The banking sphere around the world has evolved tremendously in response to the consumers’ tastes shifting to more digital-first offerings. Be it digital banking, open banking, digital payments, the many delicate threads of such innovations have come together to collectively sew the fabric of neobanking.
The first-generation neobanks have grown leaps and bounds in markets such as the UK, the US, and Brazil, gaining multi-billion dollar valuations and serving hundreds of millions of customers. The neobanking wave is now sweeping other emerging markets such as the Middle East, Southeast Asia, and Africa.
In this post, we look at the intriguing landscape of African neobanks. Africa holds over 20% of the Earth’s land area more than China, Canada, and the US combined, and is home to about 16% of the world’s population. A majority of the African population is still unbanked and underbanked presenting a breeding ground for neobanks to emerge and flourish.
Emerging Embroidery: The Preamble
As an emerging contender in the game of rising economies and financial breakthroughs, Africa has gained steady momentum despite its historical past. With challenges such as limited economic resources and an overall inadequacy in the region’s infrastructure, the gap between insubstantial capital and financial inclusion seems to be an increasing one. As of 2021, around 57% of the African population, which is approximately 95M people, remains unbanked. However, the bridge of smartphone penetration and improving network infrastructure has paved the way for Africans to reach the land of financial inclusion through mobile money, e-wallets, neobanks, and other digital financial services.
The mention of neobanks is incomplete without peering into the stepping stone set by the African mobile money movement. It all began in Kenya when Safaricom introduced its M-PESA solution for peer-to-peer money transfer, an idea that originally stemmed as a “Eureka” moment to Nyagaka Anyona Ouko. The M-PESA solution was, thus, born 2 years later in 2007, with much instigation and pilots. This resulted in the quick and widespread adoption of the service, with key operators such as Orange, Airtel, and Tigo instilling bill payments, merchant payments, and international remittance as the new feathers in their caps. The ongoing generalization of the 3G and 4G networks serve to be the cherry on top of the increasing usage of smartphones in the region, which evidently opened the gates for neobanks to set the stage and accelerate access to financial services.
Pathbreaking Progress: The Foundation
African neobanks as a collective have raised an impressive USD 220M in funding as of September 2021. Out of the leading neobanks that have surfaced in Africa, Tyme Bank leads the pack with USD 123M in funding, followed by Kuda from Nigeria at USD 92M. The two neobanks dominate this space as the licensed fintech pacesetters, with over 3.5M and 1.4M users respectively.
Kuda is unique among the neobanks as it is set to construct its services with its own banking license in reserve. With its recent product launch and securing USD 55M in Series B funding, the progressing challenger bank is flipping the script by making its first move into credit through an overdraft allowance.
TymeBank is also set to achieve the target of 4M customers in the next 12 months through the introduction of customer-centric ingredients of new salary advance products, and a new virtual banking platform in the Philippines, GOTyme, in collaboration with the Philippines’ Gokongwei Group.
Other significant names include those of Nigerian neobanks Fundall (offering loans for individuals and businesses), Rubies (digital bank), FairMoney (loan app), as well as NCBA Loop (digital banking service) in Kenya, and Bettr (offering personal accounts) and Bank Zero (digital bank) in South Africa.
Such an impressive response is thanks to these banks’ offerings of distinctive features, each individualistic and notable in their own way. Some key focal points in the spotlight include:
- Bettr, a challenger Fintech Banking app, is pioneering a new culture of money by changing the game (no pun intended) of banking by merging it with the worlds of gaming, virtual reality, and content creation. By targeting and offering services that resonate with the creator economy (namely Gen Z and Millennials), the app is already riding the shotgun for change.
- South Africa’s newest digital bank, Bank Zero, led by co-founder and executive director Lezanne Human, claims to be an instigator of being the world’s first full-fledged bank with remote-working staff. Offering a “segment-agnostic” perspective to banking, which allows consumers to use features such as free rogue debit order protection and low banking fees, the fintech startup is embarking on a journey to upheaval the South African banking sector with its zero-fee charge for EFT payments.
Subsequent Seaming: The Future
African neobanks have witnessed tremendous maturity in terms of catering to local populations with digital solutions as well as the global diaspora with cross-border propositions. Innovative startups like Eversend (Uganda), Chipper Cash (Uganda), and 7aweshly are solving issues of cross-border offers, offline access to funds, investment in stocks and cryptocurrency, and micro-saving to facilitate the rise of the neobanking sector.
Despite such rapid growth, African neobanks are not devoid of the hurdles in this advancement. While the continent surpasses in terms of profitability through microlending, regulation still is the pillar on which the economic growth of the nation remains intact. Enabling policies and infrastructure for fintech startups are in nascent stages in a majority of the countries. Finding the right equilibrium and accordance between regional regulators, the fintech ecosystem, and the youth will be critical for the collective to proceed towards their endeavor for market evolution.
Kshitija is a senior branding associate at WhiteSight, crafting branding strategies and fintech content. When she's not conjuring up new ideas for the company, you can find her dabbling in new hobbies and documenting her experiences through writing and short films.