Yesterday Ethiopian first full-fledged # eCommerce platform (Helloomarket.com) has inaugurated its first Show Room, it was such a pleasure to see our visitors surprised by the diversity and the quality of the products “Made in Ethiopia”.
On the 24th of December Helloomarket.com will, in partnership with EMS and DHL, go live worldwide. Be the first to provide family and friends with unique goods “Made in Ethiopia” for the 1st of 2022 GC.
Thank you to our 1 500 suppliers, SNV and other partners and the Hello Market team who have been working 24/24 to make it happen.
The neobank, or digital bank, phenomenon continues to take the world by storm, with global winners, from Brazil’s Nubank valued at $10 billion and Berlin’s N26 valued at $3.5 billion, to Chime, now valued at $14.5 billion as the most valuable consumer fintech in the United States.
Neobanks have led the charge of the $3.6 billion in venture capital funding for consumer fintech startups this year. And as the coronavirus-fueled acceleration of digital transformation continues, it seems the digital bank is here to stay, with some estimates pointing to neobanks reaching 60 million customers in North America and Europe by the end of 2020, and surpassing 145 million by 2024.
The space is also becoming more crowded, a trend which will only accelerate with fintech eating the world and creating greater infrastructure that enables any company to include a bank account as a product extension.
As a result, neobanks are not a monolithic model and not all are created equal. Looking underneath the hood of business models across the globe reveals remarkable operational differences and highlights specific features that are more likely to succeed in the long-term.
Five global models of neobanks
Today there are five distinct models that are leading globally:
Interchange-led: Relies on payments revenue, sourced through interchange as the revenue driver. Every time a customer uses the neobank’s card as a payment method they get paid [e.g. Chime / US; Neon (hybrid of 1 & 2) / Brazil].
Credit-led: Leverages a credit-first model, starting off with a credit card or similar offering, and later providing a bank account [e.g. Nubank, Neon (hybrid of 1 & 2) / Brazil].
Ecosystem-led: One of the original neobanks models (that we consider largely unproven), where the checking account may not be the profit driver but unlocks a range of monetization strategies as a gateway to a broader financial products ecosystem. Many in this category also charge monthly subscriptions as an additional vector of monetization (e.g. N26, Monzo / Europe).
Asset-led: Offers savings accounts and looks to acquire deposits with competitive rates [e.g. Goldman’s Marcus, Beam / U.S.]. There are also those that focus on ethical or moral spend management [e.g. Aspiration Bank / U.S.].
Product extensions: Credit-led models are distinctly successful, but are also merely examples of product extensions, blurring the lines between financial domains [e.g.,Robinhood, Wealthfront / U.S.]. One of the biggest drivers here will come from larger tech companies [e.g. Square Cash App / U.S.] and partnerships with banks [e.g. Amazon / U.S.].
Neobanks have three key success factors — underpinned by impact
The difference in models is driven by various market needs and regulations, but in such a crowded space, which neobanks will succeed? Before digging into specifics, there is one overarching factor — the most successful neobanks are those that are the most impactful, particularly to underserved customers.
Despite popular belief, the rise in digital banks is not a product of preference by the younger digital-native generations (e.g. millennials), but from reaching a broader set of customers that have historically been overlooked by incumbent banks. In the U.S. for instance, the average Chime customer earns between $35,000 and $70,000 with lower account balances — accounts considered to be unprofitable for most banks.
Neobanks represent a paradigm shift in financial services, bringing us back to a customer-centric core, offering services that are cheaper, simplified, more useful and better targeted for the people who have been left out of the traditional system in some capacity. But beyond impact, there are three key elements that set successful neobanks apart:
Strong stand-alone unit economics: A key driver to long-term success is having strong standalone unit economics with the core bank account product. For instance, an interchange model can bring significant value to customers, particularly those in the middle class who benefit from lower costs. However, this isn’t applicable everywhere. In Europe, average rates on transactions are significantly lower (capped at 0.3% compared to approximately 1.2% in the U.S.), making it more difficult to build traction.
