Branches to bytes: navigating
the rise of neobanks

The internet revolution of the late 20th century marked the start of a profound transformation in banking. Traditional institutions were quick to digitise basic services, enabling customers to manage their finances remotely. Today, digital banking spans everything from mobile banking apps to online payment systems and even virtual currencies. The rise of contactless payments, digital wallets and peer-to-peer lending further reflects our increasing reliance on technology to manage every aspect of our financial lives.

THE EVOLUTION OF BANKING

The roots of banking stretch back to ancient Mesopotamia, where early financial systems involved storing grain and lending it to farmers and merchants. From these humble beginnings, banking has grown into a cornerstone of modern economies – a fascinating reflection of how our relationship with money has transformed over time.

For much of the past century, banking followed a familiar rhythm: monthly statements, ATM queues and in-branch consultations when issues arose. But in recent years, this traditional model has undergone a quiet revolution.

In many countries, people are turning to banks that don’t have branches at all. Their services are faster, cheaper, and accessed entirely on smartphones. This shift isn’t just about convenience – it’s a structural change in how the financial system works. For investors, the implications are potentially far-reaching.

THE RISE OF NEOBANKS

Neobanks – digital-native financial institutions with no physical branches – have rapidly gained traction with their streamlined mobile apps that offer real-time balances, instant payments and often no monthly fees. These challengers are redefining what consumers expect from a bank.

Their impact has been particularly strong in markets like Brazil, the UK and India, where these digital-first banks have attracted tens of millions of customers in just a few years. Their model is especially effective in regions where traditional banking has been limited, costly or exclusionary. By eliminating the burden of legacy infrastructure, neobanks offer accessible, low-cost services, from money transfers to budgeting tools and affordable credit.

Importantly, their appeal is not limited to underserved populations. Affluent and tech-savvy consumers are also turning to neobanks for faster, more flexible and more intuitive financial management.

At the heart of this shift is data. Built on modern, scalable architecture, neobanks are uniquely positioned to harness real-time data to deliver tailored, efficient and user-centric solutions. What we’re witnessing is not simply a trend, but a paradigm shift in financial services. Agility, innovation and customer experience are becoming the new competitive edge. For consumers, digital banking is no longer a niche offering – it is fast becoming the norm.

FAST PAYMENT SYSTEMS

Behind the scenes, a major enabler of this digital banking boom has been the introduction of fast payment systems. These are real-time payment networks supported by governments or central banks that allow individuals and businesses to transfer money instantly at any time of day, at little to no cost. They might not make headlines, but they are quietly transforming the way money moves.

Brazil’s Pix system is a striking example. Launched by that country’s central bank in 2020, Pix now processes payments for more than 90% of Brazil’s adult population. In India, the Unified Payments Interface supported over 18 billion transactions in May 2025, doubling from 9 billion in May 2023. These systems are trusted, widely used, and open to both banks and fintech companies. They create a level playing field where newer digital banks can compete with established incumbents.

Research by the Bank for International Settlements affirms a clear trend: the introduction of fast payment systems is a catalyst for the use of digital finance apps. People become more comfortable with managing their finances digitally, and this opens the door to broader adoption of online banking, investing and borrowing. This isn’t confined to financial services. From groceries to clothing, digital platforms have become the default.

IMPACT ON TRADITIONAL BANKS

As the number of new entrants grows, traditional banks are facing real competition. In the past, they could rely on the friction involved in switching or on a lack of alternatives. This is no longer the case. Neobanks now offer compelling alternatives for everyday banking needs, and in some countries they are the preferred option.

Some incumbent banks are already adapting to this new world. Capitec’s advanced app, aimed at younger, mobile-first customers, can open accounts digitally. FirstRand continues to invest in its digital infrastructure, expanding FNB’s app ecosystem to include payments, budgeting tools and value-added services. Nedbank has a brand-new IT infrastructure that will enable its digital ecosystem. These efforts reflect a broader recognition that agility and digital engagement are critical to long-term relevance.

Institutions that can modernise, collaborate with fintechs or develop their own digital offerings may be well positioned to retain relevance and grow. Those that fail to adapt risk gradually ceding market share to more agile, lower-cost rivals.

For consumers, this evolving landscape brings more choice, better service and enhanced value. But for investors, it raises critical questions about how well traditional banks are keeping pace in an increasingly competitive and digitally-driven environment.

OPPORTUNITY FOR INVESTORS

This global shift is about much more than just how we bank – it also points to where future value is likely to emerge. Companies that enable or capitalise on the rise of digital finance – from fintech innovators to payment infrastructure providers and forward-thinking banks – are increasingly worth watching.

Some of the most exciting developments are coming from emerging markets. In regions where traditional banking has long been out of reach for many, mobile-first solutions are bridging the gap – and doing so with scale and profitability. Countries with strong digital ID systems, high smartphone adoption and central bank support for fast payments are proving fertile ground for growth.

Brazil’s Nubank is a standout example of a neobank reshaping the financial landscape in emerging markets. With over 100 million customers across Latin America, it continues to grow both its user base and profitability. Operating entirely through a digital platform, Nubank has achieved an exceptionally low cost to serve, while steadily increasing average revenue per customer by selling more products to its vast customer base. At their core, neobanks like Nubank are fintechs aiming to innovate and disrupt markets globally.

This doesn’t mean every digital bank is a sure bet. Some still rely heavily on growth over profit, and others struggle with regulatory or cybersecurity challenges. But the broader direction is clear: the financial world is going digital, and this is creating a wave of innovation across payments, lending, insurance and wealth management, all of which provide new investment opportunities.

DUAL APPROACH

We continue to hold positions in traditional South African banks, recognising their strong market positioning, regulatory resilience, and dependable dividend profiles. These institutions remain well-run businesses, and many have made meaningful strides in digitisation – something we view positively.

At the same time, we acknowledge the structural transformation unfolding in global banking. Innovations such as fast payment systems, digital ID infrastructure and mobile-first platforms are reshaping how financial services are delivered and consumed. We believe it’s important to participate in this wave of change, without losing sight of the resilience and earnings predictability offered by established players.

This dual approach reflects a pragmatic investment thesis: maintaining core exposure to high-quality incumbents, while selectively backing high-growth fintech disruptors that are reshaping the future of banking – such as our investment in Nubank.

In a world where money moves in seconds and banking fits in your pocket, staying informed, adaptive and well positioned has never been more important.