For centuries traditional banking has held its own in the world, with large brick-and-mortar buildings often in beautiful old buildings men and women could come in to cash checks or deposit cash money. But a new sort of banking is on the rise, swiftly gaining ground during the pandemic, and might be here to stay: Neo banking. A form of digital only banking platforms, that deliver high-standard online customer experience for a low or even no fee at all.
Like traditional banking, neo banks make their money marginally between the inflow of money on one side and the lending of money on the other side (Razorpay, 2021). However, in contrast to traditional banking, neo banks offer a completely different digital business model. These fintech banks deliver their services through apps or software in a transparent way and often tend to specialize in one particular financial product (Forbes, 2021). Take for instance Volt, an Australian neo bank that offers a more transparent alternative of saving. According to its website its aim is ‘to do the right thing’ by being open about fees, deals, and advertising. No hoops, hurdlers, tricks, or conditions (Voltbank, 2021).
The largest advantage of neo banks is its cost friendliness. By being fully digital, the company does not have to pay or maintain any physical bank buildings. Furthermore, it uses AI and chatbots to analyze customer patterns and choices in order to improve its services, which provides a better service for a lower cost (Bankbazaar, 2021).
Creating an account is also a lot user friendly as it can be done as easy as from your own telephone at home (Razorpay, 2021). Your card can be used anywhere in the world, unlike some banks that do not provide that service.
However, it is important to note that neobanks are not legally recognized as of now. They rely on other bank partners who are legally licensed for their services. As neo banking is still in its infancy, legal confusion about accountability is still a grey area (Qrius, 2021).
Traditional banks may have been around for a long time, but it seems that neo banks have already taken a head start with its completely digital service. Especially under the young tech savvy generation who can no longer imagine going to a physical bank and demand high customer satisfaction. Welcome to a new age of banking.
I agree with you Verie, neo banking is on the rise, while traditional banking by going to a brick-and mortar store is on the decline. Two years ago, when I went on exchange to Hong Kong, it was the first time I started using Revolut, which could be considered as a typical neobank. The main reason for using Revolut over ING, which is the bank I’ve always used, is that the fees to use Revolut are very low compared to ING, and you can use their services in almost all countries. The latter was quite useful when you wanted to visit other countries during your exchange.
So in this regard, your argument for why people may use neobank over traditional banks, was exactly the reason for why I started using it.
With regards to my original bank, ING, which I still use daily here in the Netherlands, I do notice that are also starting to transition into a neo bank. They have been improving their digital services over the last few years, with a high quality mobile app and webpage, while also gradually closing brick and mortar stores. But maybe ING is an example of a traditional bank that was early enough to realize that the banking system is rapidly changing, and they took action accordingly. Perhaps some other Dutch banks are still lagging behind in their digital offerings, and will have great difficulty in the upcoming years.
In any case, my own consumer experiencr was quite good with neo banks, so I welcome the changes and innovation they have brought. In that sense I wouldn’t mind if the traditional brick mortar stores are not around anymore.
Thanks for your blog.
Kind regards,
Jelle
Hi Jelle, thank you for sharing your experience. I think neo banks and ‘traditional’ banks can go along side each other for the time being. But I expect a shift towards each other as both have advantages and disadvantages complementing each other. Just like you illustrated with the difference of being on exchange and being at home. ING is a very innovative bank and I am sure they are already looking into a new innovative business model incorporating some sides of neo banking. Thanks for the insight!
Very interesting that you talk of this new age of banking and how neobanks will play a role in it. I was just left wondering while reading this, what is preventing neobanking from being fully accepted and adopted? What are the risks associated with it? I feel personally that maybe no big scandal has occured yet in the neo banking sector, but what if this does happen (a black swan event), nobody would ever trust the service anymore and would remain or switch back to traditional banks for security.
Hi Anne, interesting thought on neo banking and in the case of a black swan event. And though I do not know how to answer your question yet, I was thinking about how traditional banks have a lot of distrust from their customers these days. I think this could actually benefit the neo banks. Big scandals will always be there, but it is really about who manages to overcome these. In a way a decentralized bank could actually offer more security than the traditional banking system. That said, I think we are not quite there yet technology wise. Time will tell I guess….