The international economy is becoming increasingly globalized, which calls for easier access to financial services from anywhere. Neobanks are flourishing in contemporary culture because they fulfill customer expectations. Everyone now has the option to avoid visiting the bank each time they have a problem. The browser and mobile interfaces are where most work is done. Neobanks, which operate without physical branch networks and intricate legacy technological infrastructure, are widely considered the industry’s future. Neobanks need to become profitable as soon as they can. But it immediately becomes apparent what a tremendous problem they have when evaluating the business’s direction.
Resistance to Moving Banks
In contrast to traditional banks, neobanks’ business models feature a minimal variable cost structure, making company expansion less expensive. However, this does not ensure rapid growth on its own. The number of customers leaving traditional banks is rising, although the growth rate is less than anticipated. Traditional banks have been able to reduce client leakage by providing digital services. Users of digital banking who can quickly meet their fundamental financial demands are likelier to stick around even when the trust problem hasn’t been overcome.
Neobanks must create and effectively explain their value propositions based on user demands to overcome these obstacles. People tend to maintain the status quo unless they are persuaded that there is a better method. In other words, the bulk of banking clients is not likely to transfer because of the confidence problem.
No In-Person Client Service
Neobanks don’t have physical branches; thus, all customer service interactions occur via phone, chat, or email. Even though fewer people are visiting branches currently because of the epidemic, clients may feel more secure knowing they exist. Therefore, the lack of physical touchpoints is one of the problems that neobanks must overcome.
Neobanks can streamline this procedure with specific design solutions as they offer client service across several channels. First, all digital touchpoints, especially the mobile app, should provide simple access to support choices. Second, focusing on openness and personalization in the user experience may help the development of a welcoming and trusting atmosphere. It may be accomplished by being honest about how the support system functions and how long it would take to resolve problems.
Participation of Incumbents
Since neobanks are funded in their first stages, big players with plenty of money can be risky. It may be quite a nuisance to close outstanding debts, move funds, recreate automated payments, or even change payroll information to get a wage. Customers with high switching costs also have high acquisition costs when switching neobanks. As an illustration, conventional banks like NatWest began to enter this market by founding their neobanks.
Neobanks should play the game by concentrating on their abilities, attention, and quickness rather than attempting to compete with significant players financially. Strong differentiators for neobanks are user-centricity, usability, and cheaper costs. Neobanks can start seriously affecting incumbent firms once these are translated into a particular value offer for clients.
Regulations
Because it relies on rules, the fintech sector is exposed. A fintech solution that can function in one nation may run afoul of the laws of another. Even in the UK, where neobanks have been running effectively for some years, meeting new requirements from the government can be difficult. Neobanks may be compelled to get banking licenses and lawfully use the term “bank” by complying with requests of this nature, which American and Australian regulators also make. The competitors may incur costs due to this, but it may also increase their credibility in the eyes of potential clients.
A one-size-fits-all approach can be disastrous in some markets due to regional variations in rules. Working with seasoned partners in the banking sector may help lessen the uncertainty, particularly when starting operations in a new nation. N26, a well-known neobank with German roots, has teamed with Axos Bank for its operations in the US market. To reduce the risk for N26, Axos Bank offers the required management and control for the USA business.
