The global neo and challenger bank market size was valued at USD 45 billion in 2021 and is projected to reach USD 1561 billion by 2030, registering a CAGR of 48.3%during the forecast period (2022 – 2030)
Neo Bank is an entirely online bank with no physical locations and uses a partnered bank license to function. These banks operate exclusively through mobile applications, including digital and mobile-first financial payment solutions, remittance and money transfer services, lending, checking and savings account, insurance, and mortgages. Neo banks additionally offer value-added services, including computerized accounting, cost management, and payroll, particularly to expanding small and medium-sized businesses. The main market-driving reasons include higher interest rates offered to consumers compared to traditional banks, government & regulatory backing for banking activities, and superior convenience provided by mobile applications. Furthermore, it is anticipated that the neo and challenger bank sectors will present profitable chances for business expansion by enhancing online services for the unbanked population in emerging economies.
Neo and challenger banks offer convenience to their customers with highly efficient digital platforms via mobile applications. Products and services provided by these banks include real-time account opening, balance checking, payments, money tracking tools, and 24/7 advanced chatbot services. Moreover, these banks are increasing their investment in digital capabilities to meet the expectations of hyper-connected and well-informed customers, thus developing customer service models to provide immediate and personalized services in the market. In addition, the customer-centric approach with a lower cost structure and hyper-personal experiences provided by these banks are expected to boost the growth of the global market during the forecast period.
Neo and challenger banks operate on new platforms utilizing advanced technologies such as artificial intelligence, Big Data, machine learning, and chatbots to keep the costs low. These banks do not invest money in opening branches and hiring people to process transactions, resulting in cost savings. This, in turn, reduces the labor and marketing costs, which are passed onto customers. In addition, these banks offer high-interest rates to attract a large customer base, which is a critical factor contributing to the growth of the global market. The impact of high-interest rates is moderately high in the current scenario and is expected to become moderate in the years ahead.
Acquisition of customers remains a key challenge for neo and challenger banks. This is attributed to the fact that the existing traditional banks have a large customer base with strong brand loyalty in the market. In addition, these banks have large incumbent customer bases, data records of transactions, and know-how toward consumer behavior in the banking industry. These data are the key assets of traditional banks, which can be leveraged to identify customers seeking new payment services and to mitigate risks by providing services such as a multi-pocket card and a digital account with multiple payments wallets via mobile application. However, this is expected to act as a key challenge for neo and challenger banks to capitalize in the current scenario, which, in turn, is expected to limit the market growth in the years ahead.
An increase in smartphone penetration is expected to provide immense opportunities for developing the neo and challenger banks market and positively impact the market growth. With the rise in internet usage and convenience toward access to banking services, consumers are demanding more transparency and personalization about products and services via mobile applications. In addition, to cater to the increasing expectations of millennials, Gen Z, and baby boomers, banking infrastructure is being developed to provide fast & low-cost services, thereby expanding product offerings in the market. Furthermore, digital-only banks are expected to aid in business expansion, developing existing banking portfolios, bundling product offerings, and providing customized solutions in the market.
For instance, in 2019, due to an increase in consumer perceptions & preferences toward online banking and a significant escalation of smartphone penetration in the U.S., N26—a challenger bank in Germany—has expanded its operation. All these factors collectively are anticipated to offer potential growth opportunities for the global market during the forecast period.
| Study Period | 2018-2030 | CAGR | 48.3% |
| Historical Period | 2018-2020 | Forecast Period | 2022-2030 |
| Base Year | 2021 | Base Year Market Size | USD 45 Billion |
| Forecast Year | 2030 | Forecast Year Market Size | USD 1561 Billion |
| Largest Market | Europe | Fastest Growing Market | Asia Pacific |
Region-wise, the global neo and challenger bank market growth is analyzed across North America, Europe, Asia-Pacific, and LAMEA.
Europe was the highest revenue contributor and is estimated to grow at a CAGR of 47.5% during the forecast period. The European market is analyzed across the UK, Germany, France, and the rest of Europe. The European region has witnessed significant growth due to progressive regulations passed under neo and challenger banks to promote competition and split up the banking monopoly in the European countries. Challenger banks such as Atom Bank, Tandem Bank, Monzo, Starling Bank, Revolut, and N26 are the prominent players operating in the region. In addition, these banks are providing customers with a better user experience, ease of use, accessibility, and innovative functionality via mobile applications, which boosts their preference among European consumers, thereby driving the growth of the global market. In addition, advanced banking solutions provided by these FinTech-based companies include the ability to lock bank cards temporarily, visual summaries about spending activity, and other alerting notifications. As a result, European digital challenger banks have gained significant growth. Furthermore, various financial and progressive regulators are ensuring the sustainability of neo and challenger banks by making it easier and mandatory to obtain a financial license in the market. This has become a significant growth factor for digital-only banks across the region.
