A neobank, also known as a challenger bank, is a fintech firm that provides online banking services through apps, software, and other digital technologies.
These innovative banks specialize in specific financial products, such as checking and savings accounts, and often operate with more agility and transparency than traditional megabanks.
Neobanks aim to provide convenience, expedited transactions, and lower costs, but they also face challenges like the need for computer literacy, lack of face-to-face support, and security concerns related to online transactions
So, despite their digital-first approach, many neobanks partner with established financial institutions to insure their products.
In the U.S., these fintechs are commonly referred to as neobanks. The term “challenger bank” originated in the U.K. after the 2007-2009 financial crisis, when several fintech startups emerged.
These companies are akin to digital disruptors in other industries, transforming banking in a similar way to how Airbnb revolutionized hospitality or Uber and Lyft transformed transportation.
Neobanks in Kenya
Kenya’s neobank scene is relatively young but it’s starting to grow. Here are some of the key players to watch:
a) Fingo: Launched in 2023, Fingo is a pan-African neobank with a particular focus on Kenya’s young population. They offer personal and business accounts, investment options, and savings features through a mobile app.
Partnering with Ecobank Kenya, a traditional bank, allows them to provide a wider range of financial services.
b) Branch Microfinance: Branch started as a digital lender and has been expanding its services in Kenya. It’s now a microfinance bank, offering wider range of features, including savings and money management tools, blurring the lines between traditional banking and neobanking.
Neobanks in Kenya are regulated by the Central Bank of Kenya.
Examples of neobanks globally
Here are some popular neobanks in the U.S.:
- Chime: With over 12 million users, Chime is a widely recognized brand in the neobank space. It eliminates common fees associated with brick-and-mortar banks, offers credit-building opportunities, early access to direct deposit payments, and automatic savings features with competitive annual percentage yields (APYs)
- Current: Focused on teens and young adults, Current offers a debit card and mobile app to help young people learn about managing their finances.
- SoFi: SoFi started as a student loan refinancing company and has grown into a neobank offering checking and savings accounts, investing and trading services, and personal loans.
- Varo: Known for its user-friendly app and low fees, Varo offers checking and savings accounts, credit builder loans, and advance pay features.
- Axos Bank: While technically not a neobank since it has a history as a traditional bank, Axos offers a high-yield savings account, checking accounts with free ATM withdrawals, and competitive rates on other banking products.
Other examples:
- Europe: Revolut, N26, Monzo, Starling Bank
- Latin America: Nubank
- India: Freo (focuses on Southeast Asian millennials)
The Kenyan neobank market is likely to see further growth and innovation in the coming years. These are just a few of the frontrunners to keep an eye on.
