The challenger banking landscape consists of “an amalgamation of non-licensed over the top banks, digital initiatives of traditional banks, marketplaces, and licensed challenger banks,” says the Medici report, “Neobanks — A global deep dive 2019”.
Those digital-only neobanks with a full banking licence include N26, Monzo and Starling bank. This enables them to offer certain products and services on their own, rather than through licensed banks. It also allows them to have an improved core banking platform that enables a smoother integration with external service providers they may choose to tie up with.
Over the top banks include tide, varo, chime and open. These are digital-only platforms that don’t have their own banking licences. These platforms offer either a stand-alone product, or a range of financial products, in
partnership with financial institutions/banks and fintech firms, but at a lower cost than is offered by traditional banks. Some of them act as marketplaces for financial products.
Why have neobanks been so successful?
This is an easy question to answer. The financial crisis of 2008 produced a massive loss of trust in the banking sector. There were two key responses to this: the emergence of cryptocurrrencies and the arrival of challenger, or neobanks. These new types of banks offered lower fees and are simpler to use. Moreover they appealed to consumers who wanted a more innovative and personalised banking experience.
The Medici report says, “When it comes to neobanks, it’s important to note that they are often faster with respect to integrating new processes and/or products into their existing platforms and can help customers connect in an easier manner with third-party products which, ultimately, benefits the end user.”
And they offer their services in a dramatically different way to that of the traditional banks. Neobanks offer innovative features including fast account opening, free debit card, instant payments, cryptocurrencies, lower costs, mobile deposits, P2P payments, mobile budgeting tools and user-friendly interfaces. They are a win-win solution for many.
The consumer appeal of neobanks
Take N26 for example, it takes about 10 minutes to open an account, there are no fees and with its most basic free account, customers get five free ATM withdrawals per month. It is particularly attractive to younger bank customers. Plus, everything is operable from an app on a smartphone.
And for those customers who need to use their debit cards in another country, the neobanks are more beneficial. As Medici says, “Neobanks offer the usage of their debit card in foreign countries for no fees and at live exchange rates. For example, Revolut enables consumers to hold, exchange, and transfer up to 25 currencies via the Revolut app for no fees.”
This is just one of the ways in which neobanks have demonstrated to consumers that they have economical solutions to a number of issues that the traditional banks are unable to answer. It also costs customers significantly less, which is an indisputable winner. There are many other reasons why the neobanks are gaining customers, especially in the last year, at an increasing rate, and I will be looking at those in another blog this week.