Transforming the banking industry as a whole can be done in many different ways. Challenger banks are paving the way for a more open financial system. Neobanks are doing things a bit differently, although there are certain correlations as well.
In fact, the approach of a neobank and a challenger bank isn’t that different, at least on paper.
Neobanks in the Modern Age
Consumers and corporations all over the world conduct most of their finances in a digital manner. Whether it is online or mobile banking, very little activity is done through physical bank branches.
That is particularly due to banks enforcing digital banking upon their clients. It is a positive change for younger generations, yet problematic for elderly people. Not everyone has access to a smartphone or computer, thus the need for physical branches will always be there. Neobanks are not a good fit for the elderly in this regard, but that isn’t necessarily a bad thing.
What is it Exactly?
The term neobank became popular in the year 2017. It is often used to identify fintech-based financial providers trying to disrupt the traditional banking industry. Similar to challenger banks, neobanks can be divided into two main categories. Some will have their own banking license, whereas others partner with traditional banks.
A neobank only exists in digital form and relies on customers using mobile applications and computers. Anyone who doesn’t have access to either hardware will not be able to interact with this new type of bank. It was never intended for neobanks to have physical branch offices in any region.
While some may see this as a weakness, the younger generations see this as the way modern banking should have been years ago. These new banks are technology-driven and will utilize some creative technologies. This will allow a neobank to provide unconventional products and services, while still catering to as many clients as possible.
Disruptive Technologies Galore
Some of the technologies to be used by neobanks include machine learning and artificial intelligence. Although both of these industries are still in their infancy, there has been an uptick regarding their presence in finance. This is apparent when looking at services such as robo-advisors, for example.
Embracing disruptive technologies is just one part of the equation. A neobank is not encumbered by legacy systems or banking competitors in the traditional sense. It is a different breed of financial services provider altogether. Its only competitors are other like-minded ventures, as well as the company itself.
Anyone in the world can operate a neobank, if they decide to do so. It is for this reason this concept is showing up all over the world as of late. Several notable neobanks can be found on every continent, although the current regulatory situation remains a bit uneasy.
Noteworthy players in this industry include Australia ‘s Xinja and Volt Bank, China’s WeBank, Europe’s bunq, Monzo and Revolut in the UK, and Simple in the United States. It is evident that this list will continue to grow as more time progresses. Obtaining a banking license or forging relations with a traditional bank doesn’t happen overnight.