The growth of new players in the financial sector is a wake-up call for traditional banks, which need to adapt to the digital transformation process and avoid being left behind
Neo-banks
burst o
nto the financial scene by targeting a very specific audience: the
G
en
Z
and millennial generations, who
prefer banking solutions that are readily available on their cell phones.
The trend began in the UK and Germany and has expanded rapidly in Europe and Latin America.
N
eo-banks
now account for 29% of the digital banking market in Spain
and four of the
world’s
biggest are Latin American:
This dramatic growth goes hand in hand with the low structural costs
fueling neo-banks’
expansion
,
as well as
continuous
product
upgrades
due to technolog
ical advances
.
A
t the beginning
,
they only offered payment services
but
today
,
they offer a variety of services
,
such as
savings
accounts, debit and credit cards, transfers, financial management, loans, and more.
The arrival and of subsequent expansion of neo-banks are a wake-up call for traditional lenders, which need to adapt to the digital transformation
processes and avoid being left behind, because more and more users prefer to use mobile banking,
which is
available 24/7.
A
, a fintech as a service (FaaS) that offers payment solutions, showed that 65% of Mexicans said they would be willing to leave their traditional bank for a digital one.
So, what makes these new financial institutions so attractive? From a superior user experience to new economic models, neo-banks
enjoy
several advantages when it comes to acquiring new customers.
S
ome of
neo-banks'
biggest
merits—
ease
of use
, practicality, time savings
—stem from
the fact that all
of their
services are virtual. Users can
do
everything
without leaving home,
from seeking
technical support
to
pay
ing
bills
or access
ing
their financial information
in real time.
They also
offer
the opportunity for instant, low-cost transfers
whatever
the time of day,
and attract attention in a society that is constantly engaged in economic
—
and digital
—
activity.
As a result, user
s
enjoy a
good navigation experience
with
an application that is customer-centric, easy to use and cost-effective, satisfying their
needs
around the clock.
Even though
the
y enjoy
man
ifold
advantages
, these new financial institutions still face many challenges compared
with
traditional banks.
While their wide range of d
igital
features,
such as QR payments and e-wallets
, may make them more attractive,
they are not
going
to
suit
everyone.
In a July 2019 report, the Latin American Federation of Banks, Felaban
,
predicted that
neo-banks wouldn’t be an option for all users due to their lack of product diversity and because they have not yet gained the trust of customers.
Although they
have been adding
to their offerings
at an accelerated pace
,
many do not
provide
all the services that banks
do
, such as mortgages or transactional services for businesses. Nor have they been able to attract users who prefer physical branches.
Regulatory hurdles may be the biggest obstacle. The path to obtain a banking license or fintech license can take years depending on the country and the structure of the
business
.
This absence of a
regulatory
seal of
approval can
diminish
the user's trust in th
e
service.
In the case of
banks,
regulation offers an assurance of reliability
.
When the
first neo-banks and challenger banks
emerged a
couple of decades ago, the dilemma was whether these new business models would replace traditional banking.
Today
,
it is abundantly clear that both concepts can coexist, but
the incumbents need to streamline their digital operations in order to compete.
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