Global Neobanks: A Comparative Analysis- Top 10 Digital-Only Banks

Virtual or neobanks, digital-only banks, have seen exponential growth over the past decade. As of 2024, the global neobank market is estimated to be valued at approximately $66.9 billion, with projections to reach $722.6 billion by 2030, reflecting a compound annual growth rate (CAGR) of around 47.1%. This explosive growth is driven by the increasing demand for seamless digital banking experiences, especially among tech-savvy consumers.

Regional Distribution of Neobank Customers (2023)

Asia-Pacific: Asia-Pacific leads the global neobank market with a significant share of the customer base. Notable neobanks such as WeBank in China and PayTM in India contribute to this dominance. WeBank alone has around 362 million users, making it the largest digital-only bank globally. Adding PayTM's 89 million users, the Asia-Pacific region accounts for approximately 60% of the global neobank customer base.

North America: North America is another key region, driven primarily by neobanks like Cash App and Chime in the United States. Cash App has about 53 million users, and Chime has 21.6 million users, bringing North America's share to about 10% of the global market.

Europe: Europe is home to several leading neobanks, including Revolut in the UK with 35 million users. This region represents around 12% of the global neobank customer base.

Latin America: Latin America is an emerging market for neobanks, with Brazil leading the way. Nubank, with 90 million users, is a significant player in this region. Other Brazilian neobanks like Inter, Neon, and C6 Bank contribute, making Latin America account for around 15% of the global neobank market.

Middle East and Africa: The Middle East and Africa, while still developing in the neobank space, hold a smaller portion of the market. This region accounts for about 3% of the global customer base.

This distribution highlights the considerable influence of the Asia-Pacific region, driven by China's massive market. North America and Europe are also substantial markets, with significant growth potential, while Latin America is rapidly expanding, especially in Brazil. The Middle East and Africa remain nascent but are expected to grow as digital banking adoption increases.

2. Understanding Virtual Banks

Virtual or neobanks operate without physical branches, providing all their services through digital platforms such as mobile apps and websites. They leverage advanced technologies like artificial intelligence (AI), machine learning (ML), and blockchain to offer a wide range of financial services, including savings accounts, loans, investments, and payment solutions.

Unlike traditional banks, neobanks focus on offering a seamless, user-friendly experience with lower fees and personalized financial products. Their business model revolves around the use of data analytics to understand customer behavior, predict needs, and offer tailored financial solutions. This approach not only enhances customer satisfaction but also enables neobanks to operate with lower overhead costs.

3. Enhancing Digital Products and Payments

Neobanks are at the cutting edge of revolutionizing the financial landscape by driving the adoption of digital products and payment solutions. With their mobile-first approach, they cater to the evolving needs of consumers who prioritize convenience, speed, and seamless access to financial services. Here's how neobanks are pushing the boundaries of digital products and payments:

Mobile Wallet Integration

Neobanks often incorporate advanced mobile wallet functionalities within their platforms, allowing customers to store, manage, and utilize their funds digitally. These mobile wallets act as a hub for various financial activities, enabling users to make quick and easy payments, whether online or in-store, without the need for physical cards. The integration of mobile wallets with other digital services, such as bill payments, peer-to-peer (P2P) transfers, and loyalty programs, enhances the customer experience by providing a one-stop solution for all financial needs. For example, a user can instantly pay for a coffee, transfer money to a friend, and check their savings balance, all within the same app.

Moreover, these wallets often support multiple currencies, making them ideal for global travelers or customers who deal with international transactions. The convenience of having all financial tools in one digital space not only simplifies money management but also encourages more frequent use of digital payment methods.

Seamless Payments

Seamless payment systems are at the core of the neobank experience. Neobanks offers various payment methods, including peer-to-peer (P2P) transfers, QR code payments, contactless payments, and even voice-activated transactions. This multiplicity of options ensures that users can make payments in a way that best suits their preferences and situations. For instance, QR code payments are becoming increasingly popular in markets where smartphone usage is high but traditional card infrastructure is less developed.

Neobanks are designed to handle real-time transactions efficiently, which is crucial in the current digital economy where delays can lead to customer dissatisfaction. The ability to process transactions instantly, whether it’s paying a friend back for lunch or making an international payment, sets neobanks apart from traditional banks that may still rely on batch processing systems.

