What Is Neobanking and Has It Arrived at the GCC Yet?

The emergence of Neobanking has totally transformed the fintech game in recent years as the concept gets more and more popular particularly following the COVID-19 outbreak, but has it made its way to the GCC region yet?

Separated from traditional banking services and non-chartered with state regulators, Neobanks provide most financial services in a new format that has no physical basis in most cases.

Despite it offering digital-only financial services, Neobanks are different from traditional banks in the fact that they are totally independent ones, making them a whole other financial service system in comparison with e-banking services that are provided by most banks to facilitate remote transactions and online payments.

The main difference between regular banks and Neobanks lies in the limited number of services offered by the latter, making it a less-favorite option for businessmen and investors. However, Neobanks are still a popular option amongst individuals looking for easily accessible user-friendly, and quick banking services via the internet.

In regions with a high youth, tech-savvy population, such as the GCC, Neobanks are gathering momentum amongst users who would take any electronic service over others that require visits to physical sites. AI advanced fraud detection tools have been especially helpful in boosting users' confidence in such internet-based financial services.

Prior to COVID-19, Neobanks were already attracting a lot of interest in several countries around the world, and due to movement restrictions and experts' instructions for people to avoid gatherings and interactions with strangers in closed spaces, online-only financial banks grew even more significant.

Additionally, the no-longer need for physical space or the huge number of employments in different branches has helped Neobanks cut cost at a significant rate and use that to boost customer service instead. Moreover, the low-cost of setting up Neobanks has been reflected in fewer fees imposed on clients and better interest rates.

Globally, PayPal (founded in 1998) and Robinhood (founded in 2013) have been among the most successful Neobanks that operate in almost every country on earth. Yet, the Neobanks trend has only started to intrigue people in GCC in the last few years. 

Many of the GCC traditional banks have started to feel the influence made in the banking sector due to the growing popularity of Neobanks, which is why most of them have been working on developing their own separate digital-only banks.

In the UAE, the Соmmеrсiаl Ваnk оf Dubаi launched CBD Now in 2017, offering a smart-phone based banking service.

A year later, the Abu Dhabi Islamic Bank cooperated with Europe’s Fidor Bank to launch its moneysmart online-only banking platform, facilitating salary transactions, savings bonuses, easy domestic and international money transfers, and many other services.

Some Neobanking services in the UAE remain totally independent from traditional banks, such as Clearly which was founded by Mike Cunningham in 2016 in Dubai.

Neobanks arrived in Saudi Arabia a year earlier than it did in the UAE, as the Gulf International Bank (GIB) set up its Meem service in early 2015, which claims to be the first digital Islamic bank. Being offered by the bank owned by governments of all GCC countries, Meem has also inaugurated its operation in Bahrain in 2018.

In 2019, Halalah banking service began operations in Saudi Arabia after obtaining licenses in both KSA and UAE.

Although Neobanking remains a fairly new banking experience that isn't trusted by everyone, the quick and easy access to its services across borders is expected to threaten traditional banks that don't put enough effort into digitizing and competing with today's growing trend of virtual banks.

Would you trust a bank that has no physical representation with your money?