Neobanks & Technology: Disruption in Banking Industry
When customers are accustomed to receiving food deliveries in 15 minutes and experiencing ultra-rapid 5G internet speeds, waiting a whole day for a transaction to complete becomes bothersome.
Traditional banking, the industry standard for hundreds of years, has drifted behind by today’s tech-savvy users. The obstacles that conventional financial institutions are currently facing include prolonged response times, security risks, and fixed business hours. And so, the fintech world came up with a solution: neobanks.
According to Statista.com, the market size of neobanks was estimated to be $35 billion in 2020, and it is anticipated that the market will expand at a CAGR of 21.26% from now until 2027.
Neobanks, in other words, will severely impact every aspect of the financial services industry.
Let us first understand what are neobanks.
Neobanks is a specific kind of challenger bank that only conducts business online. These are recently founded banks that are independent of major conventional banks. They can offer their services via mobile and desktop devices despite their absence of any physical branches. They mandate that all of their customers go through a digital onboarding procedure, typically on a smartphone. Neobanks can fall into one of two categories: those with a banking license and those without one.
Neobanks Vs Traditional Banks
Let us understand the basic difference between neobanks vs traditional banks. The traditional retail banking approach has failed to retain consumers since digitalization and the pandemic. Neobanks provide highly tailored services at cheaper prices by leveraging technologies like artificial intelligence (AI), automation, and cloud computing -something that traditional banks lack. Additionally, Neobanks’ unique digital presence is possibly their biggest edge over traditional banks. Neobanks benefit from lower operating expenses as they do not need to invest in infrastructure or physical branches. Neobanks can offer minimal or no fees and high-interest rates on deposits to their customers as a result, passing along these advantages to them. They can provide inexpensive international payments and money transfers since they exclusively use the internet to conduct business.
Technology’s Role in Neobanking
Technology has enabled Neobanks to become more successful, efficient, and innovative. It goes without saying that technology has aided Neobanks in cutting costs and enhancing customer experience. As a result that they are entirely digital, Neobanks can automatically collect transactional data, liberating resources for new services and goods.
Neobanks have evolved to improve the ability to realize their full potential by integrating the newest technologies, such as analytics, artificial intelligence, voice interfaces, etc. In addition to offering services around-the-clock, technology will also assist in locating solutions in much quicker and more effective methods. Technology would also make it easier to find relevant financial services, eliminating the delay.
Automation of processes:
The ability to do banking transactions online has been the most underrated change for customers. Neobanks have made it redundant to wait in line for hours at a bank branch to send money abroad. The transaction can be started in just five minutes, and you can monitor its progress in real-time from the comfort of your own home. Additionally, by digitizing the entire process, technology has allowed Neobanks to complete KYC, AML checks, etc. in a far more rigorous manner.
Technology-enabled design as brand edge:
Organizations in both the B2C and B2B sectors now recognize that design can be a powerful tool for building brand recognition. Artificial intelligence and Machine learning are connecting data and user experiences, while sleek user interfaces attract people and make the digital journey easier. Neobanks utilize these AI / ML technologies to forecast a user’s needs and offer specialized services or products by using personal data to create a personalized experience.
Neobanks would benefit as they move into the future by getting informed of trends and adhering to them. Neobanks’ ability to succeed more quickly might be accelerated by following the most current developments. A few trends that may help determine the future of Neobanks in the banking business are listed below.
- Banking Super Apps:
Super-apps are one of these customized tools which perform the task differently but effectively. Banking super apps demonstrate that consumers today are interested in more than simply banking. Choices made by consumers are now heavily interconnected. Neobanks have begun combining several services like banking, insurance, real estate, mobile payments, etc. under one platform and branding it a “Super-App” in order to cater to this need. These super-apps have special abilities. They place a high value on the demands of the customer, focus on those needs, and have excellent user experience design.
- Banking On Hyper-Personalization:
One of the determining factors for Neobanks in the future would be the ability to customize financial solutions to meet customer needs. Transactional data is in abundance at Neobanks. Neobanks might use their data analytics expertise to integrate with app analytics and transactional data to tailor their offerings to their customers. Neobanks can develop hyper-personalized data and improve their customer experience by using AI and ML.
- Advanced Analytics/ Predictive Analytics:
Implementing such digital capabilities can further improve the client experience. Advanced analytics evaluates the available data and delivers practical insights. Advanced analytics can analyze transactions, expenditures, and investment data from neobanks customers and offer a solution that could help the Neobank strengthen its points of strength or weakness. These data need to be utilized to predict the requirement of the future. Customers would benefit from the ability to forecast and gain from a new beginning. Additionally, this is not a one-time strategy. The Neobanks are gathering these data points to develop a useful understanding, specifically for the needs of future customers. This would include not only predicting but also personalizing the experience to the needs of the customer. And that would be the true future for neobanks and pure CX.
In conclusion, although banking has changed throughout the years—from cheques to demand draft to mobile banking to invisible banking to connected banking to digital banking—but the fundamental idea—that customers should be valued—remains the same. And Neobanking is the ideal solution for its tech-savvy customers, which attracts time and money savings. The future business model, market share, and commercial success of Neobanks are challenging to predict. Still, it can be anticipated that the banking industry will nevertheless face disruptive changes stemming from the widespread adoption of internet technology, and the rise of cryptocurrencies.