Neobanking is fast becoming a game-changer in the finance industry because of its convenience and accessibility. It’s a fantastic alternative option to traditional banks because of how easy it is – you just need your mobile phone and you can manage your finances with a few taps and swipes. It helps you accomplish everything on your financial to-do list in less time and with less stress, making it a popular option for customers who are always on the go.
Because it is centred on smart tech, neobanking can seem less personal compared to traditional banks, which usually provide multiple physical branches as well as numerous bank tellers to address customer concerns. However, the neobanking process is more transparent and agile because it removes overly complicated paperwork and long payment cycles while ensuring that customers are well-informed about every step of their transactions.
Both banking options have pros and cons, so it’s important to understand each and figure out which option will suit you best. You have the power to decide which one will help you manage and build your finances in the most efficient way possible.
What’s the difference between a neobank and a traditional bank?
Neobanks are known to be the next evolution of banking, as they’re more trusted by emerging investors who are becoming increasingly financially aware in the digital age. Because neobanks function remotely, they can minimise operational costs and dedicate their resources to innovating solutions that will enhance convenience and accessibility for their customers.
Neobanking platforms are primarily digital and are available through online apps. They’re relatively new to the game since neobanks have only emerged recently, compared to traditional banks which have been around for centuries. They often come with flexible contracts that don’t hold customers to long-term deals and are very transparent with their added costs–if any. It’s quick and easy, which is great for people with so much to do and so little time.
One potential issue with start-up neobanks is how well they enhance the human element. A lot of customer service is done online and over the phone. Automated messages and bots tend to take care of most concerns and someone behind the app is only alerted when the problem is more complex.
Traditional banks, on the other hand, are established institutions that you can visit especially since they will typically have multiple branches in one area. Their infrastructure and organisational structure cater to customers who aren’t so tech-savvy and appreciate a more human component to their transactions.
However, traditional banking processes are antiquated, and conducting basic transactions can come with long wait times as well as multiple forms to fill out. Monolithic institutions usually compensate for legacy systems with in-person or over-the-phone support, always with a teller or a customer service representative.
In theory, traditional banks and neobanks exist on opposite ends of the banking spectrum, but both actually have significant advantages and disadvantages, so it’s important to understand how both banking options operate. This will help you identify which of the two aligns with your financial situation and goals.
Pros and cons of using a traditional bank
Traditional banks have been around for years, and for a long time, they’ve been the only banking option available.
Here are some pros and cons of traditional banking.
- More options – When it comes to products and services (like opening different accounts, wealth management and even investment), banks with physical branches may work best for you. Traditional banks have been around for so long that they’re trusted institutions that offer plenty of services that have been tried and tested.
- Cash deposits are easier to process – Cash is still the most used asset in traditional banks as it’s easier and faster to liquidate.
- Customer service has a human element – Customer service is often a department on its own and customers can raise their concerns directly with tellers or representatives to address complex issues.
- Inability to adapt to technological disruptions and innovations – Because traditional banks are mired in outdated systems, it’s much more difficult for these institutions to dismantle time-consuming processes and develop solutions that address the evolving financial needs of their customers.
- Lower interest rates – Traditional banks are known to have lower interest rates, making it harder for customers to grow their wealth because their loyalty to the bank is rewarded with only a small percentage annually.
- A wider range of fees – Using a traditional bank account will include additional costs on top of your maintenance fees such as nonsufficient funds fees (charged when you don’t have enough to cover transactions) or extra payments when using some other ATMs.
Pros and cons of using a neobank
Like monolithic institutions, neobanks come with a set of benefits and risks, so it’s important to understand each one and learn how neobanking can help you in your financial journey.
- Adaptability– They’re more attuned to addressing the evolving needs of their customers compared to traditional institutions. Traditional banking processes are often set in stone and don’t budge because they’ve worked for all these years, whereas neobanking is constantly adapting to cater to the needs of their customers.
- Convenient – They’re more accessible on the go and you can quickly make transactions and investments anytime, anywhere. Turnaround is also quicker, as the process is all online and automatic, with no need for tellers and long wait times.
- Straightforward investment process – They enable investors to invest, buy and sell gold remotely. Gold has been a long-standing asset that’s rarely dropped in value, making it an attractive investment, even for younger generations.
- Lower costs – Because neobanks don’t have to pay overhead or physical estate maintenance fees, the costs are generally lower than maintaining a traditional bank account.
- Sustainability – Emerging neobanks often don’t have a solid business model or design, since most of them are driven to amassing a bigger customer base and increase profitability. It’s important to choose well-established neobanks that have been in the playing field for years to ensure the security of your finances and assets.
- Authority – As the major players in the industry, traditional banks are more recognisable compared to many neobanks. Neobanks need to pay attention to how they can make themselves more noticeable in the industry to gain the trust of their customers.
- Limited customer service – Because most neobanking is automated, customer service is often run by bots that can’t always diagnose your problems right away. It’s important to improve the customer experience, and neobanks are slowly adapting to and addressing this problem with a more focused “customer first” mindset.
Traditional banks and neobanks both have benefits and drawbacks, ultimately it’s up to you to decide what you think is best.
If you’re not the most tech-savvy and you prefer personal interactions in dealing with your finances, traditional banks may be up your alley. If convenience and accessibility are higher priorities for you when it comes to financial management, neobanking is the solution you’re looking for.
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