Blog: Neo Financial announces 1 million users and a successful funding round – Business Insider

  • Neo Financial announces a $185 million CAD raise, coming just after the Canadian government named a head of open banking.
  • The new lead for the Advisory Committee on Open Banking is charged with developing an accreditation framework, a common set of rules, and technical standards for an open banking system.
  • Insider Intelligence publishes hundreds of insights, charts, and forecasts on the Banking industry. Learn more about becoming a client.
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The news: Canada-based digital bank Neo Financial raised $185 million CAD ($147.6 million) in a funding round, per PYMNTS.



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More on this: In addition to the funding, Neo Financial announced it has reached 1 million users. The digital bank offers cash back, savings, and investment products, and later this year plans to offer mortgages. It also touts a number of partnerships with retailers like Hudson’s Bay, Home Depot, and H&R Block. With these retailers, Neo Financial offers products like co-branded cards and buy now, pay later options.

Trendspotting: Including Neo Financial, Canadian


neobanks

have raised over $1 billion CAD over the past year and are bringing serious competition to the five Canadian incumbent banks.

Koho, with half a million customers, raised CAD$210 million ($167.5 million) in Series D funding in February, less than a year after closing its previous round.

Wealthsimple, a fintech with over 2 million users, offers investing, savings, and money transfers, and raised CAD$750 million ($598.2 million) in May 2021.

The funding seems to align with a shift in banking regulation in Canada. The country’s regulatory framework historically gave precedence to managing systemic risk over engendering a competitive environment, making it difficult for challengers to break through on their own. But the tides are turning.

In 2018, in response to the growth of financial technology services, the Canadian government created an Advisory Committee on Open Banking to review the merits of


open banking

.

In 2021, the final report of the Advisory Committee on Open Banking provided recommendations on how to modernize the Canadian financial services sector and implement a secure open banking system.

In 2022, the Canadian government named a lead for the Advisory Committee on Open Banking. The lead is charged with developing an accreditation framework, a common set of rules, and technical standards for an open banking system.

The big takeaway: In Canada, at least, neobanks are gaining steam, fueled by increased funding. But they still face challenges in a country long dominated by a small group of incumbents. 

The two leading digital-only banks, Simplii and Tangerine, each have over two million users and are owned by incumbent banks CIBC and Scotiabank. 

UK-based Revolut pulled away from its strategy in Canada in 2021 as it failed to reach meaningful penetration in the market.

Additionally, 99% of the Canadian population is banked. Neobanks will need to focus on creative ways to set themselves apart from incumbent banks to attract customers. For example

Koho can lean into its focus on citizens living paycheck to paycheck.

Neo Financial’s partnership with retailers could be the beginning of a foray into embedded finance.

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