6 minute read
Moving Ahead in the Game
With foresightful thoughts on Neobanking, Neale Croutear-Foy CTO at Securrency Capital describes how this fast-evolving sector will shape the financial services landscape
Neale Croutear-Foy, CTO at Securrency Capital
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Can we expect to see more “greenfield” Neobanks start operations in the region?
As Non-Bank “TechFin’s” such as Apple enter the ring, only regulatory restriction will limit their spread. The incumbent banks’ Digital spin-offs will be a given, so, what then of the Standalones? Strategy will be everything; take the Zand approach and go all out for a new fully licensed
When one looks at the offerings across sectors there is still a heavy weighting to traditionally serviced retail customers but beyond this segment, the unbanked, the Corporate and SME market and the UHNW sector would suggest there is still a lot to play for even in a fairly saturated market.
Neobank? I don’t think we will see many new contenders do this that are not already in flight or unless they have major government backing.
Which leave us with new unlicensed Neobanks and the evolution and pivoting of other FinTech’s already in the market including Digital Wallets, FX, Crypto Exchanges etc expanding their product or seeking full bank licenses after time, like Revolut.
How long, will it take Neobanks to reach profitability from their launch date?
The challenge of when Neobanks reach profitability is gaining a lot of attention as the excitement and valuation hype subsides. In general, the independents have used large amounts of venture capital to maintain their growth trajectories but have a long way to go before they start to eat heavily into traditional banks’ customer bases and their cost of acquisition becomes sustainable. Given the customer demographic they are currently attracting, this feels like a tall order with the current product offering.
Are we going to see the incumbents’ Neo-subsidiaries outlast the new players because they have an established trust, an existing license and profitable parent channels to fill the coffers? Or are they going to continue to lose customers to the new players who understand them better, in a more innovative and congruent way and have supportive VC funding with a business model to support it? The truth will as ever lie somewhere in the middle with closures on both sides.
Lessons from European Neobanks would suggest that focusing on existing markets and widening their product offering to monetise their existing client base via more profitable channels is the
better choice over geographic scaling. Perhaps a lesson to be leveraged by the UAE when considering expansion across the GCC.
What do you predict that Neobanks will be offering in five to ten years from now?
When it comes to product offering, if the fundamentals have been built right from the start, Neobanks should be able to take on much more of a platform and ecosystem play both in terms of being able to build resiliency as well as simplicity into their tech stack. This will not only reduce long term costs and speed up delivery, but also allow them to add new product offerings and services to protect their client franchise without the need to develop alternative solutions themselves.
Current product trends can all be leveraged to enhance the customer service and simplify access. BNPL and Embedded Finance have been two of the largest market booms of late and are likely to continue along with Digital Investments, NFTs and Cryptocurrencies which are among the most profitable digital banking products. Their rapid adoption among digital natives is well known and despite recent drops in the market, must be part of future Neobanking strategies as the market matures.
Securrency Capital for example, harnesses an open and decentralised core offering that provides access to regulated digital assets, digital asset management, fractional ownership as well as providing access to numerous markets and non-regulated digital products under one roof. This can all be simplified into a single distribution / integration layer via APIs into any bank platform.
Banking as a Service (BaaS) or Product as a Service (PaaS) offerings will continue to provide profitable opportunities as with white labelling; monetisation of Open Banking services and Data types will evolve to new levels and could be leveraged by Neobank platforms via cross selling of Digital products including smart contract mortgages, and loans.
Does the Middle East need to adopt strategies different to other regions to develop a successful Neobanking ecosystem?
The Digital banking sector in the UAE has in the past lagged behind Europe and North America due to the slower adoption rate of modern banking standards, complexities in license requirements effecting standalone entities and a
degree of conservatism. This has tended to impact collaboration between incumbents and FinTech’s and resulted in a number of false starts.
However, things have changed rapidly as the Regulators align the UAE’s progressive digital agenda with the country’s banking industry.
With the UAE Central Bank establishing a dedicated FinTech Office in 2020 and the Emirates Blockchain Strategy 2021 in place, this has all helped the rise of new regional Digital Native financial services, with the UAE becoming one of the fastest-growing economic and technological hubs in the World with close to a tenfold increase in FinTech’s over the last 5 years.
The two primary offshore regulators, Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC) have played a pivotal part in this expansion providing a zone where FinTech’s can operate freely while maintaining international banking regulatory standards. Of course, the UAE has an amazing opportunity to lead the way in Islamic banking and Sharia compliance in the Neo banking space.
When will the “Neo” in Neobanks no longer be necessary to distinguish them from the currently more traditional banks?
Neobanks and new Digital offerings of current incumbents should be positioned to absorb most traditional customers over a relatively short space time, replacing older channels and operational models that are expensive to change or maintain. It just makes business sense – better customer service, cheaper more efficient operations, reduced risks,
faster turnaround time of new products, greater control.
I do not see their evolution as a Neo bank issue, it is a general strategy issue on how to leverage a platform approach.
Not all customers are going to adopt to the new services either because they do not want to, or are not able to do so, but most will; easily convinced by cheaper and easier services. For some customers, it is essential to communicate with bank staff in person and an extensive network of ATMs provides access to cash which whilst getting rarer on a day-to-day basis, is still a vital tool.
‘Neo’ will fade because, the legacy banking model will likely be referred by a new ‘old-bank’ name as it will no longer be the norm; Neobanks will also expand to the point that they will bear little resemblance to their Neobank roots, with many of these pioneers already driving that change. I would not be surprised if in just a few years Neo is dropped entirely as a result, so we can get excited about the rise of another term that will describe solutions encompassing a whole variety of Financial Services and Banking Products … all hail MetaBanking !
