Small Financial Institutions Under Threat as Neobanks Eye Expansion Towards Smaller Markets, Steering Clear of Major Banks
In the dynamic continent of Africa, the financial sector is undergoing a significant transformation, with neobanks playing a pivotal role in reshaping the financial ecosystem. These digital-native financial institutions are focusing on underserved populations and informal economies, providing cost-effective, accessible services, and modernising traditional financial institutions.
Neobanks like Moniepoint, Kuda, Umba, Finclusion, and Carbon are not competing with large banks for wealthy clients but instead are building digital infrastructure to serve millions of informal traders, street vendors, kiosk owners, and smallholder farmers across Africa. Some neobanks are even acquiring small microfinance banks to modernize and digitize their operations, as seen in Moniepoint's recent acquisition of Kenya's Sumac Microfinance Bank.
These innovative digital-first financial services offer products such as embedded lending, digital savings, BNPL (buy now pay later), salary advances, and insurance, directly accessible via mobile apps. This approach improves financial access for gig workers, low-income earners, and informal SMEs that traditional banks often cannot serve profitably.
The impact of neobanks on small banks and microfinance institutions (MFIs) is profound. They are not just competitors but partners in digital transformation, helping to modernise and scale financial services in ways traditional institutions have struggled to achieve. Neobanks are enabling financial inclusion at scale, providing cost-effective, accessible services to millions who were previously excluded due to the limitations of small, often under-resourced MFIs and SACCOs (Savings and Credit Cooperative Organizations).
The African neobanking market is part of a global trend experiencing rapid growth, projected to expand substantially due to its cost-effective services, appeal to millennial and MSME consumers, and innovative credit assessment methods. However, challenges such as data privacy, regulatory compliance, and cybersecurity threats remain significant risks that could affect neobank growth.
Central banks must modernise their supervisory tools to match the speed of fintech, with APIs, dashboards, and granular risk scoring becoming increasingly important. Regulators also need real-time visibility into neobank activity, as credit is disbursed and repaid within days.
The competition among fintech companies is not between startups and big incumbents, but who controls the rails for financial access at the pyramid's base. Many African central banks do not have the capacity or tools to monitor hundreds of small financial institutions effectively.
The event, the Cyber Africa Forum (CAF) 2025, will hold its fifth edition event on 24-25 June 2025 in Cotonou, Benin, focusing on digital resilience and accelerating digital transformation.
In conclusion, the rise of neobanks in Africa is transforming the financial ecosystem by focusing on informal economies and underserved populations, digitising legacy microfinance institutions, and expanding financial inclusion. This dynamic is enabling millions of marginalised Africans to access formal financial tools, potentially leapfrogging traditional banking infrastructure limitations.
- These neobanks, such as Moniepoint, Kuda, Umba, Finclusion, and Carbon, are shifting the African financial landscape, and they aren't merely targeting the wealthy but instead serving millions of informal traders, vendors, kiosk owners, and small farmers.
- These innovative digital-first financial services, operating via mobile apps, provide products like embedded lending, digital savings, BNPL, salary advances, and insurance, opening access to the unserved and underserved by traditional banks.
- The neobanks aren't just competitors to small banks and MFIs, but partners in digital transformation, enhancing financial services and scaling them in ways traditional institutions often find difficult.
- The African neobanking market is part of a global trend, growing rapidly due to cost-effective services, appeal to millennials and MSMEs, and innovative credit assessment methods.
- However, challenges such as data privacy, regulatory compliance, and cybersecurity threats persist, potentially impacting the growth of neobanks.
- Central banks need to modernize their supervisory tools to keep pace with fintech, with APIs, dashboards, and granular risk scoring becoming increasingly important.
- Regulators require real-time visibility into neobank activity, as credit is disbursed and repaid quickly, and many African central banks may lack the capacity or tools to monitor hundreds of small financial institutions effectively.
- The Cyber Africa Forum (CAF) 2025, taking place in Cotonou, Benin, on 24-25 June 2025, will focus on digital resilience and accelerating digital transformation, addressing these challenges and fostering innovation in the African fintech sector.