Asia-Pacific is the second largest region. It is projected to reach USD 420 billion by 2030, registering a CAGR of 48.3%during the forecast period. Neobanks providing ultimately digitalize banking services are increasingly becoming popular in Asia-Pacific. In addition, the rise in urbanization and shift in consumer preference toward digital-only banking services significantly contribute toward the growth of the Asia-Pacific neo and challenger banks market. Furthermore, FinTech associations from Australia, Hong Kong, Japan, Malaysia, Philippines, Singapore, Taiwan, and Thailand launched a new network named Asia-Pacific Fintech Network to facilitate collaboration and encourage innovation among the neo and challenger banks in the region. This, as a result, has become a significant growth trend for the market.
North America is the third largest region. North America includes the U.S. and Canada. Several new neobanks are strategically targeting the unbanked population and tech-savvy millennials in the U.S., owing to the rise in consumer preference toward digital-only banks in the country. In addition, these banks offer personalized customer experiences such as budgeting & money tracking tools, real-time balances, and debit or credit card blocking, which fuel their growth. Furthermore, in 2019, Stack—the fastest growing challenger bank in Canada—partnered with Payment Sources, a domestic payment solutions provider, to target the millennial population in the country. The partnership aimed to deliver a solution to the consumers for using cash digitally and instantly loading money into their prepaid MasterCard at over 10,000 locations nationwide. All these factors together have fueled the country's adoption of digital-only banking services.
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The global neo and challenger bank market is segmented on service type, end user, and region.
The global neo and challenger bank market is classified into loans, mobile banking, checking & savings account, payment & money transfer, and others. The loans segment was the highest contributor to the market and is estimated to grow at a CAGR of 46.7% during the forecast period. Neo and challenger banks provide several secured & unsecured loans to individuals and businesses. These digital-only banks offer low-cost & short-term loans with less time-consuming processes and improve the customer experience with pre-approvals & quicker funding of loans, contributing to market growth. Furthermore, to facilitate seamless lending processes, neo & challenger banks are implementing several technologies to evaluate credit scores, lower operational costs, and speed up the lending processes with more than a digital version of traditional banking. For instance, N26, Starling, and Revolut banks have implemented a marketplace model that offers direct integration via application program interface (API) to third parties providing loan services. Moreover, these marketplace models have witnessed an increase in adoption among small and medium enterprises, which is anticipated to drive the market's growth.
The payment & money transfer segment is the second largest. Neo and challenger banks are addressing the instant payments & transfers services, digital transactions & remittances globally and delivering enhanced consumer experience with convenience & lower transaction costs. Moreover, users can set recurring payments and send & receive money across the countries, which have become the major trends in the market. Furthermore, these banks are innovating services for targeted products and disrupting traditional banking and challenging institutions by developing services such as in-store mobile phone payment platforms and money transfers. For instance, Hylo, a challenger bank, provides a unique solution to assist small & medium enterprises (SMEs) in automating payment against an invoice in real-time via online transfer, check collection, and cash payment. In addition, it offers suppliers with invoice payment digitization with real-time tracking and alerts. Thus, advanced payments & transfer services provided by neo and challenger banks are anticipated to contribute to the global market's growth significantly.
The checking & savings account is the third largest region. The neo and challenger banks are partnering with several key players in the industry to develop & launch new account opening processes in the market. For instance, Social Finance, Inc., an online personal finance challenger bank, expanded its offerings by combining checking and savings into a single current account with an interest rate. Moreover, the firm highlights wealth management and checking accounts using an all-digital banking model with no physical facilities. This, as a result, has become one of the key trends in the neo and challenger banks market. Furthermore, in 2018, Atom Bank, a challenger bank based in the UK, launched a savings account banking product after receiving regulatory approval from the Prudential Regulation Authority (PRA) and is further planning to launch current accounts for individuals and businesses. This expansion of services to provide millennials with advanced digital banking features is a significant growth factor in the global market.
The global neo and challenger bank market is bifurcated into business and personal. The business segment was the highest contributor to the market and is estimated to grow at a CAGR of 46.9% during the forecast period. Neo and challenger banks are offering SMEs a platform with current business and other value-added features to solve niche business finance problems, which has become a significant trend in the market. Furthermore, bank–FinTech collaboration strategies are increasing to capitalize on small businesses, as these businesses continue to adopt digital banking to sustain in the competitive market. Such data sharing and partnerships enable service providers to enhance their products for better user experiences, thus fueling the growth of the neo and challenger banks in the market. For instance, in 2018, Open Financial Technologies Pvt. Ltd., a FinTech neobank start-up, partnered with ICICI Bank in India to launch integrated payment platforms for SMEs. The platform enables current account holders to securely connect their banks and avail services such as online payments, vendor payouts, invoicing, and checking & savings account services via a single platform. All these factors collectively are anticipated to drive the growth of the global market.
The personal segment is the second largest. Neobanks are targeting studying and working millennials by providing enhanced consumer experience and easy-to-use features such as checkbook re
