Here’s An Opinion On:
Submitted by: Ketki Vaze
NEO and Challenger Banks: Adding a New Dimension to Finance Secto
The banking and finance sector has always been well-known for its prudent and cautious take on new trends and technologies that hold the promise of transforming the way several industry verticals function. However, once a trend or innovation establishes its credence and secure nature, the financial sector embraces it with aplomb.
Financial services deployment to the cloud, online banking, and biometric payment authentication are just some of the newest changes that are revolutionizing the BFSI sector. Amidst this, the latest trend of neo-banks and challenger banks is doing the rounds and proving to be a trendsetter in the financial institutions sector.
Neo-banks are a format of a bank institution that functions on an online space, without the presence of a traditional tangible presence. It allows checking, prepaid debit card services, and saving account facilities, in addition to P2P payments, mobile deposits, mobile budgeting tools, and real-time digital receipts.
On the other hand, a challenger bank is a comparatively smaller bank that is set up with the intention of competing for business with the large, well-established national banks. They have attained greater popularity due to the fact that they focus greatly on driving innovation and improving the customer service levels in the banking sector.
Both the types of banks have gained momentum and contributed to a swiftly emerging industry. The global neo and challenger market is poised to grow at a really impressive CAGR (compound annual growth rate) of 50.6% during the period 20162020. This is in accordance with a report published by expert analysts at Allied Market Research, who have closely followed the market and highlighted the factors driving its imminent progress.
Factors that propel the market growth
The steep incline in the growth of the market can be attributed to several factors. Neo-banks and challenger banks offer ease of financial transactions and convenience to a lot of consumers. Patrons are crowding to the virtual doorsteps of such banks and reaping the various benefits offered by institutions. This includes many perks and advantages, such as the wide array of competitive interest rates offered on loans, in comparison to the traditional banks.
There are several regulations by governing bodies that encourage the growth of the neo and challenger banks. When things are taken into view from the banks perspective, there is greater profitability for them, since they face a reduction in cost of operations. Doing away or complete mitigation of costs related to having a traditional bank building adds certain levels of efficiency for the bank, as the focus is greater on the customer service and constant innovation with the digital space.
This is exactly how prominent neo and challenger banks in the market are surging forth by targeting a larger customer-base and acquiring trust and loyalty from new customers. Banks are tapping on the current trend of smartphone and internet penetration which has definitely worked in their favor, especially in growing economies, such as China and India.
Robust geographical presence of the industry
The neo and challenger bank market on well on its way to add a whole new dimension to the traditional banking methods and institutions. It has already begun to make its presence felt in various regions of the world. The neo banks segment accounts for the largest customer base in 2016, owing to the prominence of these banks in U.S. and the ease in the acquisition of customers. This segment is anticipated to grow at a noteworthy CAGR of 49.7% during the forecast period. The challenger banks segment is expected to grow at a CAGR of 52.6% in terms of customer base owing to the proliferation of such banks in lucrative regions such as UK, Germany, and China.
The U.S. market alone accounts for approximately four-fifths share of the global NEO bank market, when it comes to the size of the customer base. This was in 2016, and this trend is probably set to continue its dominant position in the next few years. UK follows closely after, with an impressive customer base, as more patrons avail the value services and enhanced service quality offered by these banks. Moreover, there are favorable regulations and substantial investment funding for such fintech startups. There is a reduced initial capital investment required for the starting of such banks, which is why they have gained immense popularity.
The China market was observed to be an extremely lucrative, especially for the neo banks segment. Entry of banks, such as MyBank and WeBank has followed after the approval from the China Banking Regulatory Comission (CBRC). In addition to this, an 50% increase in the number of China mobile banking users has been observed, which means a great potential for tapping the customer base. Overall, the entire industry is poised for magnanimous growth in the next decade.
About the Author: She holds a bachelor’s degree in business management. She has an active interest in the finance, automotive, beauty and cosmetic industry. She reads, researches, and writes actively on a diverse range of topics including current industry trends.
alliedmarketresearch.com/neo-and-challenger-bank-market
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