The aftermath of the global financial crisis in 2008 left many people losing trust in traditional banking to the point that they sought alternative options. With the rise of technology, smartphones, cloud computing, and artificial intelligence, the development of neobanks began. Over the years, the number of neobanks has increased rapidly, especially with the help of companies such as Intellect Design, which focuses on achieving deposit growth, meeting regulatory and industry compliance, and improving operational efficiency. However, it wasn’t until 2014 that the trend began.
The first neobanks were formed in Europe, and to date, the United Kingdom holds the most significant number of neobanks, with 37 neobanks operating there. While that may not sound a lot, when we look at the finer details, we’ll see how more people are leaning towards using digital banks and becoming less dependent on traditional banking. The anticipated increase of digital banking users globally is expected to be 3.6 billion by the end of 2024, while the transaction value in the neobanking market is projected to reach US$6.37tn by year-end according to Statista. Due to this, traditional banks are constantly in a tough spot, with many large banks being forced to close down multiple branches and even having to sell out and shut down.
With the Canadian government mandating the Financial Consumer Agency of Canada to administer and enforce a consumer-driven banking framework earlier this year, success will depend on the private sector. But what are the benefits for consumers, anyway?
Neobanks vs. Traditional Banks: The Advantages and Challenges
With neobanks offering better deals, easier access, and an overall smoother experience, they’re becoming an obvious choice for consumers, especially in the digital world. Despite their challenges, traditional banks have been given the opportunity to step up their game, rethink pricing, and improve their customer journey. The real question here is, is it going to be enough? Neobanks and traditional banks represent two distinct paradigms in the financial services sector, each offering unique advantages and challenges. To better understand how the two institutions differ and what advantages and disadvantages each bank type offers, it’s essential to fully understand what makes a neobank different from a traditional bank.
Neobanks
Neobanks are digital-only banks. They operate without any physical branches and offer innovative financial services to their customers. They are powered by cutting-edge fintech technologies, which assist in improving and automating the delivery of financial products and services. Due to neobanks providing banking services exclusively through digital platforms, such as mobile apps and websites, they have excelled in user-friendly digital experiences, agile operations, and streamlined services.
The Advantages:
- No fees and competitive rates surpass those of traditional banks.
- Round-the-clock access via mobile phones and computers for customer convenience.
- AI customizes products, provides budgeting tools, and offers rewards.
- Cater to diverse demographics with specialized services such as travel, gaming, cryptocurrency, and environmentally sustainable banking.
The Challenges:
- Establishing trust and ensuring security on digital platforms.
- Navigating complex regulatory requirements in the financial industry and cyber security.
- Balancing low-cost or free services with sustainable revenue generation.
- The lack of understanding of their target markets can lead to misalignment with customer needs.
Traditional Banks
Traditional banks boast extensive physical branch networks, a long-standing reputation, and a wide range of financial products. Their brick-and-mortar presence is one of their defining characteristics, setting them apart from their digital-only counterparts, such as neobanks. Physical branches and ATMs allow customers to access their service in person and provide a completely different user experience than neobanks.
The Advantages:
- Physical presence provides customers with convenient access to services.
- Long-standing credibility and regulatory trust.
- Comprehensive services, a wide arrayIntellect of financial products, and personalized advice.
- Personalized customer service allows face-to-face interactions for tailored financial guidance.
The Challenges:
- Branch-dependent services may inconvenience customers without nearby locations.
- It can take time to adopt new technologies and innovative banking solutions.
- Traditional banks usually have higher fees for transactions and account maintenance.
- Due to their size and legacy systems, traditional banks may have more bureaucratic and lengthy processes for services.
Why The Future of Banking is Neobanking
Based on the statistics alone, it’s safe to say that the future of banking is neobanking. Even when we put the numbers aside, we have already seen how traditional banks try to follow in their footsteps when offering the safe sort of digital services neobanks already have. Traditional banks will need to harness the power of technology and innovative thinking if they, too, want to boost their growth. Consumers will always look for better, faster, and cheaper convenience. The fact that neobanks are breaking down barriers that have kept people from fully participating in the financial system and making sure everyone, no matter where they live or their background, can access money effectively gives them a major boost in the financial industry. Though traditional banking does have more to offer in terms of products and services, when it comes to your everyday banking and ease of use, neobanks can be found at the top of the list.
Neobanks in Emerging Markets and Intellect Design’s Contribution
Since neobanks first came, they have been popular in Europe, Japan, the US, and Australia. Ten years later, neobanks continue to grow, but now, we’re seeing more neobanks operating in other countries, especially those that lack financial services. Underserved populations such as India and those in Asia are getting to enjoy the advantages neobanking brings, and Intellect Design is proudly taking part in this. Currently, neobanks partner with existing banks because they do not have a banking license. While it will take some time for this new form of banking to expand in such locations, Intellect Design’s products and services, which have all been built with eMACH.ai design principles, can provide banks and financial institutions with agility, flexibility, and composability while keeping the customer at the centre. Using artificial intelligence and data to personalize their products and services, Intellect Design successfully assists neobanks in creating more customer value and choice.
Visit Intellect Design’s website to discover how it’s playing a huge role in this life-changing financial movement and the difference its products and services are making in the financial industry.
