Digital transformation of banking services

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Banking, like many other industries, is moving towards an online format. One thing to remember is that banks are large, complex organizations. Many of them have been on the market for a few hundred years. Regulations for all financial services are also complicated. So what does this look like in practice?

The challenge

Traditionally, financial and banking services have always been among the most difficult sectors to approach. Most bank names are well known around the world, and there aren’t many new ones often. Until recently, the market seemed stable and conservative in its composition of players.

However, at some point that started to change.

New technologies, fast life speeds have created new demands. Banks have therefore started the digital transformation by simultaneously launching web and mobile applications, adding new services and improving customer support.

At the same time, new laws and attitudes towards the industry have opened the door for small businesses to enter the space. These startups brought other ideas, technologies and products, changing the landscape of the financial industry.

Few of these brands have had a huge impact on the industry before – Tinkoff Bank, for example.

Tinkoff Bank is one of the first digital banks. By the number of its customers, it became the third bank in Russia in 2020. Banks like Tinkoff are disruptors in the industry and overtake the customers of traditional banks. Other younger startups are still growing and will inevitably change the scene further.

In this short note, I want to share some ideas about the creation of a neobank and the main drivers of the ongoing market transformation.

  1. In line. The banking and financial services industry is going digital. Today, customer demand is accessible, easy and secure access to financial management from anywhere in the world. We are now seeing two parallel processes. First, banks are going digital and second, FinTech projects are becoming full time banks.

  2. Innovative products in the banking sector. New digital assets have taken over the world in recent years and are slowly gaining recognition around the world. Crypto services are now provided by some of the old banks and financial providers. Crypto projects are more likely to take this niche. This is because they understand the technology and have been using it for a few years already. Other new services now presented in banks include access to the stock market, savings features, and financial management tools. In addition, some banks follow the concept of Super app and offer customers a bundle of services in one app.

  3. The new customer service. Startups are also winning the market by offering a different level of convenience to a customer: 24/7 support, remote access, and a more user-friendly interface.

  4. Speed. This measurement is one of the most critical factors for all of us. These are not just quick transactions; The new banking service also enables rapid issuance of cards, for example. Issuing a card at Revolut takes one day (it is shipped to you the day after the order is placed) and approximately 3-5 business days minimum at Lloyds, HSBC or other traditional banks. A difference in a matter of days can be a serious competitive advantage.

  5. Cost. The services provided / provided by young fintech are always inferior or free.

Difficulties to overcome

Regulation

New laws (such as Open Banking) have certainly brought new opportunities for startups to operate in payment and financial services. However, clear rules for new assets and unified global regulations are still needed to move faster.

The product

Designing banking and financial products takes time. At present, the range of products offered by traditional banks seems even more attractive to a customer. So, as a rule, for decisions like mortgages, the consumer refers to his traditional bank. However, neobanks have more innovative assets, such as crypto, and continue to add new services to their portfolio.

Reputation and Trust

The financial sector is associated with trust and reputation. The old banks have been operating in the market for many years, while the small projects are still newcomers and yet have to prove their notoriety and build their brand. It can also take time.

Returned

Last but not least is the turnover of startups. It is much lower when compared to the bank’s profits. The business model suggests that startups with better service will engage bank customers. The revenue model is based on smaller commissions but a larger number of customers. There are other options, including adding new products that are not available in the banking industry.

Market potential

A global pandemic has reinforced the rise of the neo-bank. The digital banking market share in 2020 was $ 34.77 billion in 2020, in 2021 it was already at $ 47.1 billion, and the forecast for 2028 (i.e. in seven years) foresees about 722.6 billion. The information is taken from Statista.

The current market still has only a few players. I think this is due to the complexity of the product and the extended time required to create it.

The neobank or digital bank is one of the most exciting products to create; its impact on the industry remains to be assessed. A new level of service delivered today by neobanks (transfer speed, cost of service, availability, customer support) is taking the entire industry to a new level by pushing all those who work in this sector in this competition.

It is an inspiring opportunity to be the founder of one of these platforms. We apply the full potential of new technologies and financial systems to Neobank, which will offer you instant financial management from anywhere in the world.

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