Have you heard of challenger banks, neobanks or niche banks? If not – it’s time to read this blog!

By reading this blog, you’ll learn:

1. What is Neobank?

2. Why everyone should have a secondary bank?

The banking sector was long ruled by large commercial banks, which still hold the majority of customers. Some people have committed to a certain bank with a mortgage or finance contract, and some are just used to using the bank they’ve always used – maybe even for generations in their family. In recent years, the traditional banking industry has been shaken with new challenger banks popping up rapidly. These challengers are neobanks, powered strongly by the possibilities of digitalization. Neo and challenger banks tend to be entirely digital, cloud-based enterprises that utilize web platforms and mobile applications as their main points of customer contact.

Challenger banks or neobanks as a term is familiar to people working in the banking industry, but for others it’s still quite an unknown topic. The purpose of this blog is to widen the understanding on what neobanks are and what possibilities they bring with them to the banking industry. The banking revolution is reality for all of us and it’s time to give understandable insight to everyone on what the banking sector will look like in the near future.

Challenger banks are now acquiring significant market share in the banking world. Globally, there are currently an estimated over 250 challenger banks. In fact, according to the research report (https://www.fnfresearch.com/neo-and-challenger-bank-market-by-type-neo-146), the Compound Annual Growth Rate (CAGR) of these banking sectors currently stands at 46.5%. With this number set to increase further to over 578 million US dollars by 2027, traditional banks cannot deny that challenger banks are here to stay.

But with that said – what makes challenger banks so different?

Revolutionary customer experiences

Neobanks, niche banks, challenger banks, virtual banks, and digital banks – the terms vary, but they all work toward the same goal: offering revolutionary customer experiences by utilizing third party partners and using the latest innovative technical solutions.

Let’s look at an example from everyday life:

I’m a big fan of Japanese food and buy a big nigiri set every week from a Finnish sushi restaurant called Hanko Sushi. Who knows about this ritual? Me, Hanko Sushi, and my bank. So, I know what I’ve bought, the restaurant knows what I’ve bought, but also my bank knows what I’ve bought. Unfortunately, most banks are ignoring the opportunity of personalization: by analyzing data to gather insights on their customers and using it to tailor services and make communication more relevant. For example, offers for my favorite restaurants.

When it comes to neobanks, one size does not fit all – instead, they feel the pulse of people and challenge retail banks with more personalized and unique products and services. Beside, Neobanks and challenger banks are most often 100% digital banks, operating on cloud servers and using websites and mobile apps as platforms for their customers.

Challenger banks offer a scale of services from money transfers to savings accounts. With limited services, they are often able to offer customers better interest rates and lower monthly maintenance fees. Challengers don’t just provide a current account for users, but they also offer features that help customers with money management, often homing in on specific needs of customers that are self-employed, or like or need to travel extensively.

They also often work in different types of market segments compared to commercial banks, offering flexible and tailored services, using the newest innovations available in the world. This is why neobanks are desired partners for many millennials, expats, small businesses, immigrants, SME-companies, entrepreneurs, freelancers, and the digital natives.

So, in nutshell, challenger banks:

  • Do not provide physical branches to visit, which reduces the cost of operation and increases profitability.
  • Are able to attract a large customer base with the help of mobile technology and servicing through digital banking platform.
  • They offer digital mobilewallets, virtual cards and payments, investment products and services.
  • Offering better products and services with the help example of AI, PSD2, SaaS, Marketing Automation.
  • Have advanced Omni-channel platform (phone, email, mobileapp, tablet and webbanking)
  • They co-operate with major card companies like Visa and MasterCard

Why should everyone have as a secondary bank?

In addition all above reason, Let’s imagine a scenario where all your banking services are under the same large retail bank. This bank performs a standard update to its platform but encounters unexpected technical issues. Due to these issues the use of your online bank, payment cards and possibility to use your banking credentials to confirm your identity are all cut off for several days. You are not able to pay with your cards, withdraw any cash or transfer money from your account anywhere. How would this affect your everyday life?

This scenario was reality in Finland recently. People who relied solely on one large retail bank were in trouble as they were unable to use banking services while the maintenance issues were being dealt with. People with secondary banks could easily continue their lives as normal. This is a great example of the benefits of having a secondary bank.

With the possibility to decentralize baking services, it’s time to take a critical look at your personal finance services and see if your bank still meets your needs. By moving part of your banking services to a secondary bank, you can bring more security and continuity into your daily banking services. Secondary banks also offer a possibility to benefit from better deals for certain banking services. Make sure you are getting the best the banking industry has to offer in a way that benefits your life the most.

Neobanks are not a temporary fad in the banking industry, they are here to stay. Despite their name, challenger banks can also offer many synergy possibilities for tailoring products and services to retail banks. Positive results of synergy between the two are already strongly seen in for example India. A full-scale banking revolution has started as neobanks continue to harness the possibilities of modern technology and new way of thinking to take customer experience permanently to the next level.

Want to know more about challenger banks? Check out Multitude Groups own neobank called SweepBank, which is new kid on the Fintech block.

SweepBank https://www.sweepbank.com/

Anniina Brusi

Disclaimer: The information provided in this article is intended for general informational purposes only. It is not intended to be, and should not be taken as, professional or financial advice.