Furthermore, the security of these transactions is enhanced through multi-factor authentication, encryption, and biometric verification, offering customers peace of mind when conducting their financial activities digitally.

Digital Lending

Digital lending is another area where neobanks are making significant strides. By leveraging advanced algorithms, artificial intelligence (AI), and machine learning (ML), neobanks can evaluate a user's creditworthiness in real time. This technological edge allows them to offer instant loans and credit products without the extensive paperwork and delays typically associated with traditional banking.

The digital-first approach means that customers can apply for a loan through their mobile app, receive approval within minutes, and have the funds available immediately. This immediacy is particularly beneficial for customers who need quick access to funds for emergencies or opportunities. Neobanks also often offer flexible repayment options tailored to the individual’s financial situation, enhancing customer satisfaction and loyalty.

Additionally, the use of AI in digital lending enables neobanks to offer personalized interest rates and credit limits based on a comprehensive analysis of the customer’s financial behavior, which not only reduces the risk for the bank but also ensures that customers are offered terms that are fair and manageable.

Personalized Financial Management

Personalization is a key differentiator for neobanks in the competitive financial services market. By using data analytics, neobanks gain deep insights into their customers’ spending habits, savings patterns, and financial goals. This information is then used to offer personalized financial management tools that help users better manage their money.

These tools include budgeting apps that automatically categorize spending, savings goals that users can set and track, and automated investment options that align with the user's risk tolerance and financial objectives. For example, a neobank might offer a feature that rounds up every purchase to the nearest dollar and automatically invests the difference, helping users grow their savings effortlessly.

Moreover, neobanks often provide real-time alerts and insights, such as notifications when a bill is due or when spending in a particular category exceeds the user’s set limit. This proactive approach to financial management empowers customers to stay on top of their finances and make informed decisions.

Blockchain and Cryptocurrencies

Blockchain technology and cryptocurrencies represent the frontier of innovation in the financial sector, and neobanks are at the forefront of integrating these technologies into their offerings. Some neobanks are exploring blockchain for its potential to enhance the security, transparency, and efficiency of financial transactions. For example, blockchain can be used to create immutable records of transactions, reducing the risk of fraud and ensuring the integrity of financial data.

Additionally, the rise of cryptocurrencies has prompted several neobanks to offer crypto-related services, such as cryptocurrency trading, investment, and even savings accounts that pay interest in digital currencies. These offerings attract tech-savvy customers who are interested in diversifying their financial portfolios with digital assets.

By integrating blockchain and cryptocurrency services, neobanks not only expand their product offerings but also position themselves as forward-thinking institutions ready to meet the evolving demands of the digital age. This strategic move also attracts a younger demographic that is more likely to engage with digital currencies and blockchain technology.

4.??????? Challenges Faced by Neobanks

While neobanks have revolutionized the financial industry with their digital-first approach and innovative services, they also face a variety of challenges that can impact their growth and sustainability. Here’s an in-depth look at some of the key challenges neobanks encounter:

4.1 ?Regulatory and Compliance Hurdles

One of the most significant challenges for neobanks is navigating the complex and often stringent regulatory environment. Unlike traditional banks, which have established processes for compliance with financial regulations, neobanks are relatively new entrants and must often adapt quickly to changing regulatory requirements.

Licensing Requirements: Neobanks often operate under different regulatory frameworks across various regions. Acquiring the necessary banking licenses can be a lengthy and expensive process, and regulations vary significantly from one country to another. For instance, the requirements in the European Union differ from those in the United States or Asia-Pacific, making it challenging for neobanks to expand globally.

Anti-Money Laundering (AML) and Know Your Customer (KYC): Neobanks must implement robust AML and KYC procedures to prevent financial crimes. However, these processes can be resource-intensive and may slow down customer onboarding. Balancing compliance with a smooth user experience is a continuous challenge.

Data Protection and Privacy: With the increasing focus on data privacy laws, such as the General Data Protection Regulation (GDPR) in Europe, neobanks must ensure that they handle customer data with the utmost care. Compliance with these regulations requires significant investment in secure data storage and management systems, and any breach can lead to severe penalties and loss of customer trust.