The digital bank account strengthens the core offering: Another factor is when the neobank product can be a core improvement to the larger offering. Nubank’s case is striking. By having customers leverage its bank account, Nubank benefits from a lower cost of funds from deposits. Importantly, by deepening the customer relationship, it also gleans more insights into the customer’s credit worthiness and spending potential.
Massive acquisition subsidization generated externally: Neobanks that leverage a strong existing customer base, and have a customer cost acquisition (CAC) distribution advantage, will be able to scale more challenging unit economics more successfully. In a space that is still largely dominated by incumbents with CACs steadily increasing over the last five years, a big challenge for fintechs is customer adoption and retention. This is why product extensions work well — such as Robinhood’s account structure off the back of its stock trading, or Apple’s credit card launched with Goldman Sachs, which has reached 3.1 million American customers in its first year.
In an ideal world, an impactful neobank will have strong standalone unit economics or strengthen an existing core offering, as well as enjoy a distribution advantage. While the model can work with only one, without two, neobanks will struggle to scale.
Unique challenges in emerging markets
Globally, approximately 1.7 billion people are underbanked, with no access to the formal economy. Neobanks have emerged as a powerful bridge to promote financial inclusion, but there are unique challenges in emerging markets — a topic that easily deserves a separate article, but from a high-level, points back to a lack of critical infrastructure.
A reliable cash-in and cash-out flow is required and sometimes can kick-start the ecosystem. But for the true bottom of the pyramid, the critical infrastructure needs to be created first. Without a widespread payment infrastructure, including point-of-sale (POS) acceptance, a card-based model will struggle, as the value is directly correlated to ease of use. One reason Nubank scaled in Brazil is because POS penetration is on par with many Western countries.
Take credit-led models as another example, which traditionally depends on credit score infrastructure. Credit scores in many emerging markets either have limited coverage or are non-existent which forces credit-led neobanks to develop their own insights on a customer’s propensity to repay.
We’re seeing other players set the seeds in areas such as Sub-Saharan Africa, Southeast Asia and Latin America, on the heels of the massive mobile money trend, and of course those that are working to close the digital divide.
Neobanks are here to stay
Neobanks have created a new tech stack, completely changing the services, products and speed at which they are delivered, and creating more fluidity in payments and currencies. The neobank space will continue to grow with more specialized offerings emerging for new demographics, but the true success driver is because they are highly impactful — offering greater transparency, lower costs and easier access to financial services. These digital challengers are increasingly becoming the social, sustainable and people-oriented financial players to the populations who need them most.
Disclosure: Cathay Innovation is an investor in Chime.
With HelloCash in widespread use, getting everyone access to banking is within reach.
Share this story
In the Somali Regional state of Ethiopia, a woman sets out to do her food shopping for the day. She needs cash before she heads to the market, but the nearest bank would be several days’ walk. Instead, she takes out her phone and texts a password and a request for money. A few minutes later, she meets a man with a mobile phone and receives cash from him — the withdrawal that she made on her phone. She heads off, ready to do her errands.
Welcome to the world of HelloCash mobile money banking
In Ethiopia, people don’t live near banks or have bank accounts. For a long time, that meant those people were locked out of the financial system — unable to straightforwardly send money, save it, buy things without cash, or get loans.But in the age of the mobile phone, it has become possible to access the key functions of a financial system without getting a formal bank account.
HelloCash is pretty simple. In a lot of ways, you can think of the apps that are widely used for mobile transactions in some African countries as equivalent to a send-your-friends-money app like Venmo in the US. But Venmo requires linking to a bank or a credit card, which means anyone who doesn’t have one of those is locked out.
With HelloCash mobile money accounts no formal bank account is required. To make a deposit or get cash from the app, mobile money systems use human agents, people who hang out at key locations throughout Ethiopia — including remote rural areas — with cash and a mobile phone. You can also use mobile money for cashless transactions, including buying groceries or paying for services.
