Neobanks is the supreme product of technological and financial advances, which bring a new mindset to the banking industry. They’re highly scalable, versatile and innovative fin-tech companies that focus on providing a seamless user experience.
The main advantages they have over traditional banking institutions comprise speed, fast reaction, low transaction fees, real-time currency exchanges, and instant payments. This article highlights the state of the traditional banking system and how neobanks are rapidly gaining a leading position.
Fintech is leading the democratization of banking services. In fact, businesses that don’t embrace tech advancements will lose their market position. Although the financial landscape is being disrupted by fintech organizations, it’s still in the early stages. So, business owners must constantly keep up to date with the new trends to ensure their business’ survival.
In the past, to start a business, you’d need to look for a loan from a traditional bank and search for an investor’s backup. Also, companies could only accept credit cards if they had an account opened with a top credit provider, install a landline, and other inconvenient equipment.
But with fintech rising, you can now access streamlined digital-only banking services. So, all setup costs have significantly decreased.
What is Fintech?
Fintech means Financial Technologies. It’s the business sector aiming to provide financial services via modern tech and software. Also, it’s mainly utilized by financial institutions to support their business. Fintech has changed the traditional landscape of payments, fundraising, transfers, asset management, and loans.
What’s more, it’s gradually integrating into the lives of tech-savvy consumers who adopt it for both personal and professional needs.
Until the financial crisis in 2008, banks were considered to be secure financial institutions where you could put your money away safely. Nonetheless, consumers have lost trust in traditional banking. This loss led to a revolutionary approach, with banks adopting digital technologies such as mobile banking.
What’s more, challenger banks such as neobanks appeared, which have become the main banking channel primarily for Gen Y and Gen X consumers. According to the British Bankers’ Association, the internet facilitates daily transfers of over $1.2 billion.
What are Neobanks?
Neobanks are digital-only banking solutions, which don’t have a physical presence nor hundreds of employees. They enable commission-free money transfers, low-interest rates, high savings account rates, and unique user experiences. Even so, they’re still competing with apps developed by well-established banks or digital banks such as UBank, which belongs to National Australia Bank.
Nevertheless, neobanks have their own products and innovative banking solutions, which surpass the capabilities of traditional banks. They don’t just offer a savings or transaction account and wish their customers good luck. Instead, they focus on improving their clients’ lives by helping them reach their financial goals through a wide variety of tools, products, education, and support.
Features and Benefits
Neobanks are staying ahead of traditional banking systems available thanks to the reduced costs, highly user-friendly interfaces, advanced features, and customizable features. You can open an account with your preferred neobank in a matter of minutes through a simple and straightforward setup process. So, the days of waiting up to a week to open a bank account are long gone.
Even better, most neobanks offer free debit cards. You can choose a physical debit card or a digital one, which you can store on your smartphone. Whenever you’ve lost your debit card, you can easily block it through your mobile app. There’s no need to call any customer support center or go to a branch. Everything is done on your smartphone.
To make purchases abroad you can use your neobank debit card with no fees and enjoy real-time exchange rates. Also, you can make instant payments to other neobank customers. In fact, some neobanks offer crypto-currency accounts, which you can use with real-time exchange rates. Furthermore, clients can choose multiple currency accounts with free and instant payments between the accounts at live rates.
To improve the entire customer experience, neobanks have user-friendly interfaces, which are highly responsive and carefully engineered. What’s more, most neobanks guarantee 24/7 customer support to guarantee seamless user experiences. Thanks to high-performance chatbots, clients are redirected to the accurate support team as requests are efficiently classified.
Furthermore, you can easily access your up-to-date balance to check all payments. Even better, you can set live notifications for payment confirmations. Also, thanks to expenses analytics, you can manage your spending patterns and set monthly limits and budgets.
So, neobanks help you achieve your financial goals and centralize all your transactions for a detailed overview of your cash flow. Once you reach your objective, you can buy what you’ve been saving money for.
Challenges and Opportunities
Because it’s difficult to convince prospects to switch from a traditional bank account to an innovative banking system, customer acquisition is challenging. What’s more, the marketing strategies required are expensive. Besides, most customers prefer one-on-one interaction with a banker rather than using an online chat for their banking operations.
Revenue is another challenge for neobanks because most services they provide are free of charge. So, they must find alternative revenue streams. For this, they target currency exchange rates, credit facilities or impose high fees on cash withdrawals. Moreover, some offer a free version and a premium version, which includes additional paid services.
One of the most famous and highly profitable neobanks is Revolut, which signed 1.5 million accounts in 2017 and has 800,000 monthly active customers. Above all, Revolut’s marketing strategy is mostly based on word of mouth rather than extremely expensive marketing campaigns. Thanks to advancements in new tech, neobanks can easily update and integrate new features.
Take, blockchain technology, for example, which guarantees high-security levels and reliability.
Not to mention, the updated PSD2 (Payment Services Directive 2) regulations triggered the development of 3rd party applications, which surpass the capabilities of traditional banking systems. In fact, in the new landscape, neobanks can attract new customers by offering financial services through third parties as bank-end service providers or by forming alliances with different baking services through APIs.
Revolut is the first neobank which made a profit. It appeared in the summer of 2015 in the UK. The estimated fees saved from currency exchanges stands at $680 million for almost 2 million clients. Yet, you can only access Revolut through its mobile app. Another major neobank is N26, which was launched in Germany in the same year as Revolut.
Over 850,000 users who are mainly from Europe enjoy N26′ services, which is one of the few neobanks with a banking license. You can access N26 both from your mobile but also through its web application.
On the other hand, Monzo, which is a UK-based neobank created in 2015 with over 600,000 users, has a new approach. It built an innovation lab to develop and develop the app along with its clients. Furthermore, users can only access Monzo through its mobile app.
Last, Starling Bank, which entered the neobank scene in 2014, has a real banking license and protects your money up to a value of around $104,000. Also, it’s the first to offer completely digital business accounts for SMEs and organizations. What’s better, you can access Starling Bank both through its mobile app and its web application.
The Bottom Line
Although neobanks still face a variety of challenges. Yet, thanks to the 100 percent customer-orientation and their innovative approach to banking, they’re highly attractive, especially to millennials and baby-boomers. What’s more, their surprise-based approach towards the traditional banking system is disrupting the industry.
Also, based on the open banking scene supported by the PSD2, neobanks are pushing the retail banking business forward at a fast pace. Above all, neobanks are revolutionizing the way businesses manage their banking processes.
They provide business accounts at a fraction of the standard costs, streamlined expense management, and integration with 3rd party apps, including accounting software.
How Neobanks Are Revolutionizing the Banking Landscape