4.2? Profitability and Sustainable Growth

Neobanks often operate on a different financial model than traditional banks, typically relying on low fees, interest margins, and cross-selling opportunities to generate revenue. However, achieving profitability remains a major challenge.

High Customer Acquisition Costs: Neobanks often spend heavily on marketing and incentives to attract new customers. While they may initially offer low fees or even free services to attract users, the cost of acquiring these customers can be high, especially in competitive markets. Balancing the need for growth with the imperative to achieve profitability is a delicate act.

Revenue Generation: Traditional banks have multiple revenue streams, such as interest income from loans, transaction fees, and wealth management services. Neobanks, on the other hand, may struggle to diversify their income sources. Many neobanks rely on interchange fees from card transactions or fees from premium accounts, but these alone may not be sufficient to ensure long-term profitability.

Scale and Infrastructure: As neobanks grow, they need to scale their infrastructure to accommodate more users and transactions. This often requires significant investment in technology and talent, which can strain financial resources, especially for smaller neobanks that are still trying to establish themselves.

4.3. Customer Trust and Security Concerns

Building and maintaining customer trust is essential for any financial institution, and this is particularly challenging for neobanks, which often lack the long-standing reputation of traditional banks.

Security Breaches: Neobanks are prime targets for cyberattacks due to their entirely digital nature. A security breach can have catastrophic consequences, leading to financial losses for customers, damage to the neobank’s reputation, and potential legal repercussions. Ensuring the highest level of cybersecurity is costly and requires constant vigilance and investment.

Perceived Lack of Stability: Some customers may be hesitant to trust their money with a neobank, fearing that these newer, less-established institutions might not be as stable as traditional banks. This is particularly true in regions where consumers are more accustomed to traditional banking institutions and may view neobanks as risky alternatives.

Customer Support and Service: While neobanks pride themselves on offering seamless digital experiences, the lack of physical branches can be a disadvantage when customers require support. Handling complex customer service issues purely through digital channels can be challenging, and any shortcomings in this area can lead to customer dissatisfaction and attrition.

4.4. Competition and Market Saturation

The fintech space is highly competitive, with numerous neobanks, fintech startups, and even traditional banks entering the digital banking space. This competition can create significant challenges for neobanks.

Differentiation: With many players offering similar services, neobanks must find ways to differentiate themselves in a crowded market. This could involve offering unique features, superior customer service, or competitive pricing. However, constantly innovating to stay ahead of competitors requires significant resources.

Pressure from Traditional Banks: Traditional banks are increasingly adopting digital strategies and launching their own digital banking services to compete with neobanks. These institutions have the advantage of established customer bases, greater financial resources, and regulatory experience. Competing with these large, well-funded institutions is a significant challenge for neobanks.

Customer Retention: As the market becomes saturated, retaining customers becomes increasingly difficult. Neobanks need to continuously engage and offer value to their customers to prevent them from switching to competitors. Loyalty programs, personalized services, and innovative features are some strategies used, but these can add to operational costs.

4.5 Technology and Infrastructure Challenges

Being digital-first, neobanks rely heavily on technology, which brings its own set of challenges.

Scalability: As neobanks grow, their technological infrastructure must scale accordingly. This involves not just increasing server capacity but also ensuring that the platform can handle a growing number of transactions without compromising on speed or security. Achieving this scalability requires ongoing investment in technology and skilled personnel.

Integration with Legacy Systems: Neobanks often need to integrate with existing financial systems and networks, such as payment processors, credit bureaus, and other financial infrastructure. These legacy systems may not always be compatible with the latest technologies used by neobanks, leading to potential integration issues.

Technological Innovation: To stay competitive, neobanks must continuously innovate and adopt new technologies, such as artificial intelligence, blockchain, and advanced data analytics. However, the rapid pace of technological change means that neobanks must constantly upgrade their systems, which can be both costly and complex.

4.6. Economic and Market Conditions

Neobanks, like all financial institutions, are affected by broader economic and market conditions, which can present additional challenges.

