International credit rating agency Standard & Poor's (S&P) praised the ongoing development of the UAE’s banking services sector.

The coexistence of traditional and Neobanks has become more likely, with each catering to specific customer segments and offering unique advantages, the company said.

In its recent report titled “Future of Banking”, S&P predicted an increasing reliance on Neobanks, which operate online without physical branches, and digital services offered by traditional banks in the UAE. This shift is due to the population's apparent preference for digital banking, supported by the country’s solid digital infrastructure, it added.

S&P believes that while Neobanks will not replace traditional banks, they will provide additional value to customers in the UAE, while the Central Bank of the UAE (CBUAE) will continue to maintain the stability of the traditional banking system and encourage banks to advance their digital transformation efforts.

The number of bank customers in the UAE is high and continues to increase, especially as the target customer base has a clear inclination towards digital banking services, S&P added, noting that according to research data from GlobalWebIndex (GWI), smartphone penetration in the UAE reached 96.2 percent in 2022, one of the highest rates globally, surpassing the average rate of 95 percent in Europe.

The report also shows that Neobanks have not only expanded in the UAE in recent years, but they have also spread globally.

S&P said that according to Statista, the number of Neobank customers worldwide reached some 188 million in 2022, up from some 19 million in 2017, adding this number will likely exceed 350 million by 2026, accompanied by a rise in the number of virtual banks to over 500 in 2022.

S&P also affirmed that in recent years, independent Neobanks, such as Zand, Wio, and Al Maryah Community Bank, have emerged in the UAE, while traditional banks have launched digital services, such as "Liv" and "E20" by Emirates NBD, and "Mashreq Neo" by Mashreq Bank.

The agency explained that according to the Finder website, the number of Emirati adults with accounts in Neobanks increased to 19 percent in 2022, compared to 17 percent in 2021, and it expects the adoption of banks that offer digital-only services to rise to some 35 percent to 40 percent by 2027, in line with the global average.