NBFCs & Neobanks Are Scaling Finance Fast but the Risks Are Scaling Too

In global financial system, while traditional banks once dominated the flow of credit and capital, a growing share of financial activity has moved beyond their walls into the hands of Non-Banking Financial Companies (NBFCs) and digitally native neobanks. What began as a post-crisis response (2008) to tighter banking regulations has evolved into a parallel financial ecosystem that is reshaping how governments borrow, how businesses raise capital, and how consumers access money.

While these players are driving innovation, expanding access, and accelerating the pace of financial transactions through technology, making the system more inclusive and efficient, new risks are emerging, less visible, less regulated, and potentially more systemic.

While NBFCs and neobanks are essential to modern finance, is the system around them evolving fast enough to manage the risks they introduce?

While NBFCs and neobanks are essential to modern finance, is the system around them evolving fast enough to manage the risks they introduce?

“Nonbank” financial institutions have stepped up, increasing their share of global credit and finance from 43% during the 2008 crisis to nearly 50% by 2023, as per data from an IMF blogpost.

The sector includes financial companies that provide credit, trading and investment services but don’t take deposits from the public or have accounts with the central bank. That means they aren’t covered by safety nets like deposit insurance and liquidity assistance, which banks have access to in exchange for comprehensive prudential regulations.

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This is fueling megatrends like governments having more buyers for their bonds, not just traditional banks. These new players, such as investment firms using fast, tech-driven trading, add extra cash (liquidity) to the market. This in turn makes it easier and cheaper for governments to borrow money, which helps keep interest rates, and the cost to taxpayers, lower. Win win.

Mid-sized businesses now have greater access to funding through private credit funds, which step in when banks won’t lend and businesses are too small to issue bonds. Backed by stable, long-term investors like insurers, pension funds, and sovereign wealth funds, these funds not only support growth and jobs but also add resilience to the financial system by being less likely to pull back during times of stress.

For policymakers and market participants, the implication is clear. The financial system is no longer bank-centric, it is networked, layered, and increasingly dependent on institutions that sit outside traditional regulatory frameworks. This demands a shift from entity-based oversight to system-wide risk monitoring, where liquidity mismatches, leverage, and interconnections are tracked across the entire ecosystem, not just within banks.

This is good news for small businesses and consumers who now have more borrowing options, from auto loans to “buy now, pay later” and mobile money loans, driven by fintech innovation. By using new data and automation, fintechs have expanded access to affordable credit and financial services, especially in emerging economies.

Investors of all sizes now have broader access to diverse assets, from index funds to real estate and metals, helping manage risk even as speculative options carry their own dangers.

Passive funds can stabilize markets by predictably buying falling stocks and selling rising ones to maintain index balance, an effect that grows stronger as these funds scale.

On the other hand, Neobanking acts as a digital accelerator, providing governments, SMBs, and investors with automated capital access, efficient, lower-cost banking services, and expanded access to financial assets.

But both involve risks.

Nonbank innovation has clear benefits, but, like banks, some funds promise instant withdrawals while investing long-term, creating liquidity crises such as the early-COVID “dash for cash” in 2020 that required central bank support. Others, like hedge funds and family offices, amplify risks by borrowing heavily with little collateral; when markets turn, sudden margin calls can trigger collapses, as seen with Archegos Capital in 2021, spreading contagion to creditors and destabilizing the broader financial system.

Neobanking risks include increased vulnerability to rapid, digital-native bank runs, regulatory arbitrage due to partnership-based models, and systemic concentration from relying on limited infrastructure providers.

In March 2026, UK-based neobank Revolut announced that it has applied for a US national bank charter, alongside plans to expand into the American market. The move came as Monzo confirmed it will close all US customer accounts by June 2026, just six years after entering the market.

This shows that challenges around customer acquisition costs and limited traction, which mirrors the earlier withdrawal of N26 from the US in 2021, still persist. The structural difficulty of breaking into this market remains.

Neobank expansion in the US hasn’t found success in partnering with a local sponsor bank. Monzo’s reliance on a sponsor bank limited its control over infrastructure and increased operational costs, becoming an issue that is particularly acute for digital banks operating on thinner margins. Without direct ownership of the banking stack, scaling efficiently becomes significantly more difficult.

However, regulatory conditions in the US may be shifting in Revolut’s favor as a more fintech-friendly regulatory environment seems to be making it easier for international players to establish a foothold and scale more efficiently.

Revolut has been supporting its ambition to become a global financial super-app as is seen in its international moves, including its acquisition of Banco Cetelem in Argentina.

NBFCs and neobanks are not merely alternatives to banks, they are accelerators of access, efficiency, and innovation. But they also require a more sophisticated understanding of counterparty risk, liquidity dynamics, and infrastructure dependencies.

For policymakers and market participants, the implication is clear. The financial system is no longer bank-centric, it is networked, layered, and increasingly dependent on institutions that sit outside traditional regulatory frameworks. This demands a shift from entity-based oversight to system-wide risk monitoring, where liquidity mismatches, leverage, and interconnections are tracked across the entire ecosystem, not just within banks.

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For businesses and investors, the takeaway is equally nuanced. NBFCs and neobanks are not merely alternatives to banks, they are accelerators of access, efficiency, and innovation. But they also require a more sophisticated understanding of counterparty risk, liquidity dynamics, and infrastructure dependencies.

Ultimately, the question is no longer whether nonbanks will continue to grow, of course they will. The real question is whether regulation, risk management, and market discipline can evolve quickly enough to keep pace. Because in a system where nearly half of financial activity operates beyond traditional safeguards, stability will depend not just on innovation, but on how well its risks are anticipated, distributed, and contained.