Economic Downturns: During economic downturns, consumers may be less willing to switch to or trust new financial institutions, opting instead for the perceived safety of traditional banks. Additionally, economic challenges can lead to increased loan defaults, which can be particularly damaging for neobanks that are heavily reliant on digital lending.

Interest Rate Environment: In a low-interest-rate environment, neobanks may struggle to generate significant revenue from interest margins on loans and deposits. Conversely, in a high-interest-rate environment, they may face challenges in maintaining competitive interest rates for customers while also managing their own borrowing costs.

Market Volatility: Neobanks that offer investment products or services related to cryptocurrencies may face challenges related to market volatility. Significant fluctuations in market prices can lead to increased risk and customer losses, which in turn can damage the neobank's reputation and customer trust.

4.7. Customer Education and Adoption

While digital banking is on the rise, there is still a significant portion of the population that is either unaware of or hesitant to adopt neobank services.

Customer Awareness: Neobanks must invest heavily in marketing and education to raise awareness about their offerings and the benefits of digital banking. Convincing customers to switch from traditional banks, especially in markets where these institutions have deep-rooted trust, is a significant hurdle.

Digital Literacy: Not all potential customers are digitally literate or comfortable with managing their finances entirely online. Neobanks need to address this by offering user-friendly interfaces and providing resources to help customers navigate digital banking.

Generational Divide: Older generations may be more resistant to change and less likely to adopt neobanking services. Neobanks need to consider strategies to appeal to these demographics, which could involve simplifying their services or offering more personalized customer support.

while neobanks have made significant inroads in the financial industry, they must overcome a range of challenges to achieve long-term success. Navigating regulatory landscapes, achieving profitability, building customer trust, and staying ahead in a competitive market are all critical factors that will determine their future growth. Additionally, neobanks must continuously innovate while managing technological complexities and adapting to changing economic conditions. By addressing these challenges effectively, neobanks can solidify their position as leaders in the digital banking revolution.

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5.??????? Top Strategies Employed by Neobanks

To thrive in a competitive and rapidly evolving financial landscape, neobanks have adopted a range of innovative strategies that set them apart from traditional banks and other fintech competitors. Here are some of the top strategies employed by neobanks:

Customer-Centric Product Design

Neobanks focuses heavily on understanding their customer’s needs and preferences, which allows them to design products and services that are highly personalized and user-friendly. This customer-centric approach is reflected in several key strategies:

Personalization

Simplified User Experience

Transparent Communication

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Leveraging Advanced Technologies

Neobanks are at the forefront of adopting and integrating cutting-edge technologies to enhance their services and operations:

Artificial Intelligence (AI) and Machine Learning (ML):

Blockchain Technology:

Cloud Computing: 3.

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?Strategic Partnerships and Ecosystem Integration

Neobanks often build strategic partnerships with other fintech companies, traditional banks, and tech firms to expand their service offerings and enhance customer value:

Partnerships with Traditional Banks:

Fintech Collaborations:

Integration with Third-Party Platforms:

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?Agile and Scalable Operations

Neobanks operate with a lean and agile business model, allowing them to quickly adapt to market changes and customer needs:

Agile Development:

Scalability:

Cost Efficiency:

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Focus on Financial Inclusion

Many neobanks target underserved or unbanked populations, offering financial services to those who have been traditionally excluded from the banking system:

Accessibility:

Low-Cost Products:

Education and Empowerment

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Regulatory Compliance and Risk Management

To succeed in highly regulated markets, neobanks employ proactive regulatory compliance and risk management strategies:

RegTech Solutions:

Risk-Based Approach:

Global Compliance Strategy

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Community Building and Brand Loyalty

Building a strong brand and community around their services is a key strategy for neobanks:

Community Engagement:

Transparency and Trust:

Customer Advocacy Programs

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The success of neobanks hinges on their ability to innovate, adapt, and differentiate in a highly competitive market. By focusing on customer-centric design, leveraging advanced technologies, forming strategic partnerships, and maintaining operational agility, neobanks can continue to disrupt the traditional banking sector. Additionally, their emphasis on financial inclusion, regulatory compliance, and community building further strengthens their position as leaders in the digital banking revolution.

