Fintech (Financial Technology) consists of software solutions, algorithms and applications to ensure that both service providers and their customers have a smooth experience. Fintech is constantly working in the background, and we use it almost every day, from digital wallets to banking apps. The advancement of fintech has empowered people to make more informed decisions with their finances.
One of today’s rising fintech trends include neobanks, which have significantly improved the banking experience for customers. Historically, people had to make do with malfunctioning ATMs or waiting in long lines at the bank before their concerns were addressed. Now, people can easily manage their finances through their devices.
The continued development of neobanks also ensures that services are consistently being upgraded to enhance the customer experience, pushing traditional financial institutions to meet these standards. Understanding how neobanking works, and how it can affect your finances, will enable you to use it to your advantage.
What is a neobank?
Neobanks are digital-first or digital-only banking platforms that deliver a smooth online banking experience for low fees. Neobanks are called “challenger” banks because they remove the need for physical financial institutions, where the banking process for customers is typically time-consuming and laborious.
In comparison, the neobanking process for both staff and customers is agile and transparent since transactions are conducted online. This also allows neobanks to save on overhead costs, allowing them to focus on improving the quality of their products and services.
If you’re considering a switch to neobanks, here are some pros and cons you should consider.
- Lower banking fees – Since neobanks don’t need to maintain overhead costs like traditional institutions, you can enjoy lower banking fees when they partner with a reputable platform.
- Higher interest rates – This ensures that you get better returns on your savings, empowering you to save (rather than spend) money in your account.
- Convenience – As a digital platform, neobanks offer an “on-the-go” banking experience, allowing you to manage your finances with a simple tap on your mobile device.
- No bank charter – Neobanks are not traditional financial institutions, so they usually don’t have a bank charter. Make sure that your potential options for neobanks are insured (or partnered with credible organisations) so that you can protect your assets.
- Lack of physical branches – While a digital-first platform is incredibly convenient, some people may still want to attend physical banking branches.
- Limited provided services – Some neobanks may offer a “full service” business model, but many neobanks specialise their services, so it’s important to identify what kind of banking experience you want from potential neobanking options.
Studies show that neobanks are multiplying at a rapid pace because of the high demand for the services it provides as well as the incredible opportunities it offers. However, it’s important to note that not all neobanks have made it past the startup stage, which indicates that the best “challenger” banks need to have a strong plan for profitability and sustainability. Reviewing the most (and even least) popular neobanks that are currently in the market can help you identify what to look for and what to avoid in this type of fintech platform. Once you’ve narrowed down your choices, you can have more confidence in the financial stability and security your chosen neobank can provide.
How have neobanks grown in a post-Covid world?
Many industries rose to the occasion during the onslaught of Covid-19 in 2020, and the financial services industry is no exception. Neobanks have been around before the pandemic, but the number of neobanks have only grown since then. The increased customer expectation as well as the continuous tech disruptions are some of the many reasons why neobanks are projected to grow in the coming years.
Some of the factors that contribute to the growth of neobanks include:
- Digital transformation – Digitising the banking experience has gone a long way to reducing costs, both for neobanks and customers, so it has a positive impact on the economy while reaching previously inaccessible consumer segments in the market.
- Globalisation – Since neobanking functions remotely, it enables transactions and trade to be conducted freely from anywhere around the world. This was especially useful during lockdowns, and many customers have developed a global mindset in managing their finances.
- Transparency between service providers and customers – Neobanks remove the middleman in the banking experience, allowing customers to review their transactions and data and to be educated about their finances so that they can make informed choices about their wealth and assets.
These factors are further amplified as we move into a post-Covid world and the potential growth of neobanks lies in how it continuously pushes the standards within the financial services industry.
Here are ways neobanks are expected to grow in the foreseeable future:
- Increased inclusivity – Fintech spaces are driven to find solutions for existing customer problems, and neobanks can help reach a wider base of underserved segments in the market in an effort to increase financial inclusivity.
- Focus on continuity – A lot of emerging neobanks find it challenging to move past the start-up stage, so it’s important for neobanks to create a solid business model that will allow them to adapt in different circumstances.
- Integration within the existing system – As the new players in the industry, neobanks automatically start by working outside the existing systems that focus on monolithic institutions. This can change in the future as more people in the industry acknowledge the demand for neobanks.
How are neobanks affecting banking customers?
The tech disruptions in financial services have affected both the industry players and customers. The new generation of banking customers no longer expect one banking firm to address all their financial needs, though they expect a highly integrated experience amongst service providers.
Banks can better serve today’s customers by understanding their preferences and behaviours, given that people are highly impacted by social and economic changes on a national and global scale. Customer needs will change as we continue to transition and adapt in an effort to recover from Covid-19. The unfulfilled customer needs have been a huge gap in the traditional banking industry, especially during the pandemic, which is why neobanks have easily changed and disrupted the status quo in the industry.
Overall, neobanks are delivering a better service than their traditional counterparts because of how quickly these fintech platforms attempt and succeed in providing innovative tech-based solutions to their customers.
Both traditional banks and neobanks offer valuable services to their customers, and the increased variety of options can empower you to identify what type of banking experience fits your requirements as you build and manage your finances.
If you need assistance in identifying the right financial platform for you, chat with us. As a fintech platform, we have the industry knowledge and experience to help you make the best choice for you.