Neobanks still need to build personal relationships

Catalan neobank 11Onze has taken a novel approach to training its recruits in the art of building personal relationships with customers. Anyone who has used  a neobank is aware that without physical branches it is far more difficult to achieve that very thing consumers value in traditional banks – someone they can talk to, and who is designated as their personal banking advisor.

11Onze decided on a pop up Acadamy to take 50 recruits through a 250-hour training course focused on building personal relationships in a digital age.

11Onze COO Darren Smith, who is leading the training, said, “Our philosophy for the whole bank, not just for the campus, is about creating something truly exceptional. The first experience a customer will have with our organisation will be digital and we place a lot of emphasis in the technology and the user experience. However, we wanted to go much further than this. In a digital age we are worried that the personal relationships we build over time get lost and at 11Onze we wanted to bring relationship into fintech banking. We want our customers to have a long and meaningful, personal relationship with our representatives.”

Another reason for setting up the course is Covid-19 and the prevalence of remote working. The neobank’s agents will continue to work from home for some time, which is why 11Onze wanted to ensure that the recruits could also have a means to forge relationships with each other and with senior team members, as well as learn how to build robust client relationships. The bank also wanted the team members to build support networks, which James Sene, Chairman and founder of 11Onze says is impossible to do on Zoom calls.

He said: “The pop up academy was designed to provide a Covid safe and secure environment to give them all the knowledge, skills and tools required to be able to deliver an exceptionally high quality customer service experience. The Academy trained the “whole person” – and our programme places as much emphasis and priority on personal skills, mental and physical health and well-being, as it does on technical and professional skills.”

The importance of teaching customer relationship building

The Academy course delved into psychology and philosophy alongside learning to use new hardware and software. And it included yoga classes. A production team followed the new recruits and asked them to share stories of their journey and development. There is a marketing purpose behind this as Sene points out: “11Onze customers will be able to review and follow the personal journeys of our agents and this will help them develop a real relationship with the customer services representatives.”

He added, “In the digital age, we are concerned that the personal relationship we build will be lost over time, so, at 11Onze we aim to recover that “relationship” aspect that a traditional bank offers to establish links with the community in addition to withdrawing money or depositing it. We want our clients to have a long and meaningful personal relationship with our representatives.”

11Onze makes a very important point with its pop-up Academy idea: whilst challenger banks are often perceived as offering a better service than traditional banks, there are elements of the traditional way that mustn’t be overlooked, particularly customer relationships, because human psychology is very attuned to that need, and fantastic technology won’t easily remove it.

Neobanks need to own their niche

Currently there are somewhere around 256 neobanks in existence, according to Exton Consulting. These brands offer a digital-only experience that are perceived as customer-centric and easy to use, as in opening an account only takes a few minutes. They are also lower cost to use than their physical banking counterparts.

However, only a small handful of these banks have achieved substantial profitatbility. Their names will be familiar: Revolut, N26, Monzo, Nubank and Chime amongst them. The others, which are significant in number, are unlikely to be profitable for the foreseeable future, according to Accenture research, which revealed “the average UK neobank loses $11 per user yearly.”

Part of the problem is the rising cost of providing a service, whilst the margins generated per customer remain low. Finextra correctly reminds us that disrupting the traditional banking market was always going to be a long-haul business, and that it really needs large amounts of venture capital investing to keep the LTV/CAC ratio in good shape.

CAC is ‘customer acquisition cost’, and LTV is Life-Time Value in this case. The LTV is a measurement of the average revenue generated by a customer in a 1, 3 or 5 year period. Clearly, neobanks want this to be as high as possible, but it is one area where they are being challenged, as the average is around 15€ per customer per annum. Banks like N26 and Monzo obtain revenue mainly from “the low debit card interchange fees,” but this results in very low LTVs. Less travel and smaller purchases during the 2020 pandemic has had a big effect on this.

The CAC is calculated by taking the total money spent on customer acquisition and dividing it by the number of new customers. Neobanks do much better than traditional banks in this regard, “with an average CAC of neobanks around 30 euros versus 200 euros for incumbent banks,” Joris Lochy reports at Finextra.

Lochy says that what we are going to see this year is a switch from chasing growth to increasing profitability. Neobanks are being strongly encouraged by VC investors to provide more profitable products, such as investments and credit: products such as credit cards, overdrafts, salary advances and purchase financing. They are also likely to chase small business customers, and provide Banking-as-a-service services to other Fintechs or even banks.

It also follows that some neobanks will stop offering free services. They used these effectively to grow their customer base, but now they may need to charge more fees.

Threats are also coming from the incumbent banks, but perhaps the biggest threat is from Big Tech stepping into this space. As Lochy suggests, what the neobanks need to do is “find a niche where they can excel and not fight head to head with the large banks.”

Finding a niche

This is likely to come by restructuring and rethinking the product offering to provide an even more personalised service, probably in the credit sector. Some would also be better off by targeting a specific consumer group and tailoring their product offering to them. For example, the Longevity Bank is for Seniors, and there are ones focusing on women, freelancers and SMEs. Ultimately, what neobanks need to do to survive, is offer something that no other bank, credit union etc offers – that’s what ill really bring home the customers.