In-Depth Review of the Top 10 Neobanks

As the financial industry continues to embrace digital transformation, neobanks have emerged as key players in providing innovative, customer-centric banking solutions. This review delves into the top 10 neobanks, analyzing their number of customers, profitability, functionality, digital product innovations, and app download performance. These neobanks have been ranked based on their overall performance and user reviews.

1. WeBank (China)

WeBank, founded by Tencent, is the world’s largest neobank, boasting a customer base of 362 million as of December 2022. This incredible reach is largely due to its integration with WeChat, China’s dominant social media and messaging platform. WeBank is highly profitable, leveraging its vast user data to offer personalized financial products and services.

In China, WeBank?says?it addresses 98% of customer queries through AI chatbots, allowing it to efficiently scale while serving millions of customers. This characteristic drives cost-efficiency. Juniper Research?estimates?that chatbots could help the global banking sector save up to US$7.3 billion in operational costs by 2023, equivalent to roughly 862 million hours of time saved.

The bank provides a comprehensive suite of services, including savings accounts, loans, and wealth management options. WeBank’s use of artificial intelligence (AI) and big data analytics enables it to offer highly tailored credit scoring and loan products, setting it apart as a leader in digital innovation. The WeBank app is one of the most downloaded financial apps in China, reflecting its strong market penetration and user satisfaction. WeBank consistently ranks highly in user reviews for its seamless integration with the WeChat ecosystem, efficient customer service, and broad range of financial services.

2. Rakuten Bank (Japan)

Rakuten Bank, part of Japan’s Rakuten Group, serves 136.3 million customers as of June 2023. The bank is profitable, driven by its deep integration with Rakuten’s e-commerce, fintech, and rewards ecosystem. Rakuten Bank offers a full range of banking services, including deposits, loans, and investment products, all seamlessly connected to the Rakuten loyalty program, which offers customers unique benefits. Rakuten Bank is recognized for its innovative use of data analytics to provide personalized financial advice and product recommendations, making it a frontrunner in digital banking innovation. The bank’s app is widely downloaded and highly rated in Japan, particularly among Rakuten’s extensive user base. Customers consistently praise Rakuten Bank for its user-friendly interface, strong service integration, and the value offered through its loyalty rewards program.

3. Nubank (Brazil)

Nubank, the largest neobank in Latin America, serves 90 million customers as of October 2023. While still on the path to full profitability, Nubank’s growth is driven by its expansive product offerings and massive customer base in Brazil and other Latin American markets. Nubank began as a credit card provider and has since expanded into personal loans, investments, and digital payments. Its app is particularly known for real-time credit card management, easy-to-use budgeting tools, and a newly introduced cryptocurrency trading platform. Nubank’s app is one of the most downloaded financial apps in Latin America, particularly in Brazil, where it continues to gain popularity. In user reviews, Nubank is frequently lauded for its transparency, innovative financial products, and user-friendly app experience, though there are occasional mentions of issues with customer support responsiveness.

4. PayTM Payments Bank (India)

PayTM Payments Bank, part of India’s leading digital payments company PayTM, has 89 million customers as of January 2023. The bank is gradually moving towards profitability, focusing on scaling its operations in India’s vast and diverse market. PayTM Payments Bank offers a broad range of services, including digital wallets, savings accounts, fixed deposits, and payment solutions. The bank’s digital wallet is particularly well-known, facilitating quick and easy transactions through QR codes and mobile numbers. This service has been a major driver of financial inclusion in India. The PayTM app is among the top financial apps by downloads in India, thanks to its comprehensive service offerings and seamless user experience. Users often highlight the app’s convenience, extensive integration with other PayTM services, and its dominance in the Indian digital payments space.

5. Cash App (U.S.)

Cash App, developed by Block, Inc. (formerly Square, Inc.), serves 53 million customers as of March 2023. It is one of the most profitable neobanks, generating significant revenue from peer-to-peer transactions, Bitcoin trading, and stock investment services. Cash App offers a variety of financial services, including money transfers, Bitcoin trading, stock investments, and a debit card linked to a user’s Cash App balance. The app is particularly popular in the United States, especially among younger users, for its simplicity and the versatility of its features. Cash App is also known for its “Boost” feature, which provides instant discounts on purchases made with the Cash Card. The app consistently ranks as one of the top financial apps in the U.S., with users praising its user-friendly interface, low fees, and the ability to manage various financial activities in one place.

