While traditional banking branches historically held the exclusive power to provide financial services, new technology is rethinking how customers handle their money. This is seen particularly well in the case of neobanks – a new kind of fully digital financial service provider.
Neobanks offer limited and highly specialized banking services to customers. Designed with the purpose to disrupt the financial industry, neobanks operate entirely digitally and often tailor services for use on mobile devices. These newcomers to the banking space bring a variety of benefits that are worthy of serious consideration by financial institutions.
There are many appeals of neobanks to customers, as they add convenience and simplicity to the process of money management and decision making. In this article, we will explore what neobanks are and a few of the key benefits that contribute to their growing popularity.
What is a Neobank?
Neobanks are tech-based companies that offer exclusively digital banking services. This can include everything from paying bills to mobile depositing of checks.
Oftentimes, a neobank will be specialized for a specific set of banking services, such as personalized savings accounts or secure mobile transactions. Though sometimes referred to as “challenger banks,” many neobanks will partner with more established financial institutions to reach broader sects of banking customers.
The neobank sector shows enormous potential for growth in the coming years. According to Statista, the market size grew from $34.77 billion (USD) in 2020 to $47.1 billion in 2021. This growth is expected to continue exponentially, with a predicted market size of $722.6 billion by 2028.
With neobanks not yet at a level of widespread use, financial institutions have the unique opportunity to embrace partnerships with neobanks – and enjoy the plethora of benefits that come with them.
The Benefits of Neobanks
Neobanks are emerging all around the global financial industry. Some begin as FinTech startups, while others are created for use by already established banking institutions.
No matter where they come from, however, neobanks offer customers an incredibly simple method for everyday money management. A typical neobank will offer a range of basic services, such as:
- Opening a checking or savings account
- Transferring funds and making mobile payments
- Educational resources (on topics such as saving, budgeting, etc.)
For neobanks partnered with a more traditional financial institution, these services may even expand into more complex services such as lending.
Customers are showing a growing interest in neobanks, and understanding their appeal can provide institutions with many valuable insights. With this in mind, let’s explore 3 major benefits of neobanks:
Cheap and Efficient Financial Services
Neobanks do not involve any physical branches or locations to maintain and operate. As a result, the services provided by a neobank can be offered at lower and more competitive prices.
Additionally, many neobanks will offer a variety of different plans and options for their customers. While most will have a fee-free plan – as this is one of their main competitive draws – they may also offer premium memberships. This allows the customer to choose what works best for their needs, rather than be subjected to flat, across-the-board fees.
On top of offering cheaper financial services, neobanks also provide speed and efficiency. By eliminating the need for time-consuming paperwork and application processes, neobanks allow customers to sign up and get started with ease.
Greater Accessibility for Clients
Customers these days are very interested in financial literacy. A growing expectation for financial institutions is the level of ease with which customers can access and manage their money.
Neobanks offer exactly this – all the essential services for money management from an easy-to-use, digital platform. Plus, many neobanks focus on offering mobile-based services. This puts the power to manage personal finances at the fingertips of customers, with many essential actions only a touch away.
By operating from the digital space, neobanks are also able to offer customers 24/7 accessibility and service. Rather than waiting for a physical branch to open, clients can instead use the services from wherever they are at the moment.
The Digital Advantage
Basing operations entirely within a digital space and infrastructure gives neobanks a distinct advantage. Not only can they avoid costly operational costs required for running a physical branch, but they also can embrace a much more flexible business model.
For instance, a physical bank needs adequate amounts of talented staff all from the same area and timezone. By comparison, neobanks can pull from a pool of talent around the globe to provide clients with access to top-tier professionals.
The convenience and flexibility that come with operating a neobank are undeniably advantageous to both the company and its customers.
The path forward to the future of banking is paved with numerous new technologies and innovative ideas.
Neobanks are still in the early days of development but show massive growth potential and benefits for the financial industry. For institutions looking to get ahead and remain competitive, understanding why these challenger banks are so compelling to customers is key.
As customer interest in neobanks continues to expand, banks must consider why these digital services are so appealing and popular – and how they may implement such services into their own institution.