What's So 'Neo' About Neo-Banking?

To a large extent, neo-banks are technology platforms that integrate with traditional banks through open APIs. This makes them inherently scalable, nimble, and flexible, with the ability to innovate on product propositions and business models.

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Over the past few decades, traditional banks have established themselves by dividing their business functions into siloed departments. Consequently, their systems, processes, and culture all function as distinct entities. Traditional banks also rely heavily on a “physical touch model”. This means feet-on-street sales forces, branches, and other physical distribution channels play a key role in their day-to-day business operations.

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However, the business of banking is changing drastically. As costumers’ behaviours and expectations change, so do business and operational models. This phenomenon has resulted in the advent of ‘neo-banks’ or ‘challenger banks’.

To a large extent, neo-banks are technology platforms that integrate with traditional banks through open APIs. This makes them inherently scalable, nimble, and flexible, with the ability to innovate on product propositions and business models. These factors bring many inherent advantages to neo-banking models over traditional banking models.

Let’s understand some of the key features and benefits.

Distribution platform

The traditional banking model is based on a physical platform, a brick a mortar model whereas neo-banks are completely digital and mobile-based. Neo-banks also have a lower customer acquisition and servicing cost as compared to traditional banks where they basically service on a high touch model. They also have a lot more community engagement with the product as compared to traditional banks.

Open tech-platforms

Neo-banks have an open tech driven platform wherein they provide an open ecosystem allowing access to external developers along with the ability to plug and play best in-class tools and services. They provide an open architecture technology, stack and open banking opportunities with the help of APIs.

Data-driven business

When we talk about traditional banking, the business is more product driven, rather than data driven. There is a mix of paper and online data which makes monitoring and reconciling the data more difficult. In the case of neo-banks, there is real-time data integration and management which makes the process more scalable and flexible.

Hassle-free account operation

When everything is digital, there is no need to stand in a long queue at a bank branch or fill out extensive paperwork. A neo-banking account can be opened through a paperless, presence-less, digital process that takes less than five minutes to complete. What’s more, you can do it on your smartphone.

A different class of UI/UX

Neo-banks are all about providing an excellent, seamless customer experience. This means you don’t have to work through a glitchy internet banking site which is difficult to navigate. Neo-banks offer crisp, well detailed, highly responsive mobile apps with innovative features such as fingerprint locking and facial recognition, the ability to hide or show your account balance through hand gestures, swiping up/down/right/left for different functionalities, etc.

Niche features

Neo-banks, such as Revolut and Monzo globally, have pioneered the concept of paying seamlessly in any currency for cross-border transactions. These transactions are free of forex mark-ups or any other charges. Neo-banks also offer many innovative tools for safety and security, which are critical especially when spending abroad or in unfamiliar destinations. Some examples are real time block/unblock of card, any spend category, setting spends on different transaction categories, location based transaction risk monitoring etc.

As neo-banks are becoming more established, different aspects of personal finances are also becoming a part of their offerings. Neo banks around the world are experimenting with finance trackers, investment opportunities, and many more innovative personal finance tools.

Value-added tools

Along with banking products and services, neo-banks also offer a host of innovative tools for both ease and utility. These include ATM locators, bill splitters, monthly budget creators and trackers, and much more.

In a nutshell, neo-banking is much more than just a cool mobile interface on top of a traditional bank account. While digital banking (or mobile banking) has been prevalent for at least a decade or so, neo-banks bring much more to the table. With a differentiated and simplified, yet holistic banking experience, and features that help users build intuition and take charge of their personal finances, neo-banks are changing the way we think about banking.

Banking truly can be accessible and user-friendly, and soon, it will be.