Traditional banks have been carrying out our transactions for decades and a world without them has been hard to envision. Yet a shift is becoming more apparent, as the bureaucratic structure and lack of innovative offerings have left a gap in the ever more digitally fluent consumer market.
The nature of incumbent banks’ shortcomings is not difficult to conceptualize, as dealing with banks is commonly perceived as complex, static, and unexciting. Take the budget-struggle for example. The mere thought of having to categorically track my expenditures, makes me feel uneasy. In order for me to analyze exactly how much money goes out where I would have to build a spreadsheet and manually insert all the transactions. I mean, do you know exactly how much you spend on groceries or leisure? I know I don’t. Surely an estimate would come to mind? Well… an estimate would be just that, a guess by averaging the amount spent each time, multiplied by the number of times (that I remember). So, spreadsheet analysis it is. This, however, comes with another barrier: How do I know which transaction was spent on what? The references on bank accounts are often bizarre and remembering every single transaction would be impractical to say the least. The truth is, it’s time for me to regain control of my money.
This is where Neobanks come in. Neobanks typically offer fully-digitized banking services to consumers or businesses, exclusively through digital channels. They emerged after the 2008 financial crisis, during a time of damaged trust in big banks, and some beneficial regulatory adjustments regarding data access (Lu 2017). Not only are these new banks completely digitized, they encompass unique value propositions, targeting specific or niche customer segments. This enabled them to introduce a simplified low-cost structure, where they offer global, low- or no-fee banking, trading, and lending and can create easily customizable products and services (Gomber et al. 2018). This neo-way of branchless banking incorporates superior user experience through mobile apps amongst others, as it is equipped with cutting-edge technology (Pritchard 2020).
Most Neobanks operate in a considerably more transparent way than traditional banks. They provide customers with blogs and articles, and elaborate on their developers and other staff. They incorporate less of a ‘give us your money, we know best’ mentality, and more of a ‘it’s your money, let us help you make the best out of it’ approach. If this sounds like music to your ears, that makes two of us. The past decade has been characterized by digitalization across industries, and the banking sector should not be left behind (Gomber et al. 2018). Consumer needs are continuously changing, to ‘more, faster, easier and cheaper’ product and service requirements. Specifically digital natives, frequent travelers and early adopters of branchless banking have such needs, that incumbent banks in their current state do not match (FintechTris 2020).
Neobanks’ easy-to-use interface, open structure combined with the low-cost of services, and transparency are what make them attractive. The Neo-giant Revolut, like other Neobanks, is able to offer no-fee banking, free global transfers and withdrawals all from one app. Moreover, it provides spending statistics for each month, showing all transactions per category and allows you to set saving goals for your next big holiday for example. Unlike traditional banks, the challengers do not just show your account balance, but track and present expenditures as well as suggestions for points of improvement. You can’t manage what you don’t know, and that is why such transparent and easy-to-use banking apps are so important. The future is looking bright for both Neobanks and their respective customers benefitting from personalized user experience, and utter clarity (FintechTris 2020).
So are you ready to regain control over your money?
References:
FintechTris 2020, Neobanks and the future of banking, viewed 18 September 2020,
<https://www.fintechtris.com/blog/neobanks-the-future-of-banking>.
Gomber, P, Kauffman, RJ, Parker, C & Weber, BW 2018, ‘On the Fintech Revolution:
Interpreting the Forces of Innovation, Disruption, and Transformation in Financial Service’, Journal of Management Information Systems, vol. 35, no. 1, pp. 220–265.
Lu L 2017, ‘Financial technology and challenger banks in the UK: Gap fillers or real
challengers?’, Journal of International Banking Law and Regulation, vol. 32, no. 7, pp. 273-282.
Pritchard, J 2020, What Is a Neobank?, The Balance, viewed 15 September
2020, <https://www.thebalance.com/what-is-a-neobank-and-should-you-try-one-4186468>.
Hi Laura,
Very interesting article! I personally find your writing style very nice and easy to follow. I agree that Neobanks are incredibly beneficial in terms of consumer usage. I would like to note that, yes, banks are vastly falling behind in terms of digitisation, however, not all. Certain traditional banks have naturally progressed more into the direction of neobanks by analysing and understanding consumer needs. Banking apps are becoming increasingly personalised and go beyond simple transaction overview, some apps allow you to buy train tickets or movie tickets via the app. Further, apps like Grip have been designed to analyse your spending habits. They work with the biggest Dutch banks such as ING or ABN AMRO, so you never have to open a spreadsheet again.
Additionally, neobanks take a specific part of the value-chain of traditional banks and focus on this. They offer world-class customer experience and Revolut is, for example, exceptional at allowing users to open a bank account without having to go anywhere or contact anyone. However, due to the fact that they focus on a particular aspect of traditional banks they will never replace it. They might add on to the value of traditional banks, but not actually replace it.
I really enjoyed reading your blog post about Neobanks. The combination of the financial industry, a topic I’m not familiar with yet and your writing style, made it overall very interesting to read your post.
I believe their mentality of ‘it’s your money, let us help you make the best out of it’, is also what customers nowadays want. As you’ve mentioned, transparency is key and having this open relationship with customers and professionals is a very interesting dynamic of the two parties. Having the knowledge and technology, as well as the customer insights, the solutions and opportunities are beyond the static solutions and opportunities from banks relying on traditional methods using certain checklists and metric systems. My main question after reading your blog post would be about how these Neobanks generate revenue. Since these banks provide low- to zero-cost services, I’m wondering how they are able to afford creating their consumer-centered services to their customers.
Hi Laura,
Super interesting article, very easy to familiarize with it!
As you mentioned, the financial industry is a very complex system and when you are young you are looking for very specific type of services and have different expectations, which is where Neobanks come in. They have definitely disrupted the market by offering better, more personalised and faster customer-centered services. The fact that you are able to do everything online, transfer money immediately to anyone makes it extremely convienent and appealing. Nonetheless, they still operated within the realm of banks. They need to use their infrastructure for their business proposition to offer value to customers. Even though people have a Revolut account let’s say, they still need to use an ATM from a bank to be able to withdraw money. So, I believe that they are simply tapping into a certain aspect of the value chain of traditional banks and providing customers with much better value.
Just like you, I also have a hard time overseeing my finances and keeping track of where my money goes. This is why I was looking into potentially opening a bank account at N26, another popular German Neobank. However, soon after I realized that my own bank ING had a great app in place that had very useful features. You can create payment requests, you can see the future expenditures based on your past purchases, something very useful for tracking your money. Banks are investing incredible amount of money into the digitalization of their services and offerings, to ensure they keep their loyal customers and potentially attract new ones. It will definitely be interesting to see how other banks in the market will adapt to the digitalization of the banking sector.