When banks partner with fintechs

How the neobanks tackle banking’s big problems

Neobanks are having the same effect on banking, as quantum theory did on our ideas about reality, Medici suggests. Furthermore, digital banking has become a part of our everyday lives.

Stash CEO, Brendan Krieg, claims that his company has gained over 3 million customers since 2015. He says that the reasons as to why they have become so popular is that they’ve studied the consumer, and discovered that the average person wants to live a better financial life. Perhaps it is unsurprising that Stash’s average user is a 29-year-old who makes $50k a year, not a bad salary for a Millennial these days. But, success, Krieg suggests, is down to the fact that Stash’s app makes it easy for people to invest.

As Medici points out, the neobanks have gained their successes because they are meeting the customer where they are and are finding ways to connect advice, banking, and investing in one experience.

This applies not just to Stash: it’s a global phenomenon. The leading success factor for the major neobanks’ growth appears to be their superior customer experience compared to the traditional banks.

The redesigned mobile and web applications, and smooth customer onboarding, have enabled players like Monzo, Atom and Starling Bank to grow at speed.

Also, by eliminating costs associated with physical branch maintenance, neobanks are able to reduce the fees associated with key products.

However, while the customer experience seems to be the neobanks’ key selling point, there is another factor. They are solving the bigger issues with conventional banking.

For example, they are looking at innovative product offerings and improved customer service. Medici gives the example of Open, a neobank in India. It has integrated automated accounting and payment gateways with their current account offering. Furthermore, its platform enables startups and SMEs to integrate banking and accounting in one place using a multi-bank connect feature. And Open helps startups and SMEs to manage employee expenses in a seamless way.

Another example from India is InstantPay. It is focused on bridging a gap that traditional banks have not looked at since banks opened in India, and that is some time ago. InstantPay drives financial inclusion in a responsible and sustainable way and has reached 10,000+ PIN codes, and caters to 50 million unique customers.

Anish Achuthan, CEO of Open, said, “Most Startups & SMEs generally use multiple dashboards and interfaces for invoices, bookkeeping, and online payments. Making vendor payments and employee payouts have always been a challenge. All of this drains entrepreneurs and finance teams of their time & energy.”

Western neobanks have been successful largely because of the customer experience they offer, while in the Asia-Pacific markets the neobanks have to take a step further by answering core banking problems in the industry, such as like ‘knowledge transfer,’ ‘undocumented logic,’ ‘technical debt,’ and a ‘skills/desire gap’.

 

Neobanks shake up banks’ brand values

Image result for Neobanks shake up banks’ brand values

In the wake of the rise of the neobanks, it is perhaps no surprise that the brand values of eight of the  big high street banks, such as HSBC and Barclays, have dropped by a massive 75% over the last year, according to data from Kantar, reported by Business Insider.

This amounts to a collective $2 billion in lost brand value, Kantar revealed, which uses financial data and survey results to determine brand value.

Significantly, NatWest was the only major bank studied to see an increase is attributed to the rise of popular challenger banks like Monzo, Revolut, and Starling, because they are taking business away from the established banks.

How are the neobanks posing a threat to big bank brand values?

The short answer is that they are more successful at managing their brand across all their product offerings. Here are some points from Gregory Magana, writing for Business Insider, that explain the situation more fully:

  • Neobanks are physically recognizable. For example, Monzo’s coral-coloured debit cards are easily recognized and highly visible. This helps to keep the neobank in consumers’ minds when they see others using the card. And this tactic seems to be catching on across the banking sphere.

 

  • The neobanks’ banking tools are high-tech and intuitive. Successful neobanks excel at impressing customers with their online banking offerings and giving consumers features that offer them intuitive control over their finances, plus they’re continuously increasing and upgrading their suites of tools. For example, Monzo recently announced that it was beta testing a feature that lets consumers block their own spending at specific retailers.

 

  • Neobanks also market themselves extremely well. Earlier this year, both Monzo and N26 delivered major ad campaigns designed to accelerate growth beyond what word of mouth was providing. Both campaigns use minimalist, eye-catching imagery designed to draw attention and are located in high-traffic areas like the London Tube.

 

The heritage banks could revamp their marketing strategies, but they should be careful in creating “edgy” campaigns that mirror neobanks’, because that won’t win them customers. They could improve their marketing, by employing edgy strategies like those used by the neobanks. However, it does require a subtle approach. Just last February, Revolut was ‘shamed’ on Twitter for its Valentine’s Day ad that suggested ‘singletons’ were sad, lonely people.

But will marketing be enough to stem the tide of customers flowing towards the neobanks, or does it really require a major rethink on the part of the banks with regard to their products and customer service. Smart marketing and funky advertising campaigns will not be enough alone.

The disappearing banks