For years, established financial organizations have held an unrivalled monopoly. Then a few Fintech players appeared, predicting a banking industry disruption. The phrase neobank was invented in 2016 and gained popularity after the global pandemic of 2020.
A neobank is a digital-only bank that does not have physical branches, which means that everything from creating a bank account to transferring funds is done online via a desktop or mobile-based software. People no longer need to visit the branch and deal with tedious paperwork. However, this only touches the surface.
Let us begin by looking at some of the elements that have contributed to the success of neobanks, and then we will examine why they are here to stay.
We know that traditional banks charge service fees, making it difficult for individuals and families in lower socioeconomic situations to retain bank accounts. These service fees are applied to deposits, credit/debit cards, SMS alerts, and other services. Customers can manage their accounts through a mobile app, which reduces the bank’s overhead and allows them to pass the cost savings on to the client.
For instance, you can withdraw money in foreign currency from a neobank without paying a markup. A traditional bank would not be like this.
Fast Customer Service
Customer experience may be a game changer in the banking business. This is where neobanks are attempting to gain clients. One of the significant elements of neobanks is customer support/convenience. They may provide excellent customer service using user-friendly UI and AI-powered, 24×7 chat assistance. Users can also report a lost or stolen card, seek to block or unblock their card, or reset their pin from the comfort of a neobank app using an easy two-factor authentication process.
One could argue that net banking has been there for a decade, so what value can a neobank add to the table? Better technology, in a word.
Traditional banks struggle to provide creative user experiences because old systems overburden them. Many traditional banks offer mobile banking, but with fewer features, leaving a technological hole that neobanks can fill more quickly and efficiently than traditional banks.
Neobanks provide a complete customer experience because of their robust infrastructure and bank API interfaces, making financial transactions simple for individuals and small enterprises.
Assisting the Underbanked
Neobanks must spend a significant amount of their revenue on advertising and marketing to reach more clients. They are, however, competing with existing financial institutions that can invest significantly more in this sector.
That is why neobanks choose to avoid competition and develop their position.
Neobanks grew in popularity by catering to the socioeconomically disadvantaged rather than the more affluent segments of society. People who couldn’t afford to keep a standard bank account went to neobanks to keep their money safe while using the neobanks’ services without having to pay expensive service fees.
Regarding lending options, neobanks provide cheaper interest rates with minimal paperwork. More individuals will have a checking account with a neobank by the end of the year, thanks to their growing popularity and attractive offers. As neobanks strategically approach freelancers and gig workers, the numbers are projected to rise in the coming years.
The Importance of Neobanks in the Future and Reasons Why They Will Stay
Neobanks can compete with traditional banks on some fronts even though they do not yet have the financial power to do so by offering superior customer service and convenience.
Additionally, it is now more straightforward than it was a few years ago to create a neobank through partnerships with conventional banks or BaaS (Banking as a Service) providers. Neobanks can create a customer-facing app and APIs and combine them with the established banks’ back-end infrastructure. Neobanks can cut down on time to market and upfront expenditures. Neobanks are likely to succeed, given the supportive climate and the resources at their disposal.
A promising future for neobanks is also indicated by shifting consumer behavior. Consumers are anticipating digital-only banking experiences as more daily activities move online.
Traditional banks can stay competitive in the face of Neobanks’ challenge to the status quo by utilizing their current infrastructure and developing their Neobanks as a distinct brand entity.
The banking industry is about to transform, and neobanks are just the start. Neobanks will likely overgrow in the future thanks to regulatory reform and technological improvements, rendering traditional banking outdated.