Neobanks are taking over the world of the fintech industry by storm, globally. Over the last five years, neo-banks have offered full-digital financial services and an immensely low fees. The neo-banks are mostly preferred by the millennial generation. Furthermore, they are supported by an extensive amount of venture capital funding and breaking customer adoption records in the financial services industry.
What is Neo-Banking?
Neo-banking is all about digital banking, without any branches or a physical bank at a specific location. The revolution started in 2013. Neo-banks or fintech firms provide financial solutions and payment services through money-transfers, secured /unsecured loans and further.
The Recent Scenario
Presently, neo-banks are gaining more popularity than traditional banks. Neo-banks operate on significantly lower operational costs. Whereas, the traditional banks suffer from their internal cost structures. Through an estimation, the experts consider that traditional banks have to make four to six times more revenue per customer on a yearly basis. The evaluated costs for the traditional bank are somewhat amidst €200 and €350 per client annualised. In comparison to €50 for Neo/Challenger banks.
In a recent survey, the analyses declare that neo-banks have increased their customer base in the past few years. From 2018 to the span of 2019, the percentage of customers grew from 7.7 million to nearly 20 million. The leading neo-banks are not only exceeding the number of customers of many leading UK’s leading banks, but also exceeding in valuation as well.
To the target group of still studying and working millennials, the service of seamless digital banking is striking them to switch more to the neo-banks. The unique aspect of neo-banks is that they offer Personal Financial Management. The application is easily accessible and provides proper functional features allowing seamless transactions. The millennials have stated that the features are very useful when travelling or saving money for leisure activities.
The neobanks’ main aim is rapid growth. Because of the stringent anti-money laundering systems in the normal banking scenario, neobanks provide fertile grounds. Conventional banks have developed their own strategies by creating their PFM applications through ample research and development but this is never enough for the tech-savvy neobanks. To keep pace with this tech-savvy neobanks, the so-called bricks and mortar high street banks should also hire technical talent and offer seamless transactions for customers to compete with the FinTechs.
Most of the large Neo banks are global in nature. They continue to expand into European markets and have an eye for the American continent. Other than usual challenges the banks should also keep a close watch on the rise of the neo banks and fintech industry.