6. Revolut (UK)

Revolut, based in the United Kingdom, has grown to serve 35 million customers as of October 2023. Revolut has achieved profitability in several key markets, thanks to its diverse revenue streams, including premium accounts, cryptocurrency trading, and business accounts. Revolut offers a wide range of financial services, from multi-currency accounts and international money transfers to cryptocurrency trading and budgeting tools. Its real-time exchange rates and low-cost international transfers have made it particularly popular among travelers and expatriates. The Revolut app is widely downloaded across Europe and is rapidly expanding into other markets. While Revolut is highly praised for its innovation and comprehensive suite of financial products, some users have reported mixed experiences with customer service, particularly during periods of rapid growth.

7. Inter (Brazil)

Inter, another leading Brazilian neobank, serves 30 million customers as of December 2023. The bank is profitable, with a diverse product offering that includes banking, insurance, and investment services. Inter is known for its super app, which integrates a wide range of services, including travel bookings and a marketplace, in addition to its core banking functions. The Inter app is one of the top financial apps in Brazil, reflecting its growing user base and the appeal of its comprehensive service offerings. Users consistently rate Inter highly for its ease of use, broad service integration, and value provided through its various financial products, though some users mention the need for improved customer support.

8. Toss (South Korea)

Toss, developed by Viva Republica, serves 30 million customers as of 2023. Toss is on a strong growth trajectory, with profitability on the horizon as it continues to expand its services. Toss offers a wide array of financial services, including money transfers, loans, insurance, and investments, all through a single platform. The app is particularly known for its user-friendly interface and innovative features like expense tracking and personalized financial advice. Toss is one of the leading financial apps in South Korea, frequently praised for its intuitive design and comprehensive suite of services. However, during periods of high traffic, some users have reported slow performance, which the company is actively working to address.

9. Neon (Brazil)

Neon, another prominent Brazilian neobank, has 26 million customers as of September 2023. While Neon is still working towards profitability, it has successfully expanded its customer base by focusing on the younger demographic in Brazil. Neon offers a range of banking services, including digital accounts, credit cards, and personal loans, all accessible through a minimalist and easy-to-use app. Neon is particularly known for its emphasis on financial education, providing tools and content to help users better manage their money. The app is widely downloaded among young Brazilians and is frequently praised for its simplicity and educational resources. However, some users have pointed out that customer service response times could be improved.

10. Chime (U.S.)

Chime, one of the leading neobanks in the United States, serves 21.6 million customers as of 2023. Chime is nearing profitability, driven by its fee-free banking model and strategic partnerships with companies like Visa. Chime offers fee-free checking and savings accounts, early direct deposit, and a secured credit card designed to help users build their credit. The Chime app is highly popular, particularly among younger users, and is one of the most downloaded financial apps in the U.S. Chime’s standout features, such as automatic savings, fee-free overdrafts, and credit-building tools, have made it a favorite among users who value simplicity and transparency in banking. Chime consistently receives high marks in user reviews for its ease of use, early paycheck deposit feature, and fee-free structure.

Comparative Analysis.

This comparative analysis reveals that WeBank, with its massive customer base and strong profitability, is a clear leader in the global neobank landscape. However, each neobank has carved out its niche: Rakuten Bank excels in ecosystem integration, Nubank in addressing the needs of underserved markets, Revolut offers advanced multi-currency and crypto services, and Chime in providing straightforward, fee-free banking solutions. The choice of the "best" neobank ultimately depends on the specific needs and preferences of the user, as each of these institutions offers unique strengths.

?References:

1.??????? "Number of Users at Selected Digital Challenger Banks Worldwide in 2023 (in Millions)" https://www.statista.com/statistics/786990/number-of-accounts-at-select-neobanks-worldwide/

2.??????? "Digital Challenger Banks: Statistics and Facts" https://www.statista.com/topics/8098/digital-challenger-banks/

3.??????? 19 Top Neobanks: Which Is Right for Me?

https://statrys.com/blog/top-neobanks

4.??????? CNBC report

https://www.cnbc.com/the-worlds-top-250-fintech-companies-2024/#neo

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