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The neobanking sector has witnessed a meteoric rise on a global scale with 36% YoY growth from just 2020 to 2021. As digital-first financial entities, neobanks have successfully harnessed technological advancements to offer streamlined, user-friendly banking experiences, devoid of the traditional constraints of brick-and-mortar operations. Their agile models, coupled with a keen focus on underserved market segments, have led to rapid user acquisition across continents. From Europe’s bustling fintech hubs to the growing markets in Asia and the MENA region, the allure of quick, transparent, and personalized banking is drawing millions to these modern financial platforms. The universal trajectory suggests that neobanks and by inclusion niche neobanks, are not just a fleeting trend, but a pivotal shift in the way the world perceives and interacts with financial institutions.
The financial world is undergoing a transformative shift, with neobanks leading the charge. Unlike their traditional counterparts, neobanks operate exclusively online, marrying technology with finance to deliver an unparalleled banking experience. But what truly sets them apart is their ability to cater to specific niche markets with precision. From the avid gamers seeking virtual currency management, to tech-savvy teens wanting more control over their finances, to SMEs craving for agile business banking solutions – niche neobanks are carving out spaces tailored to unique needs. This focus on niches not only challenges the ‘one-size-fits-all’ approach of legacy banks but also promises a more personalized and efficient financial journey for users. Join us as we dive deep into the world of niche neobanks and the market segments they’re transforming.
Taking on Incumbents through Niche Banking
Contrary to traditional banks, neobanks aren’t weighed down by outdated systems, complex organizational hierarchies, or stringent regulatory obligations. While their advantages over conventional banking seem vast, neobanks still encounter challenges in gaining market acceptance for their offerings. Rather than directly competing with established banks, many neobanks strategically target niche demographics, especially tech-savvy millennials drawn to the gig economy. The adaptive and welcoming approach of neobanks further allows them to appeal to the unbanked, SMEs, and customers with limited credit history, who often go unnoticed in the conventional banking realm.
Neobanks, digital-first financial institutions without physical branches, are focusing even more on highly niche segments to provide services personalized to various segments, some notable examples, include neobanks focusing on:
- Women of color such – GoWomen,
- Female entrepreneurs – Elas
- Islamic banking – Niyah, Fardows
- Taxi Drives – CabDost
- Doctors or Medical Practices – Cure
- Musicians – Nerve
- SME Owners – Lunar or Novo
- Minors – Copper or Edfundo
- Newly weds – Hitched
- People with disability – Sibstar
Neobanks, with their agile nature, are able to deliver adaptable and highly personalized customer experiences that resonate with their customer segments and instead of taking on traditional banks head-on, are opting for a more strategic approach through niche markets. Neobanks adapt their features and style to engage with their niche customers and use language and tone as that create a strong connection and inspire growth through grassroots marketing. As such neobanks have experienced steady growth over the past few years and the trend shows no signs of slowing down.
Below we explore some of the niche markets and how neobanks can address their needs.
Freelance and Gig Economy Workers
This segment, which has seen explosive growth in recent years, often faces fluctuating incomes and unique financial needs that traditional banks struggle to accommodate. Gig work is most common among young adults ages 18-29, with 30% of survey respondents in this bracket saying they make money through gig platforms, according to Pew Research Center.
Neobanks are increasingly setting their sights on gig economy workers, and the reasons are multifaceted. Gig economy workers, characterized by their flexible, freelance, and often transient job roles, face financial scenarios that traditional banks aren’t always equipped to handle efficiently. These individuals may have fluctuating incomes, require rapid access to funds, or seek tools that make tracking multiple income streams simpler. Neobanks, with their agile digital platforms, can tailor services to these specific needs, offering features like instant payment, seamless international transactions, or intuitive income tracking tools. Moreover, the tech-savvy nature of many gig workers aligns well with the digital-first approach of neobanks. Recognizing these aligned values and needs, neobanks see gig economy workers as a significant market opportunity, one that’s growing as the global workforce continues its shift toward more flexible employment models.
Small and Medium-sized Enterprises (SMEs)
Globally, over 400 million SMEs exist. As highlighted in a 2017 World Bank report, between 55 to 68% of SMEs in low-income nations lack adequate services or receive none at all from conventional financial institutions. In contrast, in developed economies, this figure stands at approximately 16%.
