NeoBanks, upending Nigeria’s conventional banking systems

By Alexander Chiejina

• Leveraging IT infrastructures, digital transformation, convenience by clients to spur growth.

The value proposition of the neo-banking market in Nigeria has expanded to meet the daily needs of its customers with long-term financial solutions, from upending the conventional banking system by introducing lending alternatives and enabling electronic payments to redesigning savings and wealth management infrastructures. The neobanking market, which has continued to grow and expand internationally, is at the centre of this digital transformation in the banking industry. The rising use of digital banking solutions, such as mobile banking and online account opening, is a current market trend.

The growth of fintech, commonly known as ‘neo-banks’ into new industries, such as SME lending and investment services, as well as collaborations with conventional financial institutions to provide white-label banking services, are two further trends. Neobanks are a specific kind of challenger bank that offer their services via mobile and desktop devices despite not having any physical branches.

According to Statista’s 2023 Digital Market Insights on FinTech, the transaction value in the neobanking segment is anticipated to reach $3.41 billion in 2023.

“By 2027, it is anticipated that transaction value will increase by an average of 23.64% each year (CAGR 2023–2027), totaling US$7.97 billion. In the Neobanking segment, the average transaction value per user in 2023 is $3,01,000. By 2023, user penetration will be 0.6%, and by 2027, it’s predicted to be 0.9%’,” the report added.

Kazeem Noibi, chief technology officer (CTO), Fincra, noted that due to the various ways that people access financial services, neo-banking will become more and more in demand as economic activity expands and grows.

“For instance, people have created use cases for their clients, as we have seen. Banking services are available for a variety of consumers; some cater to Gen Z, while others serve the elderly. You can access several APIs or infrastructures to provide services for those users,” Noibi explained.

Players in Nigeria’s neo-banking space include Opay; Kuda; VBank; TransferGo; Wise Transferwise; and World Remit. Below is a brief of the neo-banks in Nigeria.

Opay

Opay is a mobile-based one-stop shop for vital services including payments, transfers, loans, savings, and other financial transactions for every person. The Opay app provides several cutting-edge features that are very simple to find on the webpage. These include the purchase of airtime and data, paying for electricity bills, registering for WAEC, making governmental payments and levies, subscribing to services like DSTV, GOTV, and Startimes, and paying for college tuition. Each of these features has a conspicuous icon. Aside from the platform’s free transfers, users also receive an annual discount of 15 percent on OPay’s wealth-building feature, OWealth. Additionally, new users receive sign-up bonuses and cashback for all airtime and data recharges.

Its primary goal and emphasis are to spread financial inclusion throughout Africa with the help of its user-friendly platform, which can be accessed from any location as long as there is an internet connection.

Kuda

Kuda, an African money app that is CBN-licensed, features zero maintenance costs, free transfers, and automatic savings and investing. The bank provides its customers with free debit cards, Kuda overdrafts, budgeting tools, 25 free transfers to banks each month, 15 percent annual interest on savings, and a bank connection to Payoneer. These advantages were said to have attracted a lot of consumers to this specific banking platform. It’s commonly regarded as a user-friendly bank. Kuda provides its users with a variety of simple payment options, such as a widely used debit card produced in collaboration with Visa, rapid web payments made directly from the user’s Kuda account, and location-based gift cards for shopping.

VBank

VBank offers users a streamlined digital banking experience, with easy access to amazing features on their personal and business accounts. Users can gain control of their finances with smart options that allow them to monitor their expenses; banking; budgeting and saving. Users can access financial transactions with zero percent on all Transactions, and 13 percent interest per annum for fixed deposits. Users are also able to make bookkeeping fun and eco-friendly with paperless documentation, seamless social media integration, geo-tagging, and photo-sharing.

Numerous factors, including the rising popularity of digital technology and the Internet, shifting consumer preferences and behaviour, and the demand for convenient and accessible banking services, are responsible for the expansion of the new banking market. Neobanks’ appeal has also been aided by the cheaper fees and greater flexibility they provide compared to traditional banks.

In the upcoming years, it is anticipated that the neobanking market will maintain its upward trajectory. This growth is anticipated to be fueled by elements like rising smartphone adoption, increased demand for digital banking services, and continued fintech infrastructure development. Neobanks are also collaborating more frequently with established banks and financial organisations, which is anticipated to assist promote the use of neobanking services.