Neobanking and its place in the modern financial ecosystem

The digitalization of the economy is rapidly changing the banking sector, which is actively receiving new technologies. Even 10 years ago, no one could have thought that a full-fledged remote banking service would be real. Today, this idea underlies the business models of thousands of banks of a new formation – neobanks, which put the convenience of the client at the forefront and try to collect all possible financial services in one package. What place do they occupy in the modern financial world, and what awaits them in the future? Let’s dive in.

Benefits of neobanking 

The emergence of neobanks is associated with the development of the communications sector and remote banking systems, which made it possible for credit institutions to operate fully without physical offices, and therefore without rent payments and the salary fund of tellers.

Huge savings on ongoing operating costs allowed neobanks to offer customers really attractive terms of service, and people appreciated them. Currently, there are more than 2,000 banks of the new formation operating in the world. There are about 400 of them in the UK alone.

Often referred to as challenger or neobanks, such as Monzo, Starling, and Tandem, among others, new-age banks are completely online institutions built from scratch by highly-qualified teams like the one from Itexus on new technology platforms, as opposed to the legacy infrastructure of traditional banks. Typically, neobanks offer higher interest rates, lower fees (or no fees at all), and higher levels of service and support. Without the baggage of outdated IT infrastructure, new players have more opportunities to create modern banking products.

Neobanking perspectives

Despite the more advanced business model, it is too early to talk about revolutionary changes in the banking sector. Firstly, the legislation of many countries still requires that certain transactions be carried out in the physical branches of banks with the obligatory provision of an identity document by the client. Secondly, having appreciated the convenience of neobanks, users didn’t feel deep confidence in them. 

However, neobanks are, at best, in the middle of their evolutionary development. Even the most economically successful neobanks are only narrow-profile tests of the possibilities of upgrading classical banking. A truly universal neobank is a much more complex structure both in terms of organization and functionality, the elements of which will be extremely close to the target audience (in instant messengers and social media), and the list of services offered will not be limited to reproducing the capabilities of classic banking, but will be replenished with fundamentally new options, such as brokerage, access to investment platforms and management of cryptocurrency assets. Of course, this process will go hand in hand with the continuous improvement of customer service conditions. And when all these opportunities are realized, neobanks will finally be able to make a revolution, which has been talked about in the financial world for so long.

Neobanking vs. Traditional banks

It would be very strange if organizations that have dominated the financial market for decades lose their leadership without a fight. If the old banks feel a real threat from the new ones, they will either buy this line of business or do everything to make the work of neobanks outlawed.

Neobanks are convenient, technological and progressive. But not all financial institutions that consider themselves to be among them fully meet this definition. A real neobank should combine the functionality of a classic bank, fintech solutions, the ability to work with cryptocurrencies and options for trading on the stock exchange.

Well, in the current economic conditions, neobanks really have no chance of dominance, but thanks to their technologies, they will be able to make the world of finance a better place.