HelloCash agents function like an ATM: You go up to them and give them cash to get money deposited in your mobile money account, or transfer money out of your account to get cash. In where almost no one has a bank account or a bank branch, agents represent a huge step forward in the availability of cash when you need it and a safe place to deposit it when you don’t.
It turns out that this simple system — initially built off of text messaging, with no smartphones or apps required — makes a significant difference for poor families, with access to mobile money have more stability. The ability to save money and get transfers from friends and family gives them something to fall back on.
HelloCash is now served by more than 10 000 agents anywhere in Ethiopia.
But there’s plenty of room for HelloCash to gain ground among Ethiopia and the neighbours countries. Many of which still have a huge population with no access to mobile money or conventional banking.
How mobile money works?
People in rural Ethiopia, more than 70% of the population, have very few options to manage money. Bank accounts were effectively impossible to access: The nearest banks are far away, and they aren’t meant to serve rural customers who had very little money. The main alternative is carrying cash, which left you vulnerable to theft. Family members who worked in the city want to send money home but had to either send it through couriers for high fees or make the long, sometimes hazardous trip themselves.
Mobile money apps don’t require a brick-and-mortar bank, but they otherwise end up functioning a lot like a bank account and debit card would for an formal bank customer — meaning your average person in Ethiopia with an HelloCash account now has access to most of the same financial services a person having a regular account in one of the multiple banks in Ethiopia. HelloCash mobile money today got off the ground in some off the most unbanked parts of Ethiopia.
For the initial launch, send money and buy airtime are the most used feature. It remains that according to Mountaga Vince Diop, founder of HelloCash, the implementation of ETswitch, the national Ethiopian switch combine with a fast penetration of internet, as well as the new regulation will change the game. Using HelloCash mobile money to process to direct payment or pay invoices is gone be more and more a daily reality for Ethiopians in the coming two years.
By the end of 2022, HelloCash expect to have more than 10 Million customers in Ethiopia.
How HelloCash mobile money impacts poor people’s lives?
Being able to send money to a family member without needing to make a potentially dangerous trip, or keep savings in a smartphone instead of under a mattress, is easy to take for granted. For millions of people in Ethiopia, however, having alternatives to carrying all your wealth in cash is new. HelloCash mobile money is changing that, and the economic effects are profound.
HelloCash financial services such as the ability to safely store, send, and transact money which in the form of mobile money has reached close to 2 Million people in 4 years.
HelloCash have recently started facilitating remittances — money sent home by family members living and working elsewhere. Mobile money makes it safer and easier to send money home, and fees are much lower than fees for wire-transfers or postal services — so more money makes it home, and people in rural communities are less likely to go hungry.
HelloCash should also increase access to health care. Since people are more likely to save money when they have a convenient and safe way to do so, they’re more likely to have savings as a cushion if a household member gets sick. Greater ease of sending money also means that they’re likelier to be able to get help from friends and relatives in an emergency. Overall, the effect is that mobile money makes people likelier to be able to access medical care when they’re sick.
BelCash Technology, the Fintech providing the HelloCash platform as “Platform as a Service” to the African Financial Institutions, and more specifically in Ethiopia, has developed HelloDoctor a platform providing medical advice. The platform operated by Telemed PLC is fully integrated to HelloCash, the next step is to provide financial facilities to the HelloCash customers needing access to Medical treatment.
The Ethiopian administration focus more and more on mobile money accounts as a poverty alleviation tool. Dedicated efforts and energy to give poor people access to sophisticated financial instruments like long-term business loans has been disappointing. Thanks to mobile banking, that benefit can be obtained without the overhead and debt burden of microloans.
