanks since 2015. In 2021 alone, equity funding raised by fintech globally amounted to approximately $131 billion.

“Given that traditional branch banking in the GCC provides one of the highest rates of return on equity globally the proliferation of digital-only branchless banking, favored by a young, highly connected, and digitally savvy population can only enhance the significant returns generated,” said Martin Blechta, principal, BCG.

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