RESEARCH AND ANALYTICS

Neobanks are fast-emerging as a viable alternative to traditional banks, which are often regarded slow, bureaucratic, and expensive, especially in areas such as investment management and loans. Neobanks, which are digital banks tied-up with a partner bank, but without their physical set-up offer fast, smooth, low-cost online-only services. At their core are machine learning and artificial intelligence capabilities that help Neobanks understand customers’ finances and spending habits.

There are about 23 million Neobank users in the US alone, a figure that is expected to grow to about 47-50 million by 2025. Indeed, the whole Neobank economy could pass $720 billion by 2028, registering about 50% p.a. growth. And that’s excluding the 2 billion under-banked and under-served populace that does not have access to financial systems, something which will play a big part in Neobank adoption. It’s interesting to see that Neobanks have now transformed further into Neobrokers by delivering complementary offerings: insurance, trading, and most recently, wealth management products. With more high-net-worth individuals (HNWs) being less comfortable with wealth managers’ high fees, over 72% of HNWs aged below 40 now feel comfortable working with a virtual financial advisor. In fact, reports suggest that 45% of wealth management clients plan to use a fintech provider in the next 3 years (or less).

Although inertia will deter customers from moving their financial assets from one institution to another, Neobanks could become successful in taking away all the pain points of traditional banks.

Norway, which struck gold with massive oil fields in 1969, had to confront a financial crisis due to mismanagement of the riches coming from oil, infamously dubbed as the “Dutch Fever”. Learning from the mistakes, Norwegians decided to have a long-term vision and created a fund with the oil money that would be invested across asset classes, globally. The objective was to set up a long-term savings plan that could benefit the coming generations. As such the government cannot use the fund’s corpus directly and must rely on the interest earned on it for developmental projects.

Over the years, the fund has grown to an overwhelming size of c. USD 1.4 tn. To put things in perspective, this comes to around USD 248k per citizen and around 3.5x of Norway’s GDP (Gross Domestic Product). Less than half of the government’s revenues come from taxes and lease income on Norway’s petroleum industry, whereas more than half is derived from the fund.

However, of late, the government has faced criticism for its contradictory stance on climate change, often referred to as “Norway’s climate change paradox.” The Nordic country, as one of the leading voices on the climate change issue, has liquidated the fund’s entire position in the Oil & Gas companies. However, it was done to protect the profits by staying away from the volatility of the oil market than protecting the environment.

The fact of the matter is that the fund is far from detaching itself from making profits through the heavily polluting fossil fuels, as is evident in its unabating approval of licenses for offshore oil exploration.

Who isn't holding a coin or two these days? Over 100 million investors visit decentralized exchanges (DEX) platforms every day, with transactions amounting to over USD 4 billion.

What makes DEX unique is that unlike centralized exchange (CEX), DEX is decentralized. Trading of crypto assets is Peer-to-Peer (P2P), eliminating the need for a central supervising authority. So what? Well, transactions are free of trading charges. Transactions are secure. And, now, being digital, super easy to do.

Transactions are also private. But privacy is a double-edged sword. A lack of KYC or anti-laundering regulations, for example, may lead to increased frauds and illicit transactions, the source being untraceable.

Still, crypto is often referred to as the future of money. It, indeed, will change the world of finance. But only if the world of finance will change for it.