Since Q4 2020 HelloCash is providing multiple channels to his customers (IVR, USSD, Web, APP as well as Telegram ChatBot). In Q1 2021 a scoring platform, facilitating Financial institutions to distribute microloans based on Data’s is expected to be integrated to the platform. A companion card to the HelloCash wallet is also underway allowing payment via any POS or withdrawal at any ATM.
Since 5 years HelloCash is struggling to find the right combination of the right technology, the right roll out and the perfect timing to launch new features. The new directives of the National Bank of Ethiopia are providing more flexibility to the implementation of more advanced mobile money solutions, HelloCash believes that in 2025 mobile money will be a reality for every Ethiopian.
Just like how quantum theory questioned stereotypical notions of physics and challenged common ideas around concepts of reality, neobanks are doing something similar to the banking industry. Digital banking is no longer a theory; it has evolved to become part of our everyday lives. In this article, we look at the growth of Neobanking, its success story,
Neobanks offer banking services to customers directly on their mobile phones or via other digital platforms. Unlike traditional banks, these banks do not have any physical branches. They largely target younger generation customers who are willing to accept a bank that has no physical presence. They are able to attract millions of customers with superior customer experience and product offerings. In many cases, these banks focus on underserved segments in SME/retail. This helps them acquire customers on a larger scale, thanks to the improved UX they offer.
Are Neobanks Perfect Challengers?
Neobanks are viewed as a direct challenge to the status quo of the established traditional banks, with their lower cost structure and hyper-personal customer experience. With all the advantages and features compared to traditional banking, neobanks face a fair share of difficulties. With a huge consumer base, these banks are still facing a challenge in terms of long-term profitability.
In Europe, we have witnessed these digital-only banks scaling their customer base at an unprecedented rate and taking a big portion of the traditional banks’ market share. This trend is evident in the European regions, where UK neobanks have added almost 20 million customers. A 2019 report by AT Kearney found that European neobanks gained more than 15 million customers between 2011 and 2019; by 2023, neobanks are projected to have up to 85 million customers over the age of 14 which is equivalent to 20% of Europe’s population. However, we have witnessed an inverse relation: the larger the consumer base, the more the losses these banks incur. So, even with a large consumer base and increased popularity over recent years, profitability has been an enormous challenge for these neobanks.
Neobanks’ Differentiated Service Offerings
Neobanks offer services such as creating and operating a savings account, payment of bills or money transfers, loans to individuals and businesses, and other such services directly on their mobile phone or via any other digital platform. Neobanks offer innovative features, process simplifications, and offerings that are different from traditional banks, including fast account opening, free debit cards, instant payments, cryptocurrencies, lower costs, mobile deposits, P2P payments, mobile budgeting tools, user-friendly interfaces, and more. Here are some of the top innovations happening in Neobanking space:
Digital Onboarding/Account Opening: Neobanks offer simple and fast online account opening processes compared to traditional banks.
International Payments/ Remittances: Neobanks offer the usage of their debit card in foreign countries for no fees and at live exchange rates.
Money Tracking/Account Aggregation: Neobanks can simplify money tracking and account aggregation.
Lending/Credit Products: Neobanks can provide credit products at lower charges and interest rates than traditional banks.
These players target largely younger generations who are willing to accept a bank that has no physical presence. The main drivers for the growth of these companies vary in developed and developing economies. In developed markets, such as European countries and Australia, it’s mostly because the large banks have not been able to deliver products and services up to customer expectations, cases of mis-selling, and a virtual monopoly in most developed markets.
There has been a rising expectation among the consumers for better products and services and consumer experience. For instance, the Australian banking landscape has been dominated by the Big Four, i.e., the Commonwealth Bank of Australia, Westpac Banking Corporation, Australia, New Zealand Banking Group, and National Australia Bank. But with poor consumer experience and increased scandals from these banks, neobanks like Xinja, Volt, and 86,400 have been on the rise. They are able to attract millions of customers with superior customer experience and product offerings. In emerging markets like India and Brazil, the factors are different. There is a vast potential to scale and provide banking in a digital-first fashion. A significant portion of the population are either unbanked or are looking for alternatives from the traditional banks.
