This is a guest post by Richard Armstrong who is an early stage investor in many startups in both SE Asia and globally. Plus Richard has cofounded several companies.
Guest Author: Richard Armstrong
Not long ago I was watching this video on Lenny’s Podcast where he interviews Jag Duggal, CPO of NuBank.
Nubank in 2024 is valued at about $58 billion making it the most valuable bank in Latin America. It is bigger than Coinbase, Robinhood, Affirm, SoFi and Lemonade combined.
Having been founded only in 2013 they have grown tremendously fast. And 80-90% of their growth is through word of mouth.
They have numerous fintech products like lending, investments, insurance, small business products
What are they? Well they are a ‘neobank’.
What are neobanks?
A neobank is essentially a digital-first bank with no physical branches.
There are also different types of neobanks as you see here.
The three largest ‘fintech’ neobanks in the world are NuBank, Chime and Revolut.
Leveraging technology, these banks offer innovative financial services, addressing gaps in traditional banking systems and driving financial inclusion.
Neobanks are killing it in emerging markets
Emerging markets, characterized by young, tech-savvy populations, present significant opportunities for neobanks.
High smartphone penetration and increasing internet access further facilitate the adoption of digital banking solutions.
Countries like Brazil, India, and Nigeria are witnessing rapid growth in neobank users, who prefer seamless, cost-effective banking experiences.
Benefits of Neobanks
There are lots of benefits of neobanks that make them a perfect match for emerging markets.
- Financial Inclusion: Neobanks provide access to banking services for unbanked and underbanked populations, promoting economic empowerment.
- Lower Costs: Operating without physical branches, neobanks reduce overhead costs, enabling them to offer lower fees and better interest rates.
- Innovation: These banks introduce features like real-time payments, budgeting tools, and personalized financial advice, enhancing user experience.
A Case Study: Fintech Farm
Fintech Farm is not your traditional farm. They don’t have any cows or sheep or other animals for that matter. lol
Rather what they are creating are neobanks.
Created in 2020 they partner with mid-sized banks in emerging markets to build neobank apps. The banks they partner with typically do not have the capability to build these apps themselves.
And the way that they are compensated is mainly performance-based with a link to customers and revenues that they generate.
And they are already operating here in SEA. In Vietnam, for example, they partnered with Orient Commercial Joint Stock Bank to create ‘Liobank’, which already has more than 1m users.
Just recently they raised a $32m Series B and previous to that they’d raised a $7.4m round in 2022, which my venture firm participated in.
Final thoughts
I think Neobanks are poised to redefine banking in emerging markets because their characteristics are perfectly matched to what these markets need.
Financial inclusion, low costs, and lots of tools and features to educate customers.
I’m really excited to see how this space evolves as I think we’ll be hearing a lot more from the companies i mention above in the years to come.
