Neobank trends in 2019

Neobanks as you probably know are digital-only banks and in the last year they have made significant inroads into the retail-banking sector. In part this is due to the loss of consumer trust in conventional banks, following the global recession and it is also due to growth in the customer’s willingness to use online banking and banking apps, rather than depend on a physical branch for services.

According to the Bank of England, it expects to receive at least 130 applications for banking licences before the UK leaves the European Union at the end of March 2019, which is another clue as to how this sector is growing; indeed, the majority of the most successful neobanks are for the moment, registered in the UK, Revolut being an example of one of the most successful of the new style banks.

Trends in 2019

What are likely to be the key trends in neobanking this year?

Marketplaces

Existing neobanks have set up marketplaces to provide customer-centric products as part of their collective mission to provide more than a digital version of traditional banking. This model is likely to expand and to gain more customers in the small and medium business market.

More accurate customer targeting

Neobanks are data driven and they have access to far more customer data than the traditional banks, simply because they are able to monitor customer behaviour through their use of the banks’ apps: Monzo for example, have their data analytics engine hooked directly onto their front-end and back-end systems. Also, Monzo for example, have their data analytics engine hooked directly onto their front-end and back-end systems, which puts them in a better position than the traditional banks and enables them to serve a bigger range of specific customer needs within their target markets.

More autonomy

Autonomy is the common key driver in each of the neobanks’ successes. The way they are structured and operate empowers each person or team to create products in whichever way they see fit, without the need for excessive governance structures. Even the traditional banks are starting to adopt this model and we will see more neobank offshoots of the big retail banks in 2019.

4 trends impacting banks in 2019

Thought leaders ATOS published “Toward next-generation financial service ecosystems”, which analyses mega-trends in financial services and why we should all prepare for a fundamental shift in the next few years.

As its report says, banks are at a crossroads, and the “rise of non-banking platform companies are now disrupting the most profitable parts of the banking value chains. New players could capture up to a third of incumbent banks’ revenues by 2020.”

ATOS has identified four challenges and opportunities that will have the biggest impact on banking, providing they leverage the emerging technology.

1. Faster response to customer demands

Retail banks that adopt digital tech will see a 5% to 20% boost in revenues thanks to an improved service. They will also reduce their network costs by anything from 15% to 35%, and increase customer satisfaction by 10% to 15%. In advanced economies, two-thirds of banking customers execute half their financial transactions online. Customer loyalty is becoming elusive and branches are less relevant as a result. To respond, banks may shift from a product-centric to a platform- centric approach focused on customer-driven strategies.

2. Optimise costs

Fintechs are more agile and have lower operating costs than banks, making for strong competition. Digital banks can enjoy a cost-to-income ratio of below 30%, whereas banks are in 40% to 60%. Banks have some options, including shifting to lower-cost, standardised utility processes for selected administrative activities and using AI to improve customer response times and reduce employee redundancies.

3. New revenue streams

With banking business models changing thanks to neobanks, there is a need for traditional banks to reassess their position. They could position themselves as a hub platform and introduce new services for underserved segments of the community, such as mobile only banking for Gen Z and the unbanked.

4. Develop security and compliance systems

Customer data has now become a ‘product’ for financial institutions and this requires enhanced security and insights, which could be provided by AI. For example, PSD2 requires banks to implement secure application programming interfaces (APIs) to make account transactions and data available to third parties. Developing system using AI-generated insights from civil and military intelligence could dramatically reduce the cost of cybercrime and enhance consumer trust.

There is nothing here that is earth shattering; it is what many have been saying throughout 2018, yet the banks continue to be slow in their response. Perhaps 2019 will the year they wake up and start moving forward.

5 technologies disrupting banking by 2023

Over the next five years banking is going to change dramatically and will be nothing like we know it today. The changes will come due to technology and will provide financial institutions with both opportunities and challenges.

The global recession put a spotlight on banks; these institutions were largely responsible for the near-collapse of economies and although they have weathered the storm, people’s trust in them has not been restored.

Out of the failure of financial institutions came the bitcoin protocol and blockchain technology. This was followed by the arrival of fintech startups and neobanks, both of which threaten the consumer account monopoly enjoyed by retail banks, which is referred to as ‘legacy’ in the financial media. According to various consultancies, new players could capture up to a third of incumbent banks’ revenues in the next 2–3 years. If banks don’t respond to this, they are in danger of disappearing.

However, there is good news for the traditional banks: the new technologies that are threatening the banking industry also present significant opportunities. They can leverage big data and advanced analytics to improve customer experience, as well as build trust, loyalty and revenues. Dan Cohen, SVP at Atos, said: “Banks are at a crossroads. Continuous fintech innovation and new technologies such as blockchain are disrupting the market. While it creates threats, it also opens multiple opportunities for financial services to reinvent themselves and thrive.”

Here are five of the technologies that will advance fintechs and potentially cause more disruption in the banking sector, unless the banks are agile enough to incorporate them.

1. A hybrid cloud

Cloud computing tech has gone mainstream in banks pretty fast. It was found that at least 75% of bankers said their most successful cloud initiatives had already achieved expansion into new industries, creation of new revenue streams, and expansion of their product/services portfolio.

2. APIs

The combination of open platform banking and open APIs will change the entire banking ecosystem in its current state. In this scenario, the bank will serve as a platform, on top of which third-party companies can build their own applications using the bank’s data.

3. Robotic process automation

Robotic process automation (RPA) has helped banks and credit unions accelerate growth by executing pre-programmed rules across a range of structured and unstructured data.

4. Instant payments

Consumer demand for instant payments is on the increase. With instant payments, more transactions will be made digitally instead of in cash, which means that payments will become less expensive and more user friendly.

5. Artificial Intelligence (AI)

The benefits of AI in banks and credit unions are widespread, reaching back office operations, compliance, customer experience, product delivery, risk management and marketing to name a few

5 AI trends in 2019

As the use of Artificial Intelligence (AI) has grown in 2018, we can expect to see even stronger growth in the technology in 2019. One of the reasons it is bound to increase its presence in our lives is that it makes life easier, whether it is chatbots in business or Alexa in the home. According to Analytic Insightsand Forrester Research, in 2019 we will also “see the rise of new digital workers with an increased competition for data professionals with AI skills.” But, what else can we expect from AI next year?

More chatbots and virtual assistants

We will see more advanced use of AI virtual assistants on websites to answer customers’ queries and provide customer service assistance. For example, companies will create virtual agents with a face and personality to match to handle complex tasks to drive business, like, Autodesk’s virtual agent Ava has a female face with a voice that speaks emulating the company’s brand.

Improved speech recognition

Alexa may have started the trend, but in 2019 voice-activated services are going to be even bigger business. Already Sony, Hisense and TiVo have unveiled TVs that can be controlled by voice, and even home appliance makers such as Delta, Whirlpool and LG have added Alexa’s voice recognition skills to assist people control everything in their homes.

Smart recommendations

When we shop online we are already inundated with a series of recommendations about what to buy next based on our previous purchases. This is going to get bigger in 2019, with recommendations based on “sentiment analysis” as well as your search history.

Advanced image recognition

We can expect some is changes here in 2019. Don’t be surprised if there is image recognition to detect licence plates, diagnose diseases, and permit photo analysis for a range of verifications.

Cyber security

In 2019, expect artificial intelligence to be more powerful in fighting off cyber threats and prevent potential hackers. Companies including Darktrace have deployed and machine learning technologies to detect online enemies’ in real-time and identify cyber threats early on, and so prevent them spreading.