The global financial crisis of 2008 was a pivotal moment in the history of banking. The crisis exposed the shortcomings of the traditional banking system and led to a loss of trust in banks among consumers. In the wake of the crisis, a new generation of service providers, known as neobanks, emerged with the aim of providing simple and transparent banking solutions that put the customer first.
What is a neobank?
Neobanks are fintech companies that use apps and online platforms to offer banking type services to customers. Instead of having a physical presence at a set location, neobanking is entirely online. What started out as a form of customer segmentation has given birth to an entirely new industry with its own set of rules, regulations, and players. As more and more people are opting for digital-first solutions, the neobanking banking model is the perfect fit for Africa due to its accessibility and low delivery cost, especially for those living in remote or rural areas.
Neobanks take aim at financial exclusion
According to The World Bank, 65% of adults in sub-Saharan Africa are unbanked or financially excluded. Why does this matter? As a start, Africans who are financially excluded don’t have access to basic financial services. This means that they can’t take out loans, set up businesses, or even save money for schooling or emergencies. With 40% of people in Sub-Saharan Africa living below the $2 per day poverty line, the arrival of a new type of banking services is transformative. Neobanks focused on the unbanked and underbanked, like Be Mobile Africa, use their innovative technologies to better the lives of millions.
Why are traditional banks so slow off the mark when it comes to the unbanked?
Many traditional banks still use legacy-based infrastructure and technology that is less agile, and expensive to operate. As a result, providing services to the unbanked is seen as unprofitable. Instead, banks still focus on providing services to higher income earners, operating within formal economic sectors who are more likely to afford service fees, and are therefore seen as profitable.
What does the future hold?
The future of banking is open and inclusive. While Africa has made great strides in expanding access to financial services, there is still a long way to go. This lack of financial inclusion has been a major factor in slow economic growth. The good news is that mobile technology is beginning to change the landscape. In just the last few years, Africa has seen a boom in mobile banking and payments. More and more Africans are using their smartphones to access financial services, and this is helping to drive down costs and increase access. With continued innovation and investment, Africa has the potential to finally close the financial inclusion gap.