The progression of the financial industry increased 2 times with the introduction of neobanks. Neobanks are instant banks as they work in simple, fast, and hassle-free ways. This is a dream come true innovation, especially for generation Y and Z as there is no ‘waiting time’ involved. The concept of neobank came around 2017 and now, it has gained a significant position in the banking industry. From faster customer onboarding to enriched CX, neobanks are in the right track to ensure customers find their way towards them. While the current net worth of neobanks is around $18.6 billion, it is predicted that it might reach up to $394.6 billion by 2026 which clearly shows the growth of neobanks.
Stumbling blocks and Fixes of Neobanks
Although, neobanks have gained required attention from the world, the journey of neobanks is not smooth and seamless. Neobanks are facing some stumbling blocks, but there is a possible fix for each hurdle, which can bring Neobanks in the success lane:
Stumbling block 1: Regulations
The ambiguous financial regulations across the world have created a blurry vision for neobanks and hence, are not clear of their positions. Like in the US, post the disastrous financial crisis, the regulations have been stringent, mainly concentrating on protecting the consumer data. Hence, neobanks are finding it difficult to adhere to the regulations across the world.
The growth of neobanks is happening successfully in Europe especially in the Swiss region. This is due to the relaxing regulatory guidelines, which promotes the digitisation of the banking industry. With the introduction of PSD2, neobanks, in collaboration with third party services are able to cater to all the needs of the customers.
Additionally, Temenos, Aspire’s tech partner, has taken extensive measures like following API guidelines, Consent Management, etc., to ensure complete safety of customer data. Also, in APAC, as the guidelines are restrictive, most neobanks are collaborating with other traditional banks. And in the future, the rise of MSME’s might increase the demand for neobanks leading to easy regulations.
Stumbling block 2: Customer trust
The main aim of neobanks is to be accessible to every customer around the world including the rural areas. However, most customers especially the older generation prefer face-to-face communication when dealing with their financial proceedings due to their lack of trust and knowledge in fully online banks.
Delivering customer requirements instantly is always a pipe dream for traditional banks due to lack of customer insights. Neobanks, on the other hand, can leverage a plethora of customer data and have a deeper understanding with the help of data analytics. Attending to real-time needs of the customers will create a sense of connection to the customers and hence build loyalty.
Stumbling block 3: Profits
Before the pandemic, neobanks had ample funding from different sources, hence, were able to offer low cost, freemium services to the customers. However, in 2020, things have turned downwards and neobanks are finding it difficult to make significant profits to sustain their financial institutions. The current reality of customers using neobanks as their primary account is slightly towards the slimmer side.
Neobanks are already in trend for their attractive offerings. In order to make profits, neobanks must have clear goals and brand marketing. With a bold and strong marketing impression, there will be an increase in engaging customers who will prefer neobanks as their primary accounts. Secondly, neobanks should consider premium offerings especially in the lending industry, which can help them raise capital to grow.
Stumbling block 4: Narrow offerings
Neobanks can offer a diverse range of services in small-scale financial offerings. However, they are yet to step up and start large-scale offerings like mortgages or home loans.
With competent technologies like Cloud transformation and Support, DevOps, Microservices, Marketplace integrations, Quality Assurance, Cognitive Managed Services, Analytics, Cognitive Automation, etc., Neobanks can start large-scale offerings like real-estate loans, etc. From credit underwriting to real-time analytics and monitoring, neobanks can build a strong banking platform and be ahead in the banking world.
Stumbling block 5: Rising competition
The main attraction of a neobank is its mobile banking services. But, traditional bankers have understood the importance of digital banking and are slowly pacing themselves in mobile and internet banking. Also, tech giants are entering the financial world which means that neobanks have a neck to neck competition.
The main niche of neobanks is mobile banking. While there are many traditional banks offering mobile banking services, neobanks can further innovate their mobile banking platform with superior UI, seamless movement across the app, personalized options, etc. This way, neobanks can always be a step ahead of traditional banks.
Although traditional banks have started to offer services like neobanks, they still have a huge hindrance as opposed to neobanks – the legacy core. This gives neobanks an edge to leverage opportunities and proactively explore different solutions to grow consistently.
Neobanks have attracted many millennial customers and with the addition of the pandemic, people have realised the advantages of digital banking. Incumbent banks are giving tough competition and several tech giants are adding to the competitor’s list. Hence, neobanks have to explore untapped technologies to stay ahead in the competition for a long time.
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