Three Things To Know Before Diving Into Neobanking
Sorting Out Your Every Day Transactions With Ease
The stronghold in the retail banking market held by the biggest names such as Citibank, American Express and JPMorgan Chase might be starting show signs of weakening as it becomes harder to ignore the infiltration by the army of neobanks. Thanks to the constant streams of rapid fire funding and government revised banking licensing regimes, neo-banks have been emboldened with ability to enter the banking industry known notoriously for its high entry barriers, with much greater ease. According to a recent report by Allied Market Research, the collective global customer-base of the neo and challenger banks is expected to grow by a CAGR of 50.6 per cent by 2020.
With major neobanks venturing onto Singapore’s shores recently, you might be wondering what all the fuss is about. If you are tempted to try out these revolutionary banking apps, here’s the low-down on what you need to know to help you make your decision.
What Is It?
You may have heard this fintech terminology buzzing around but aren’t quite sure what it actually is. From a consumer’s standpoint, neobanks are basically branchless digital banks that provide most of the standard essential financial products like checking, prepaid debit cards and savings accounts. They aim to take the friction out of everyday banking transactions such as banking transactions opening accounts, making payments and borrowing money with a mobile interface with innovative features that are superior to traditional banks. Banking on the growing proclivity toward digitised services, their main selling point is their optimal customer service and relatively low fees. With its low cost structure, there are no monthly fees, no withdrawal cost and low reloading fees and since it is a checking product, there are no overdraft fees as well.
How Do They Stand Out From Traditional Banks?
Essentially, their main value proposition is that they are relatively low cost, maniacal about optimal user-experience and big on transparency and customer autonomy in banking decisions.
While traditional banks claim they are able to copy and introduce the innovative features that neobanks offer, the distinction is in fact miles apart. The new solutions are built according to mobile-first – not a branch-first paradigm – and this approach elevates user experience and product impression to whole new levels. “We built a product behaviourally; we tried to focus on what people are actually doing as opposed to what banks are trying to push them to do,” says David Schwartz, managing director of USA at Moven.
With the ability to test new products quickly neobanks are able to expediently design and introduce products with features that solve everyday problems and smoothen the banking experience, aiming to stand out from the stiff competition by featuring a varied innovative range of nifty and nimble interface services. For instance, the on/off switch developed by engineers at the neobank, Simple, allow customers to activate or inactivate a debit card instantaneously through a mere touch of a button on the mobile app. In contrast, the rival neobank, Moven, plans to start offering a payday-like loan product to direct-deposit customers who are running low on cash ahead of their next pay period. Moven will automatically deduct the loan amount from the customer's account on payday along with a flat fee of $15. These are just some of the many unique features that neobanks offer.
Another feature that stands out is the issuing of instant mobile receipts for your bank transactions, “neobanks show you via emails and text messages exactly how you’re spending your money and if your spending patterns are putting you in danger of overspending”, says JP Nicols, CEO of Clientific, a strategy firm for banks and financial technology companies, and an avid customer of two neo-banks – Moven and Simple. Comparatively, traditional banks often tend not want to remind customers of their spending patterns, as it is more profitable for them if you did actually overspend and overdraw.
Are They Just A Passing Fad?
Despite the slew of naysayers, it looks like neo-banks are here to stay. Neo and challenger banks raised more than $300 million in investments just last year and have become increasingly obvious acquisition targets for traditional banks who are looking to integrate their niche interface with their existing customer services. Gunning to be every customer’s primary bank some neo-banks are already looking into offering a no-fee line of credit along with its free checking and saving services. Just like any new innovative technology or product, there will undoubtedly be major hurdles to cross, especially since the lack of knowledge about their business models and brands reflects negatively on customer confidence. Nonetheless, though their streamlined services currently only offer a narrow range of products, it is only a matter of time before neobanks are able to provide the entire range of banking services and have a extensive client base enough to compete with the top dogs in the industry.