Neobanks and traditional banks in UAE: A winning combination?

Neobanks attract traditional banks' customers with lower-cost products and services
Neobanks and traditional banks in UAE: A winning combination?
Neobanks on the rise

A new report from S&P Global Ratings highlights that neobanks – banks that operate only online and don’t have a physical presence- will complement the offering of traditional banks in the UAE and will not replace them.

Read more: Acing the digital revolution in the GCC financial sector

The study suggests that the adoption of neobanks and traditional banks’ digital offering in the UAE is increasing and should continue to do so, given the population’s intrinsic preference for digitalization and strong digital infrastructure.

Neobanks try to attract traditional banks’ customers by typically offering products and services at a lower cost. The regulatory environment for fintechs in the UAE is also somewhat supportive of the emergence of neobanks.

Neobanks are still in the early stages of their development in the local UAE market. Their current product and service offering is limited and mainly concentrates on raising deposits and issuing credit cards. It doesn’t help that most customers in the UAE continue to prefer traditional banks, which have digitalized successfully and whose digital products and services outperform those of banks in many other emerging markets. Therefore, we don’t expect a significant migration from traditional banks to neobanks in the foreseeable future.

S&P said neobanks’ current offering is limited to retail products and mainly focuses on raising deposits and issuing credit cards.

“We believe that the central bank of the UAE (CBUAE) will continue to maintain the stability of the traditional banking system and encourage banks to strengthen their digitalization efforts,” the agency noted.

Hotbed Of digital banking

The number of bank customers in the UAE is high and continues to expand. More importantly, the target customer base has a propensity to adopt digital banking services. According to data from research firm GWI, smartphone penetration in the UAE reached 96.2 percent in 2022, which is among the highest worldwide and slightly exceeded the average penetration rate of 95 percent in Europe.

According to Statista, the number of neobank customers worldwide reached about 188 million in 2022, up from about 19 million in 2017. This figure will likely exceed 350 million by 2026. The rise in customer numbers was accompanied by an increase in the number of neobanks to more than 500 in 2022.

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