Is it Too Early or Too Late for Neo Banks in the MENA?

Neo Banks are digital banks that offer similar financial services to other banks but don’t have any physical presence. They are operated entirely online and also don’t have any branches. In today’s banking industry, mobile-first is the newest success mantra. Thanks to the proliferation of the neo-banking system, cash transactions and visiting physical banks seem too old school. Neo Banks like Bankino, Hala, Neem, Dopay, Ila, and many more are storming traditional banking practices.

Is it really too late for Neo Banks?

In the past few years, new virtual banks have been launched in Bahrain, Israel, Saudi Arabia, and especially the UAE. After the digital transformation that traditional banks had to undergo due to the pandemic in 2020, the banking industry has been revamped digitally. This turned out to be fruitful for Neo Banks.

According to industry estimates, the Global Neo Banks market will reach USD 2,048.53 billion by 2030, growing at a CAGR of 53.4%. If we talk specifically about the MENA (the Middle East & Northern Africa) region, the growth of Neo Banks was a bit slow back in 2020. However, financial experts have witnessed unprecedented growth in the demand for Neo Banks in 2022. Therefore, it is safer to say that it is neither too late nor too early for Neo Banks in the MENA. It’s the perfect timing.

Opportunities for Neo Banks in the MENA and Gulf Region

The advent of advanced technology is the primary factor contributing to the potential growth of the Neo banking industry in the Middle East. With blockchain technology, Artificial intelligence, and APIs, the banking industry is reshaping dramatically.

Another advantage is the number of the unbanked population. According to World Bank statistics, 1.7 billion people are without access to basic financial services. These numbers have been favorable for Neo Banks to drive its growth.

Challenges Neo Banks facing in the region.

The cost of designing and developing digital banks has been a drawback for Neo bank’s growth in the MENA region. This is because the bank-fintech partnership engagement strategy didn’t turn out to be as favorable as expected. Only 5% of banks were in favor.

Creating a digital equivalent of standard banking processes is not the only thing that goes into designing and developing a challenger bank. Throughout the transformation, we need to reimagine everything from customer interactions to employee engagement to risk management and cybersecurity through a digital lens. This affects the entire banking operation system.

The future ahead

The Neo banking sector is snowballing in the MENA region due to massive growth potential and rising demand. Around 60% of the customers prefer using digital means for making payments in UAE and Saudi Arabia. In the Middle Eastern, Neobanks provide a broader range of financial services than Neobanks in other parts of the world, which makes them a substantial threat to traditional banks. Further, Neobanks are becoming increasingly popular in the Middle Eastern region owing to easing regulatory frameworks.