Traditional financial institutions, particularly banks, have long dominated the financial market. However, they have not always been accessible to consumers in areas without physical branches, especially those in low-income or rural regions.

Historically, bank branches existed to facilitate face-to-face interactions, providing customers with direct, in-person service. However, in recent years, branch visits and transactions have declined significantly due to the growing adoption of digital and alternative banking channels.

As an increasing number of consumers use their mobile devices and computers to conduct banking transactions, many wonder if this is the death knell for the physical branches in traditional banking platforms. As of now, I do not believe that normal traditional banking will die, but customers’ hunger for digital and mobile interaction, service, and banking services possibilities won’t stop growing, hence banks need to adjust to this new “norm”.  

The business of banking is changing rapidly, and so the customers' behaviors and expectations change, demanding easy and effective banking.  To remain competitive, banks must embrace this shift, prioritizing convenience, speed, and digital accessibility. Hence, the introduction of neobanks. In this article, I will discuss neobanks and their rise.

Neobanks are digital-only banks that operate entirely online without any physical branches. They offer a wide range of financial services. Unlike traditional banks, which rely heavily on brick-and-mortar locations, neobanks leverage technology to offer various financial services, including savings accounts, checking accounts, loans, and investments, all accessible through mobile apps or web platforms. This digital-first approach has opened the doors for a new wave of innovators, startups, and tech-savvy financial service providers who are bringing fresh ideas to the industry. 

For instance, Monzo and Revolut in the UK, Chime in the United States, and Kuda in Nigeria have disrupted their respective markets. By eliminating the need for physical branches, neobanks can reduce overhead costs and pass savings to their customers through lower fees and higher interest rates. As a result, competition has intensified, forcing traditional banks to rethink their strategies and accelerate their own digital transformations. 

The presence of neobanks has not only broadened consumer choice but also raised the standard of service across the industry, leading to faster innovation cycles, better pricing, and more customer-centric products. Ultimately, this shift is reshaping the global banking landscape, promoting greater inclusivity, efficiency, and technological advancement.

Moreover, neobanks are playing a crucial role in promoting financial inclusion by offering simplified onboarding processes and requiring minimal documentation for account opening. This streamlined approach allows them to serve underserved populations, including individuals in remote areas, informal sector workers, and small businesses that often face barriers when dealing with traditional banks. Neobanks have gained significant traction due to:

•          Technological Advancements: Neobanks are nimble and quick to embrace new technology and trends. This agility enables them to roll out innovative new features and continually improve their banking experience, setting new standards for customer satisfaction and leading the way in innovation. With the latest advancements in artificial intelligence, machine learning, and secure biometric checks, neobanks provide a banking experience that’s both smooth and secure. Imagine opening an account in moments or getting smart money tips from an AI chatbot. Or logging in with just a smile or a fingerprint, saying goodbye to forgotten passwords. Neobanks use these tech tools to make banking more efficient and user-friendly.

 •          Cost Efficiency and Scalability: By eliminating the need for physical branches and leveraging advanced technology, neobanks can reduce overhead costs, streamline processes, and rapidly expand their customer base. This efficiency not only enables them to offer more competitive pricing and innovative services but also allows for quicker adaptation to changing market demands, giving them a strong edge over traditional banking models.

 •          Changing Customer Behaviors: Today’s customers, especially the younger, tech-savvy demographic, prefer managing their finances through mobile apps and online platforms that offer seamless, 24/7 access. This shift has created fertile ground for neobanks, which are built around user-centric design, instant service delivery, and personalized financial tools. By aligning with these changing expectations, neobanks have positioned themselves as agile, customer-first alternatives to traditional banks.

In conclusion, the rise of digital-only banks is reshaping the financial landscape, pushing traditional institutions to adopt digital strategies. Despite regulatory and security challenges, neobanks are set to play a crucial role in the future of banking, fostering financial inclusion and redefining the way people interact with financial services. 

Kelvin Mkwawa, MBA (pictured) is the Seasoned Banker based in Dar es Salaam. He can be reached through Email address: Kelvin.e.mkwawa@gmail.com