Traditional banks provide a wide range of financial products and services through multiple physical branches, particularly if they are big banking corporations. While most traditional banks have started adding tech-based services into their portfolio, many of them are still slow to respond to the evolving preferences of customers, as these banks are weighed down with legacy technology and outdated systems.
This is where challenger banks come in. Neobanks are changing the finance industry because they were originally developed to address the many limitations of brick and mortar banks. After more than a decade in the fintech industry, neobanks are becoming viable and sustainable businesses because of their innovative offerings.
Neobanks are mobile-first platforms that can empower you to conduct all your banking transactions through secure online apps. Most neobanks don’t have physical branches, but their high-tech digital environment provides a very user-friendly experience with a few simple taps on your smartphone.
It’s important to dispel misconceptions about neobanks as they continue to become more relevant in our daily banking experience. Understanding how these “challenger” banks work will help you maximise their features while avoiding the misinformation disseminated by neobanking naysayers online.
5 neobanking myths that need to be debunked
Separating fact from fiction can be difficult, especially when so much information is circulating online. Identifying common misconceptions about neobanking can dissuade any worries you may have about them.
We’ve shortlisted five common myths about neobanking, along with reasons why they’re completely untrue.
1. Neobanks are unsafe and not secure to use
Because they are so tech-driven, neobanks admittedly face a lot of cybersecurity issues as they compete against established institutions in the financial services industry. Neobanks have a fraction of the budget that many banking corporations have, so building strong cybersecurity defences is crucial given that neobanks operate primarily online.
A reputable neobank should protect their customers from potential cyber-attacks and risks such as:
- Unencrypted data – This enables hackers or cybercriminals to quickly access sensitive information. Full encryption ensures that your data won’t be usable even if it is stolen.
- Malware – User devices such as computers or smartphones installed with malware can pose a serious risk to a bank’s cybersecurity whenever it’s connected to the device’s network. Secure online channels will ensure that you can safely conduct transactions.
- Phishing – These scams will attempt to extract private information (i.e. credit card details) for malicious activities, often mimicking banking institutions in emails or even SMS messages to extract information from customers. A well-established neobank will always email you from a verified email address, and should be completely transparent with their processes and any cyber concerns their business may be facing.
Credible neobanks will have safety measures and solutions in place to protect their platform and their customers against these potential risks. The advantage of being tech-driven is that neobanks are much faster when distributing information about any relevant issues that their business is facing. Increasing financial and cyber awareness is one of the standing reasons for the development of neobanks.
2. Neobanks are for young investors only
Neobanks, and different types of fintech, are easy to use for younger investors particularly Gen Z customers since they’re known to be digitally native consumers. They grew up with intuitive and adaptable apps, so it’s understandable that they’ve come to expect a certain level of excellence when it comes to their banking experience.
This is what makes neobanking so appealing to many audience segments. Because they aren’t burdened with overcomplicated organisational structures, neobanks are constantly challenging the status quo. This enables them to be more agile and innovative compared to traditional institutions.
Neobanks are actually geared towards financial inclusivity, rather than building a “young” customer base. It utilises technology to provide alternative financial options for underserved and niche segments in the market, including SMEs, freelancers and contractors. The rise of neobanks actually promotes the “democratisation” of banking, enabling smaller players to shine and cater to a diverse range of needs.
3. Neobanks have horrible customer service
As most neobanks are digital-only platforms, they might seem like they lack the “human” element to genuinely take care of their customers, however, they compensate for this with innovative technology and APIs.
Traditional banks might have a “human” appeal because they provided face to face interactions through the customer service provided by bank tellers, however the systemic issues (e.g. inaccessibility, gatekeeping exclusivity, etc.) within a typical monolithic institution leaves much to be desired.
Neobanks have been able to improve their customer experience by focusing on three key areas:
- Agility and low-cost structure
- Features and tools
Examples of neobank features include:
- 24/7 chatbot support
- Personalised offers depending on your account profile and data
- Investment and tracking tools
- International money payments and transfers at low rates
- Multiple-account integration in one app
4. Neobanking is expensive
Neobanks use technology smartly to ensure that their overhead costs are manageable, so keeping a neobank account is actually more affordable and convenient than one at a monolithic institution, since the monthly maintenance fees are lower.
Some neobanks actually offer product packages to ensure that their customers have a better experience on their platform. Neobanks will often partner with different companies to create enticing premium bundles, so that paying customers can also get travel or phone insurance plans along with their neobank accounts.
For challenger banks trying to make a name for themselves in the industry, it’s actually important to balance the “profitability” and “sustainability” mindset; the former is focused on building a bigger customer base, but the latter prioritises business continuity and agility amidst potential disruptions and turbulence. A credible (and growing) neobank should have a clear business plan and vision, which ideally must be clearly communicated to both potential and long-term customers.
5. Neobanking is too complicated
Neobanks offer a lot of different services and features, so setting up an account can seem intimidating, but the process is fairly straightforward.
The steps to making an account will typically include:
- Downloading the mobile app
- Signing up for an account
- Filling in your details
- Verifying your account either through your email or mobile phone
Understanding how a neobank account works is easy, if you partner with an established service provider. It’s important to remember that the ideal neobanking option is intuitive and easy to use, so your potential choices must be transparent about the features they provide, as well as the benefits that their customers can expect from partnering with them.
As one of the pioneering gold-backed fintech platforms in Australia, we have the industry knowledge and expertise to discern which neobanks are credible (and which are not).
If you want to partner with a gold-backed platform that can help you utilise digital gold, Nauggets is your trusted provider. Contact us for support on your fintech golden journey.