The global neobanking market is expected to reach an estimated $723 billion by 2028, according to Grand View Research. As more people handle their finances online, the neobanking industry has been getting a lot of love, but what are neobanks anyway?
Neobanks are digital-only financial institutions that operate similarly to traditional banks, but without physical branches, The Balance explains. You typically access neobanks through mobile applications and online platforms.
While neobanking can be convenient, have lower costs and are more easily accessible, they don’t have the same accreditation as traditional banks and are regulated much less. Above all, neobanking requires access to technology and internet, a luxury that not everyone has. Another thing to think about with neobanking is that even with access to technology and internet, consumers have to be comfortable and trust tech in order to invest in using online-only banking systems.
Some neobanks like N26, Atom Bank and Monzo are operating with banking licenses, which allow them to control full operations and offer products and services without partnering with traditional banks. Other neobanks like Revolut, Chime and Varo have to partner with licensed and legacy banks to operate and they often use Application Programming Interfaces (APIs) to connect their customers with services from other banking providers.
Nielson reports that Black Americans have $1.2 trillion in annual economic impact. Banking is a part of the everyday life for Americans and while there are hundreds of options for people to bank with, there are only about 44 Black-owned banks in the United States, Investopedia reports.
Whether operating licensed or unlicensed, neobanks have become a growing industry in the Black community, especially for low-income consumers who may not be able to manage a traditional bank account. As the industry grows, there has been an uptick in Black-owned and operated neobanks landing capital to expand as well.
One of the most up and coming Black-led neobanks is First Boulevard based in Kansas. The fintech startup that launched in August 2020 recently landed $5 million in seed funding. The founders behind the company decided to launch First Boulevard following the tragic murder of George Floyd.
“We also took a hard look at some of the existing digital banks to really see who was really going about it in the same way that we felt like America needed,” First Boulevard Co-founder and CEO Donald Hawkins told TechCrunch. “It was pretty clear at that point, that no one was really attacking the issue of helping Black America build some level of financial stability through the form of a wealth-building play.”
Another Black-owned neobank to look out for is Atlanta-based Greenwood, which recently closed a $40 million Series A following an investment from actor Jesse Williams last year. The company’s name is derived from the Greenwood District of Tulsa, Oklahoma, which use to be a part of Black Wall Street. Greenwood was created to serve Black and Latinx communities and to ultimately help close the racial wealth gap.
“The net worth of a typical white family is nearly ten times greater than that of a Black family and eight times greater than that of a Latino family,” said Greenwood Co-founder and Chairman Ryan Glover in a PR Newswire press release.“This wealth gap is a curable injustice that requires collaboration. We now are even better positioned to deliver the world-class services our customers deserve.”
International Black-led fintech startups are also on the rise in the digital banking services realm, especially in the African diaspora. Just days ago, Nigerian-based fintech software provider Appzone announced the raise of a $10 million Series A, while Kuda Technologies closed a $25 million Series A last month.
Let’s not forget that neobanking also has ties to the crypto economy, a space more Black people are moving into. Plus, Visa just made a significant investment into the space as well, according to Coin Telegraph. Check out this feature on digital currency and what it all means.
As the neobanking market continues to grow, there are some industry leaders that believe we don’t need more neobanks, but when it boils down to it, neobanking is a choice. Would you put your trust in these growing digital-only financial services options? Think about it and also check out this list of the top global neobanks.