The development of neobanks, could be dramatically changing the way we bank in the coming decade. Neobanks provide digital banking services such as current accounts, savings and debit cards. All their services are provided through online services and apps and they don’t have physical branches on the high street to provide services. The challenges from this new wave of FinTech firms are being met by the traditional banks who’re developing their own app-based platforms.
Online services have been growing since the internet began. Just think about the convenience and range of services and information we can access just by pointing the cursor and clicking.
This growth is reflected in the fact that 7 of the global top 10 biggest companies in 2018 have digitally based business models. As recently as 2011, only 2 tech-based companies were among the biggest 10. Over this period, this trend has spread into the banking sector.
The neobank’s direct service delivery and range of services is aimed at the smartphone savvy customer. It’s not surprising that traditional banks are adopting many of the same techniques such as more online services or are collaborating with neobanks.
As you won’t find them on the high street, they look to attract customers in different ways. There are different types of licence according to which services a neobank wants to provide. Without full banking licences some offer ‘user services' and provide services through other banks. Others have evolved and are acquiring other banking services or are specialising in areas such as international transfers or mortgages.
Opportunities and risks
As with other industries, digital disruption presents both opportunities and risks. The recent surge in neobank start-ups has led to suggestions they have the potential to overtake traditional banks in the future. It’s why some investors have flocked to invest in them - in the hope of big future returns.
Equally, many people have warned against short-term optimism; highlighting potential risks and challenges. With traditional banks still dominating the market, investors are counting on rapid customer growth to drive profit streams. The challenge for neobanks is that traditional banks are to some extent embedded into society.
Anecdotally it seems that existing consumers are loyal to traditional banks over neobanks as the long-established banks are often more trusted in terms of money protection.
These developments can also lead to challenges for institutional investors, such as pension scheme trustees. They need to know if they are exposed to these risks and if they should invest ... or not.
When all’s said and done, we increasingly live in a ‘tap and go’ society – as my wallet knows! So, as we look at how banking can help, it’s up to us to work out what type of banking suits us best and to ask is this way we’ll all bank in the future?
The opinions in this blog post are not intended to provide specific advice. For our full disclaimer, please see the About this blog page.