Neobank Funding Trend
The neobanks registered record-breaking funding in Q3 2019, where they raised a total of $1.74 billion over 21 VC/PE deals. Since 2018, a total of $5.627 billion has been pumped into neobanks, with a record-breaking $4.361 billion in 2019 investments. However, due to the current ongoing COVID19 pandemic, the VC/PE funding in this segment has taken a big hit. In Q1 2020, the total funding amounted to $1.304 billion over 24 VC/PE deals.
Who Is Winning the Core-banking Solution Provider Race?
Among modern core systems, Mambu has been the most popular choice for challenger banks with the likes of N26, OakNorth, and ABN New10, choosing it over in-house builds. Atom Bank in the UK switched over from FIS Profile, a traditional system, to Thought Machine, another new-age core platform.
The most successful company from the traditional core system pack for challenger banks has been Temenos with its Transact platform (earlier known as T24). Volt, and Judo in Australia; Varo Money, and Grasshopper Bank in the US; and Praxia Bank in Greece and Alba Bank in the UK (under license application) are some of the other successful examples. TCS’ recent announcement of partnering with the first digital bank in Israel and Fiserv powering Tandem Bank in the UK has added to this mix.
Now That They Have Established Themselves, What’s Next?
“Typically, by unbundling banking services and focusing on a single high-value area, challenger banks have managed to create impressive current account offerings that compare highly favorably to traditional banks,” Maynard said to Mobile Payments Today via email. “This has convinced many users to adopt services, with the personal financial management element of many of these accounts also driving customer satisfaction.”
However, the “challenge” that challenger banks in the digital realm are facing is the demand to offer services beyond traditional banking. The ability to do so will not only entice new customers but also provide a good framework for maintaining loyalty among their current users. In the current scenario, challenger banks aim to end up occupying a socio-economic position as back-up/test accounts rather than the preferred and coveted position of primary accounts. As new entrants seek to capitalize on the perceived new-found market value that awaits neobanks and incumbent banks push harder to repel an all-digital banking structure, the challenger banks no longer enjoy the comfort that comes with the assurance of long-term profitability. In such a scenario, one of the main questions is, what value proposition can neobanks adopt?
With falling interest rates and consumers seeking safety in traditional banking, Neobanks face an uphill task of proving that their business models can gain ground and overcome the COVID-19 crisis. With a fall in spending income and a rise in unemployment rates, neobanks are seeing a significant impact on transaction volume, decreasing across all the areas ranging from payments to onboarding.
Read the report to understand how agility provides them with an advantage over incumbents; find out about how Neobanks are losing customers despite the edge, and whether it is an opportunity for incumbents to bridge the gap in the digital banking space.
ADDIS ABABA, ETHIOPIA – Ethiopia’s central bank will allow locally-owned non-financial institutions to start offering mobile money services as it seeks to boost non-cash payments in the country, it said.
The Horn-of-Africa nation is in the midst of massive economic reforms led by reformist Prime Minister Abiy Ahmed, including the privatization of state-owned telecommunications monopoly Ethio Telecom.
The new directive would allow Ethio Telecom, as an Ethiopian-owned company, to move into mobile money. Any foreign-owned companies, however, would remain locked out, according to the new regulations that were published on Wednesday.
Foreign telecom operators, including Kenya’s Safaricom and South Africa’s MTN, have expressed interest in bidding for telecoms licenses in Africa’s second most populous country.
But without further changes to the regulations, they will remain unable to offer mobile financial services business, analysts said.
“This directive effectively excludes foreign fin-tech and telecom companies from reaping the business benefits,” Bahakal Abate, a corporate lawyer in Addis Ababa, told Reuters.
In February, Ethiopia delayed the award of two telecoms licenses to multinational companies. The licenses would end the state monopoly and open up one of the world’s last major closed telecoms markets.
HelloCash 