Why Сlassic Banks Are Losing In The Neobanking Market

Neobanks are fintech companies operating in the virtual space. Their main feature is that all operations are carried out on digital platforms. Thanks to the pandemic and the shift of business to the online format, the development of neobanks has accelerated, and the number of clients has increased significantly. What do classic banks lack to regain the attention of customers? If you intend to take control of a fintech product, we recommend contacting Kindgeek. This is a reliable fintech software development services company that will help you experience all the benefits of neobanks.

Advantages of Neobanks

For some, neobanks are shrouded in mystery, while others boldly take advantage of the benefits of digital banking services. Let’s look at them.

1. Ease of interaction with clients

Neobanking is all about convenience. The client does not have to leave home, adjust to the opening hours of the branch, and stand in queues. Any transaction available in a neobank can be carried out online at a convenient time. So, for example, to get a debit card, a client of a regular bank will have to go to the branch with a passport and, together with the manager, fill out a form and other documents. But a client of a neobank just needs to go to the website or application and independently issue a virtual card, which can be used immediately. If a plastic card is required, the client sets a suitable date and time for the courier to arrive.

2. User-friendly application

The digital platform is the face of the neobank: Through it, the user interacts with the bank and gets an impression of the availability of services and the quality of service. The more convenient the web service and application, the higher the likelihood of retaining the client. Neobanks effectively use their digital tools: The applications have an intuitive interface, all necessary functions are fully available, and transactions are carried out simply and quickly. To protect finances, the user can set up authentication and payment using biometric data.

3. Low tariffs and high-interest rates on deposits

Neobanks do not spend money on maintaining the operation of branches, which means they can afford to charge low fees for transfers. Often, such banks do not have card service fees. They offer clients more favorable rates and higher interest rates on deposits and savings accounts. Now, with an average deposit rate of 7.5-8% per annum offered by classical banks, in neobanks the rates reach 9%, and somewhere even 11.5%.

4. Comfort and personalized service

New services are appearing, and existing ones are becoming more convenient: The client receives a response to a loan application in a few minutes, pays bills in one click, and uses the services of the bank’s ecosystem by subscription.

Neobank services are personalized: In an application or web service, the client sees suitable offers that are formed based on his preferences, financial habits, and other factors.

Cons of Neobanks

In their work, neobanks face serious difficulties that complicate their activities.

1. High risk of the loan portfolio

Flexible policies help neobanks quickly increase the number of users, but at the same time the risk of the loan portfolio increases. The requirements for borrowers are not as high as those of conventional banks, so the client base is less reliable. If overdue debts and loan defaults increase significantly, the neo-bank will lose a huge share of its profits.

2. Unadapted legislative framework

Since neo-banks have emerged quite recently, their activities are more difficult to regulate from a legal point of view. Neobanks are subject to fewer rules, and sometimes this affects the number of services offered: some of which a neobank is not entitled to provide because it does not have the same status as a regular bank at the legislative level.

What Advantages Do Classical Banks Have?

Despite the rapid development of online banking, the traditional banking model is not going to give way. Here’s where classic banks beat digital banks:

1. No licensing complications

To become a full-fledged part of the market, neobanks require a license. It can be difficult to obtain. In such cases, many choose a model of cooperation with a regular bank: the neo-bank acts as a provider of technological solutions, and all obligations and credit risks are assigned to the partners.

2. Status clear to the client

Not everyone likes digitalization. It is generally accepted that young people are enthusiastic about online payments, personalization of offers, and the ability to pay using smartwatches. However, according to a study by Marqueta, 87% of Generation Z prefer the services of traditional banks. Older clients are even more likely to distrust innovations. How can you entrust money to a bank that does not even exist in physical space? It’s better to come to the branch, although you will have to find a convenient moment and stand in line. So, on the side of classical banks, a significant aspect is a sense of reliability and a clear status.

3. Unlimited range of services

This advantage is related to the first one – having a full banking license. Neobanks do not always have the opportunity to obtain it, so they are forced to work in conjunction with classical banks or purchase a license for individual services.

How To Remain Competitive?

It is necessary to focus on customer requests and take into account the desires of the younger generation, who use digital platforms more actively than others. According to the results of the already mentioned study, 54% of young people value special offers and the opportunity to receive bonuses, 34% value convenience and speed of service, 31% value more favorable rates, and 22% value the ability to make payments through social networks.

Statistics show that it is beneficial to expand the list of advantages: To have both physical branches and online functionality with additional bonuses. For example, you can introduce loyal tariffs for virtual card holders, and not charge a fee for servicing such a card. This will be appreciated by existing customers and will attract new ones.

Digital platforms will benefit not only clients but also the bank: With their help, it is easier to optimize internal processes and operations management, which means employees will be less stressed.

Final Thoughts

When creating an online banking platform, it is important to follow trends and remember that user comfort comes first. The clearer and more convenient the interface of the web service and mobile application, the more willing customers will be to use online banking services. If you are looking for a reliable and experienced company for fintech software development, we recommend contacting Kindgeek. The Kindgeek team develops products taking into account modern safety and quality requirements.