KEY POINTS
- Over a billion people are still unbanked, as per the latest World Bank estimate
- The 'ease of access' in neobanking will empower unbanked populations to participate in the broader economy: WeFi co-founder Reeve Collins
- Neobanks should adapt a fresh approach to compliance amid an evolving regulatory landscape: Collins
- WeFi leads the revolution as it integrates blockchain and offers crypto services for the unbanked
With the many offers and services of banks worldwide, one would think that there are only a few unbanked individuals, especially as the technological age challenges old practices in the financial system.
However, the World Bank's latest estimates revealed that there are still around 1.4 billion unbanked people around the world, unveiling the persisting barriers that many people still face even with the expansion of some of the world's largest banks.
Neobanks, digital-only platforms that provide various services such as online banking, enter the picture with offerings that consumers can access through their smartphones with lower fees and requiring minimal documentation and verification for basic services.
In an exclusive with International Business Times, digital marketing and blockchain pioneer Reeve Collins, who is also the co-founder of on-chain neobanking platform WeFi, shared his thoughts on the rise of the emerging segment and how it has been changing the financial landscape with a focus on broader inclusivity.
Breaking the Barriers for Unbanked Consumers
Traditional banking solutions are known to come with barriers that prevent many consumers, especially in emerging economies, from engaging with finance. Among the main hurdles are strict documentation requirements, high fees, and a lack of physical facilities in remote areas.
With neobanks, the entry process is simplified, allowing consumers all around the world to now be part of the vast financial world. "If you look at the standard KYC (know-your customer) verification processes within neobanks today, users just need to take a picture of their ID and a selfie," Collins said.
"This ease of access empowers unbanked individuals to safely store money, make transactions, and participate in the broader economy," he added.
The Regions That Will Benefit the Most from Neobanking
There is no doubt many western countries boast of banked populations. However, parts of Africa, many in Southeast Asia, Latin America, parts of the Middle East, and some areas in eastern Europe, have yet to indulge in the banking experience.
A Statista Research report in 2023 revealed that in Southeast Asia, many of the unbanked populations were located in Vietnam and the Philippines. In Africa, Morocco posted the highest numbers of unbanked populations.
There is a significant disconnect in basic financial services in some areas, even in countries where smartphone and internet usage is incredibly high, such as in Africa.
"Neobanks can leverage this widespread mobile connectivity to offer banking services directly through smartphones, bypassing the need for physical branches, making it easier for consumers to open accounts, transfer money, and access credit," Collins noted.
In the Latin American region where some countries such as Argentina and Venezuela are grappling with inflation and economic instability, consumers are searching for ways to save on financial transaction fees while protecting their savings and investing in new financial products that stand as a hedge against inflation.
"Neobanks, especially those that integrate cryptocurrencies like we're doing at WeFi, can provide a secure platform for these needs. They offer an alternative to traditional banking systems that might not be meeting people's needs effectively," Collins said.
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The Case of Trust and Other Barriers for Broader Adoption
The Statista report underscored how unbanked individuals are generally found in "countries where citizens have little trust in the banking system." Building trust with consumers is not an easy task, even for neobanks, especially with persisting cyberattacks on digital platforms.
Collins acknowledged that neobanking service providers will need to convince consumers that their digital-only platforms are worthy of trust. The way forward is through demonstrating strong security measures and reliability.
He also pointed out how regulatory compliance is a key challenge for neobanks. Traditional banking is a heavily regulated industry, and rules vary in certain jurisdictions. Navigating through the regulations can be difficult for neobanks, especially those looking to operate across multiple regions.
Beyond the internal barriers that neobanks may face, there's also the issue on financial literacy. Older generations may not be comfortable with digital interfaces, and people in areas where there is limited education on digital services may be hesitant to adopt the new technology. "Without proper guidance and user-friendly designs, neobanks may struggle to attract these users," Collins said.
What Can Neobanks Do to Trigger a Sure Revolution?
Neobanks are already reshaping the financial realm and doing what traditional banks have struggled to accomplish over the years: catering to the unbanked. On the other hand, there has yet to be a significant shift. To trigger a revolution similar to how Bitcoin has changed the game for holders when it first entered the financial space, there are several measures neobanks may want to consider.
For Collins, neobanks should attempt what many firms in emerging digital finance segments may be struggling with: viewing regulatory compliance with a fresh approach.
"Traditional compliance methods can be complex and often create friction for users. Neobanks should explore new compliance models and next-gen solutions like AI-driven compliance systems that can streamline processes without sacrificing security. At WeFi, we're exploring how AI can automate compliance tasks, making them more efficient while enhancing security measures," Collins revealed.
Reaching the unbanked is still a challenge for neobanks, especially people without formal identification documents. Collins believes neobanking providers should move beyond ID-based verification and consider behavior-based methods. "By analyzing user behavior and transaction patterns, we can build secure profiles that allow more people to access banking services without the usual barriers," he said.
Trust is a key gauge for consumers looking into exploring new finance-related offerings. Neobanks should prioritize security and transparency in this regard, Collins said. Measures include implementing robust security protocols and being upfront about how user data is handled. Leveraging blockchain technology can be highly beneficial in this aspect.
Finally, neobanks should look into appealing services that go beyond basic transactions. Neobanking platforms should consider loans, investment options, and financial educational tools.
Neobanks Will Be the Norm
Collins sees a future where neobanks will no longer just be an emerging segment but "the norm in digital finances." In the next decade, he is expecting AI to play a crucial role in driving neobanks forward through smarter budgeting tools, personalized financial advice, and proactive fraud detection.
He also believes accessibility will improve "dramatically" as neobanking breaks down the barriers for inclusivity by adopting more advanced user verification methods. "Regulatory landscapes will also adapt," he projected, as governments and financial authorities begin to collaborate with fintech and blockchain firms.
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A massive change Collins expects for the next 10 years is the "full integration of cryptocurrencies and digital assets into everyday banking." Neobanks will bridge the gap between traditional finance (TradFi) and decentralized finance (DeFi) as blockchain goes mainstream.
WeFi is leading the revolution. It is taking a step further by integrating blockchain technology into its neobank platform to provide low-cost remittance services. WeFi also offers digital currency access. Users can hold, transfer or invest in crypto, and in the future, users may be able to access tokenized real-world assets (RWAs) as well.
Amid the evolution, "user empowerment will be at the forefront," Collins predicted. With neobanks providing the tools that give people greater control over their finances, the future is bright, especially for the once-unbanked population.
