When Fintech and Neobank upstarts first showed up, they were often dismissed as ‘novelty’ competitors to traditional banks. But these digital upstarts were not to be underestimated — They’ve let sleeping giants lie while investing in the digital and mobile-first technology customers have long demanded for.
By now, many fintech services and Neobanks have established themselves in the market and risen up to take on traditional banks. They’ve done so smartly, recognizing gaping gaps in the service and experience that today’s customers have demanded for some time.
Many fintech services have seized these opportunities and grown into major contenders for today’s banking customers. Neobank Dave, for example, launched merely 4 years ago and already boasts 10 million customers — and will be a publicly-traded company this fall at a valuation of $4 billion.
According to the Financial Brands’ Neo Bank database, leading Neobanks have customer bases in the millions, with the leader in the US Webank at over 200 million. Fintech services such as Nerdwallet are serving over 150 million customers, right from their smartphones and there are a host of others not far behind.
How Traditional Banking Giants Got Caught Sleeping On Digital Transformation
In their early days, Neobanks and fintech services started off simple, offering pre-paid credit cards and other basic product alternatives to entice banking customers to give the new, cool kid in the block a try.
Sure, not having the overhead of physical branches has helped these startups to offer lower and even sometimes no fee models. But even more key to their growth has been their commitment to investing in digital technologies that elevated the experience for their customers.
Turns out, the digitally-minded customers today took a big liking to that new kid on the block. Today, Neobanks and fintech services compete against their traditional counterparts for high-value transactions like mortgages and car loans, while developing sleek, simple, and digital-first customer services.
For over a decade now customers have grown to expect 24/7 online services, from shopping for products on Amazon to streaming movies on Netflix. This digital transformation has spilled over into virtually every traditional brick-and-mortar vertical. Today, getting your banking done is seen exactly the same way by billions of banking customers.
That market has been silently screaming: Give me what I want, where I want it, and when I want it. In a survey of over 1,000 U.S. consumers in May 2020, 79% of customers indicated they want more all-digital processes from their bank in the future.
Entrenched in legacy processes and infrastructure, banks in large part were late to recognize and adapt to these new consumer expectations. Numerous critical banking processes today are still dependent on processes you could probably find in the 80s and 90s, like the use of fax machines and document scanners.
By their very nature, Neobanks have prioritized completely digital processes that help customers avoid the friction and frustration these processes come with. They partner with fellow technology innovators for virtually every backend process.
Perhaps even more importantly, they’ve done the same with every customer-facing aspect, using digital ID verification solutions and other technologies that help streamline and complete banking processes, while delivering the simplicity and speed expected by the ‘Amazon’ generation of consumers.
With Neobanks offering the digital services customers demand while chipping away at the banking market share, are banks doomed to the same fate as bookstores before Amazon arrived on the scene?
COVID: The Wake-Up Call That’s Sparked “Banktech”
Banks and financial institutions understood the need to tackle these digital challenges before the pandemic but if necessity is the mother of invention, the prolonged shutdown of physical branches has accelerated the need for banking innovation in unprecedented ways.
The realization that became crystallized for banking decision-makers over the past year was: If Neobanks and fintech services can make digital banking a reality, why not Banks?
Financial institutions have many of the ingredients they need:
- They have the financial leverage and capability to allocate investment towards technologies that turn-paper heavy errands into digital customer experiences.
- They possess a vast and longstanding reservoir of knowledge when it comes to servicing their customers. And while fax machines, printers, and other outdated relics really, really have to go, they do have history on their side.
- They have brand trust. Which is a major competitive advantage if they can match the digital game of their fintech rivals.
Passing the Banktech Test
For banks to create digital services that feel easy and intuitive for customers on one hand but also run in harmony with servicing and operations, banking leaders must consider what impacts this connected experience on both sides.
Onboarding an umpteen number of software providers won’t do the trick. Meshing disparate solutions will lead to inevitable integration issues on the business side, and that usually spells gaps when it comes to how these processes are experienced by the customer.
So if you are leading a financial institution, see if you have the tech needed to compete in this new Banktech world:
- Can customers complete processes digitally, uninterrupted? Regardless of whether it’s opening up a credit card account or simply adding a loved one to their account.
- Can customers bank easily and completely through their preferred channel? Banks need to reimagine and digitize existing processes both for customers and employees across branches, contact centers, apps and websites.
- Can banks comply with policies and oversight easier now than before? Have they leveraged the power of mobile, biometrics, and security to make banking easier and more secure?
Digital transformation won’t stand the test of time with customers today if they still need to bounce from one channel to another — whether it’s filling out and signing forms, providing supporting documents, or verifying their identity.
Investing in digital capabilities that can guide customers through every process and interaction is key to freeing up bank’s resources to perform their core services and lose the legacy processes that hold them back.
Nothing less will do if they are to be competitive in the age of neobanks.