Neobanks have grown quickly thanks to their application of cutting edge technology and processes – and we can all learn something from them

Neobanks are stepping on the heels oftraditional financial institutions – not because they are digital, but because they have found a different way of communicating and doing finances.

In South America alone, for example, challenger banks serve more than 50 million people and they are present in almost every country in that region. Some, such as Nubank, have even started globalizing. So how come they are getting so much traction?

One of the main reasons is that neobanks have made smartphones their main channel for transactions, operations and customer service. In other words, they have simplified the bank-user relationship and transformed it into an app-client interaction.

Still, only a fraction of users are moving their main bank accounts from traditional banks to neobanks, suggesting that challenger banks still have work to do in order to become their clients’ first choice.

Traditional banking institutions therefore still have time to refine their customer service and operational channels, to make their products and services attractive enough to compete with the new entrants.

Value propositions: The core neobanking innovations

User experience

Neobanks offer a seamless user experience, one that works regardless of the client’s location, and which has functions that fit fluidly into the overall experience. In other words, their design is based on understanding the products and services innovations that can be offered, by putting the client first.

The key word here is personalization, which is something neobanks have focused on from the start. This is a powerful strategy that transforms standard client processes into high-value interactions for each individual user. The use of data and analysis makes it possible to anticipate a customer’s needs by segmenting and thereby building deeper relationships.

In a similar way, neobanks have also simplified clients’ understanding of finances, adding dashboards that are easy to understand, instead of simply showing an account balance and static movements that neither predict nor provide the client with valuable information.

In this sense, traditional mobile banking needs to invest in improving the client’s financial position, adding categories for transactions, expenses, goals and more; everything that helps maintain and optimize user experience.

Convenience of use

While improving the client’s digital financial experience is key, it isn’t the only ingredient for success.

There are other ways of connecting with users, all while maintaining a unique experience through a few simple taps on a screen.

As well as offering personalization and anintuitive and clean UX, neobanks have also transformed the way that clients manage their finances in their day-to-day lives. For instance, they have broadened access to other products, such as investments, which for a long time were only available to a few.

As such, assistance with financial management has become one of neobanks’s value-adds, which are increasingly offering their users investment opportunities with the help of artificial intelligence (AI), to lower risks and optimize results.

Wealthechs, in particular, are using computerized administration and AI to decide on the perfect investment portfolios for clients, taking their risk preferences into consideration.

On par with this automated advice, some neobanks are innovating on security features, by implementing blockchain technologies to guarantee that transactions are protected and transparent.

Process simplification

Before neobanks’ disruption, people had to go to a branch to open a bank account. The new institutions have simplified the process, with digital account opening a major point in their favor from the start.

This brought a big challenge for the traditional banking model, based on a network of physical branches and in-person support. In response, established institutions are introducing new functionalities, such as digital onboarding, and adopting innovative development methodologies to roll out extensive changes in the shortest possible time.

What’s more, the use of sophisticated data analysis has also allowed new players to scale their offerings of more personalized products and services in a simple way.

One example of this is credit. For many borrowers, getting a loan can be a long and frustrating procedure. But by leaning more heavily on data analytics, neobanks can make faster decisions – even more so if that is combined with access to open data.

By managing live data analysis tools, fintechs can base their lending strategies on more modern and complete risk profiles, lowering customer acquisition cost (CAC) and speeding up loan disbursement times.

How to adopt fintech lessons in traditional banking

A common thread through these fintech attributes is their ability to move quickly: they work at ‘digital speed’. This implies an agile development culture, combined with use of innovative technologies.

In this context, in recent years, low-code development platforms have become more popular in the banking world. They offer fast, easy development of personalized digital services, which makes them an ally of financial entities.

Moreover, this type of development works faster with third-parties to find solutions, and this practice is allowing neobanks to create interconnected systems with other technological players.

Neobanks didn’t appear out of thin air: they came about in response to a need for better delivery of financial services. Their models reflect much of what has been lacking in the traditional financial sector.

The good news is it is not too late for banks to improve their digital offering to compete with the newcomers. Financial institutions that want to enjoy a competitive advantage in the market can look to borrowing from the neobanking model – with their main insight being the importance of putting users first when it comes to innovations.

Andy Tran