Will Neobanks Disrupt the Banking Sector?

Legacy banks are facing challenges as they partially migrate to the cloud or develop strategies for a multi-cloud data infrastructure environment, whereas neobanks have the advantage of building AI-enabled personalisation leveraging their data infrastructure from the beginning

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    Digital-only banks, known commonly as neobanks, are fast-growing. The global neobanking market is estimated to reach $333.4 billion by 2026, rising at a market growth of 47.1% CAGR during the forecast period.

    What’s so special about these new-age banking options? They provide the same banking solutions without the need to visit a physical branch or office.

    Neobanks are especially popular among Gen Z for offering low-cost models with no or meager monthly fees on banking services such as minimum balance maintenance, deposits, and withdrawals. 

    What does this mean for traditional players? Legacy banks are feeling the pressure to upgrade their CX and martech stacks to serve their customers where they are. 

    Neobanks Vs Legacy Banks

    It is no secret that Gen Z and millennials prefer neobanks over their traditional counterparts. These digital-only banks provide complete online banking solutions, from opening an account to several other services, without customers needing to go to a bank. 

    They score more on convenience, fees, customer service, and security and offer comfort to customers in accessing their accounts and conducting transactions. In contrast, several legacy banks still require customers to visit the nearest branch for transactions. 

    Neobanks have lower fees than traditional banks as they have lower operating costs. However, customers who prefer human interaction with bank executives to resolve their issues prefer traditional banks, while millennials and Gen Z prefer 24/7 customer support through their apps and websites. 

    Though both types of banks come under regulatory requirements to protect customer data and funds, customers perceive traditional banking as more secure. In innovation, neobanks score more on introducing digital features like instant payments, real-time transaction notifications and personalised financial management tools.

    Edge for Neobanks Over Traditional Players

    Neobanks are in a position to disrupt the banking industry. As a platform, these digital-only banks allow customers to save time, address their need for recognition, access the best products, and have peace of mind. 

    Olivier Crespin, Former CEO of Zand, says the bank aims to streamline banking operations with minimal paperwork and support its clients’ day-to-day lives to achieve their financial goals. “We keep relatable, building products that generate real customer value.” 

    As the first digital-only bank in UAE, Zand has the advantage of focusing on customer experience and satisfaction first and meeting the needs of its customers. Crespin explains that Zand can provide its customers with ease, simplicity, recognition, and accessibility to the best products because it doesn’t have a high cost, branches, or heavy infrastructure. 

    Sharing more advantages, Crespin adds that not having physical branches also allows the bank to have lower costs than its competitors and gives clients better deposit rates. “Neobanks still expect the DNA of banking to remain intact in terms of efficient risk management while handling clients, transactions, and lending operations.”

    Legacy Banks Must Adapt

    The increasing popularity of digital banks is positively pressuring legacy banks to innovate their digital solutions. “The newly developed digital banks are focusing on streamlining operations to conduct high-volume digital transactions to cater to the rising demand for digitisation,” says Crespin. Banks are also moulding their business strategies to act as a platform to connect various forms of digital transactions.

    As an aftermath of the pandemic, digital acceleration is taking pace, people are showcasing a more digital readiness mindset, and digital banking is becoming the only banking solution to the challenges of today’s digital world, Crespin adds.

    Banks have no option but to use digital tools, as changing customer behaviour increases pressure to enhance efficiency. Thom Kokhuis, Head of Conversational Banking at Rabobank, says improving the customer experience is the key to winning customers, and banks can do so by using convenient digital tools. For experiences and efficiency to be enhanced simultaneously, many banks must reset their priorities. 

    “Banks have to adapt. At Rabobank, we have accelerated the adoption of video conversation in our customer service, making it easy for our customers to chat with advisors and sales staff. We use video channels for life-changing events. For example, when someone is buying a house, we use the video channel to make it more personal. The customer does not have to come to the local branches,” says Kokhuis. 

    Besides features like video chats and convenient customer service, intelligent personalisation enabled by AI is another promising facility. At Zand, the team has built a vital data infrastructure for AI-enabled personalisation; however, Crespin says this is one of the challenges existing banks face as they partially migrate to the cloud or develop strategies for a multi-cloud data infrastructure environment.

    For more insights on CX in the BFSI sector, join us at CX NXT – BFSI Summit, which will take place in Conrad, Dubai on 27 February 2024. For registration and more information, click here.


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