With a greater focus on the digital economy and people’s changing buying habits, the banking industry has seen a number of developments and changes in recent years.
Regular financial activity no longer requires going to a bank location because the majority of transactions are now done online.
Neobanks are thereby becoming game changers, driven by technical improvements and the growing need for financial services in nontraditional contexts.
These neobanks provide services, like opening bank accounts for immigrants, by facilitating technological advancements like biometrics, fingerprints, and facial recognition during onboarding procedures and not based on traditional documentation for identification. These digital banks also lower administrative expenses, offer consumers fewer fees and propose better interest rates than traditional banks.
In today’s article, we will understand the difference between traditional banking and neo-banks and the future of neo-banks in the financial sector.
Table of Contents:
1. Unveiling the Strategies of the Future of Neo-banks
1.1. Seamless Operation
1.2. Better Data-driven Insight
1.3. Strict Regulatory Framework
2. Traditional Banks Vs. Neobanks: Who Has the Advantage?
3. What Will Impact the Future of Neobanks?
3.1. Competition Redefined
3.2. Advancement in technology
3.3. Empowered Consumers
Wrapping Up
1. Unveiling the Strategies of the Future of Neo-banks
Neobanks have emerged as a blend of technology and financial innovation and are fast transforming the financial services industry.
Let’s break it down.
1.1. Seamless Operation
Neobanks emphasize simplifying the banking experience for their customers by creating user-friendly technology as a cornerstone. For instance, by providing seamless and automated services like real-time notification, personalized budgeting, and expense tracking software, managing customer accounts, and helping them make transactions through personal devices, Neobanks optimizes its operations.
1.2. Better Data-driven Insight
Apart from seamless operations, the most intriguing strategy that neo-banks apply is a data-driven approach that attracts new generations of customers. Neobanks bridge the gap between customers’ needs and wants by providing personalized solutions and offering value-added services by real-time monitoring their transactions and search history on Neobank’s website or application.
1.3. Strict Regulatory Framework
Although neobanks are not directly regulated by the government, they have to adhere to financial standards and practices with their partner banks. Especially during the onboarding of customers, neobanks have to closely monitor and provide sufficient documentation to meet their banking partner’s due diligence requirements.
2. Traditional Banks Vs. Neobanks: Who Has the Advantage?
The main comparison between traditional and neobanks is the services they offer. Traditional banks provide in-person services and digital services through mobile banking. On the other hand, neobanks are completely digital, meaning they offer services entirely online.
Traditional banks frequently suffer from obsolete procedures and outdated technology and are trying hard to close the gap and catch up with more agile competitors. Whereas, neobanks accelerate their popularity by providing a hassle-free digital banking experience to tech-savvy consumers and reaching every nook and cranny of the world.
In the struggle against traditional banks, neobanks attempt to take over segments of the financial industry where traditional banks failed or did not pay sufficient attention.
According to a global research framework, the main target groups of neo-banking are:
Small and medium organizations with previously restricted financing options form the main user base of neobanks. SME specific services offered by neobanks gained attention because they provided affordable business loans with faster processing than standard banking institutions.
Neobanks are making specific efforts to improve financial knowledge and engagement. Being targeted at the younger generation, neobanks upload a lot of videos, useful materials, and personalized services to increase the efficiency of their platforms’ use.
On the contrary, traditional banking is more popular among older generations as it offers an in-person channel, which helps build a strong relationship between the bank and the customer, which generates trust and confidence in monetary transactions.
The table below shows the difference between traditional banking and neo-banking:
3. What Will Impact the Future of Neo-banks?
The entire BFSI sector has undergone a more rapid transition in the past few years, and this trend is expected to continue in the future. With neo-banking, the BFSI industry has moved a step further.
The future of neo-bank is bright, as growing trends such as AI use, the development of digital banking services, the inclusion of cryptocurrencies and blockchain, and tailored digital experiences continue to transform the sector.
Here are some future predictions on how neobanks are fundamentally altering the financial industry.
3.1. Competition Redefined
With more use of the internet and smartphones, the trend toward neobanks is expected to rise among younger generations as they will find digital banking services more flexible and agile. Furthermore, it is expected that Neobanks will be well-positioned to expand their services to the unbanked and underbanked populations (MENA and Africa region) in the future. With the increasing popularity of neobanks, traditional banks might take the initiative to digitally transform to compete with neobanks.
3.2. Advancement in technology
For seamless operation and efficiency, neobanks might witness significant change by implementing sophisticated and modern technologies. Neobanks will continue automating their operations and reduce their dependence on manual processes, which will contribute to lowering the cost. It will also employ artificial intelligence (AI) for various tasks, like fraud detection, customer onboarding, checking due diligence, and many more. There are signs that neobanks will adopt blockchain technology to provide a more secure and efficient banking experience for their customers.
3.3. Empowered Consumers
Through its neo-banking platform, users will get access to data-based finance tools for budgeting and financial management together with real-time spending updates and saving goal creation tools. Customers will obtain better control of their financial choices through new features as these tools help them make well-informed financial decisions and reach their targets. Neo-banking will offer premium customer support by requesting feedback from users while maintaining customer-oriented programming and making continuous progress on their websites and mobile apps.
Wrapping Up
Just as neobanks reshaped the banking industry with their customer-centric strategy, finance industry leaders will be defined by a thorough awareness of changing consumer expectations throughout the coming decade.
A new generation of digitally native banking customers wants innovative and secure financial services that are personalized to them, and they have a variety of options if they do not receive them.
In 2024, Neobanks’ objective will be to continue delivering innovative goods and services to keep one step ahead of their conventional competitors, capturing as many consumers and market share as possible.