These businesses, which often feel overshadowed by large corporations in traditional banking, find solace in neobanks that offer quick account setup, easy international transactions, and tools for efficient financial management. Historically, SMEs have often found themselves in a banking limbo; they’re typically underserved by traditional banks which tend to prioritize larger corporations with more substantial assets. SMEs frequently grapple with challenges like delayed loan approvals, high transaction fees, and a lack of customizable financial tools tailored to their unique operational dynamics. Neobanks, with their nimble, digital-first models, can rapidly adapt to the specific needs of SMEs. By offering faster loan disbursements, lower fees, and a suite of digital tools designed to manage and forecast finances, neobanks presents a compelling alternative. In addition, the digital nature of neobanks ensures that SMEs can access their financial data anywhere, anytime, providing the agility these businesses often require. By addressing these pain points, neobanks are positioning themselves as the go-to financial partners for SMEs in the modern business landscape.
Teens and young adults
Neobanks are turning their attention to teenagers, recognizing them as the nascent financial consumers of the digital age. Research shows that only 47% of Gen Z respondents claim to have an account with a traditional bank, credit union, neobank, or technology company.
Teenagers today are digital natives, growing up in an era where online interactions and transactions are the norm. Traditional banking models, with their brick-and-mortar reliance and often outdated user interfaces, may not resonate with this tech-savvy demographic. Neobanks, offering intuitive digital platforms, align more naturally with teenagers’ expectations of seamless, instant, and user-friendly services. Additionally, by catering to teenagers, neobanks have the opportunity to nurture long-term customer loyalty, establishing relationships that could potentially span decades. Furthermore, by providing financial tools tailored for teens, such as controlled spending limits or parental oversight features, neobanks can simultaneously empower these young individuals to manage their finances while ensuring safety and supervision. In essence, by targeting teenagers, neobanks are investing in the future, shaping the banking habits of the next generation.
Niche Hobbyists
Neobanks, in their pursuit to revolutionize the banking landscape, are tapping into the world of niche hobbyists and, notably, gamers. This segment, which has ballooned over the years, is driven by passionate individuals who often have unique financial needs. Gamers, for instance, deal with virtual currencies, in-game transactions, and cross-border payments — areas traditional banks may not cater to effectively. Neobanks, with their agile digital infrastructure, can offer specialized tools and accounts to manage such virtual assets and facilitate quick, seamless in-game purchases. Additionally, niche hobbyists, be they collectors, streamers, or indie developers, often seek platforms that understand and can cater to the intricacies of their financial transactions. Neobanks, by tailoring their offerings to these specialized needs, can establish strong loyalty within these communities. By serving niche hobbyists and gamers, neobanks are not only expanding their customer base but also solidifying their stance as forward-thinking, adaptive financial institutions for the digital age.
The Unbanked
A prime segment that has been targeted by many neobanks particularly in the MENA and Africa region as one-third of adults – 1.7 billion – are still unbanked, according to The World Bank. Neobanks have a distinct edge in serving these customer segments due to their cost-effectiveness and efficiency, compared to traditional banks which often impose substantial charges on the underbanked, exacerbating their financial challenges. Operating on leaner margins, neobanks can offer more affordable banking solutions, presenting compelling reasons for the unbanked to choose them. Moreover, their digital framework grants them a broader global outreach, facilitating easier access to the previously untapped unbanked population.
Parting Thoughts
In the dynamic financial landscape, niche banks are increasingly collaborating with technology providers to accelerate their product launches while minimizing costs. By leveraging the specialized expertise and pre-existing infrastructure of tech vendors, these banks can sidestep the hefty investments and prolonged timelines traditionally associated with developing in-house solutions. Technology providers often come with modular, plug-and-play platforms that can be tailored to the specific needs of niche banks, ensuring a faster go-to-market strategy. Additionally, such partnerships benefit from continuous tech support, regular updates, and access to a suite of innovative tools that can further differentiate niche bank offerings. As fintech ecosystems mature, collaborations between niche banks and technology providers are becoming a strategic imperative, melding the strengths of both entities to deliver superior, cost-effective financial solutions to the market.
Tagged:
- mena, neobank
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Raheel Iqbal, Managing Partner
Experienced Board Member with a demonstrated history of working in the financial services industry. Skilled in Business Planning, Management, Employee Training, Financial Accounting, and Product Development.
