What can traditional banks learn from neobanks?

Neobanks are primarily tech-driven mobile-first banks. And, tech-savvy millennials in India and worldwide form a major part of their customer user base.

While physical transactions are at the core of the traditional banking ecosystems worldwide, neobanks can be accessed from your mobiles, tablets, or desktops.

This minimises operating costs and various expenditures related to people, property, resources, and management, making neobanks comparatively faster and cheaper. And allows them to reduce fees for their services and provide value-for-money to its customers.

With technology at its core, neobanks can personalise their services and customise offerings.

They provide a range of financial services, including digital transactions, money lending, money transfer, financial planning, expense management, budgeting, and savings tracker.

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Here’s what traditional banks can learn from neobanks.

Customer is the King

The online platforms of traditional banks are quite outdated with old technology and do not provide a good user experience.

Neobanks — with their easy-to-use app, latest tech stack, and user-friendly design — provide 24/7 customer service with the help of AI-enabled chatbots.

With this advantage in their kitty, neobanks successfully target the millennials and teens, who are looking for digital solutions for their daily problems, banking being one of them.

Many solutions are coming up for teens below the age of 18, and these solutions are educating teens on financial freedom and money management.

Similarly, corporates are facilitated with innovative financial products on liquidity, mutual funds, and last but not the least, the new word in town – cryptocurrency.     

Traditional banks are less customer-oriented and more into cash account generation. It takes three to five working days for account creation in a physical bank, and, in case of issues, the customer service at counters makes one wait for about two to three hours on call.

Contrary to that, creating an account in a neobank happens within 30 minutes on the mobile application. Further, these fintech startups put the customer on a pedestal and ask for constant feedback and personalisation needs.

Traditional banks need to start having a customer-first approach — new-age customer engagement and servicing technologies using pre-defined chatbots and issue resolution to have customers’ questions respond seamlessly as a generic guide.

In case any further resolution is required, in-demand customer support should be made available round the clock. 

Modern technology

As neobanks are often startups that are lean, flexible, and fast, a major advantage of neobanks is that they have modern IT infrastructure, which allows them to adapt quickly and launch new products and services.

Most neobanks provide their core services as easy-to-deploy APIs and provide their customers with banking as a service.

Traditional banks in India spend around 2 percent of their annual revenue on technology, according to PricewaterhouseCoopers India. These banks need to scale up their technology spendings to at least 8 to 10 percent.

They need to replace their legacy IT infrastructure and adopt modern infrastructure, which will help them save up on the cost of physical infrastructure.

The cost advantage directly gets transferred to better customer services. Besides, this technological shift will result in smooth and up-to-date technical setups and rapid product launches in the future. 

Banks should consider moving their digital infrastructure to the cloud to make use of cloud storage. It will enable personalisation for its customers and will optimise the engagement between the services and the customers.

Cloud migration will result in better security of client data, fewer errors and regulatory mishaps, and stronger customer relationships.

Transparency and advanced security

Security and transparency are two major concern areas in digital banking. The data security laws make it mandatory for fintech companies and neobanks to secure the details of their customers and prevent any unauthorised access to their accounts.

Besides, neobanks implement biometric verification, two-factor authorisation, encryption technology, and role-based access control to prevent ransomware attacks and frauds, making banking safe for customers.

In fact, neobanks are transparent with their customers as they provide real-time notifications of payments and transactions. They also inform about the extra charges and if any penalties are incurred by the customer in a particular situation.

Traditional banks ensure the security of their account holders by spreading awareness of common frauds and mistakes. Adopting the latest technology will optimise and monetise their database and data to make it safe and resistant to any kind of malware attacks and glitches.

The road ahead

In the last five years, the number of neobanks and digital banks has grown significantly globally. Today, there are over 100 neobanks worldwide. In fact, India has more than 10 neobanks active in the banking sector.

Given their existing customer base and quality of services, these neobanks will exponentially grow in the next five years in India.

Neobanks have changed the business model of traditional banking. But, these traditional banks have their own set of competitive advantages.

Most of the banking customers still maintain a high level of trust in their respective banks, which indicates there is still an opportunity for them to leverage their primary customer relationships and offer better services, mainly digital, through partnerships.

They should use them strategically and partner with the neobank startups to provide a seamless and efficient digital interface to their customers. 

By implementing these lessons, traditional banks can find practical ways to improve their approach and working model, allowing them to leverage their strengths, adapt successfully to the new era, and, therefore, remain relevant in the world.