Advantages ofneobanks for banks,retailers andclients.

Although they see them as competition, the big banking groups often acquire neobanks. For example, Arkéa has Fortunéo, BNP Paribas has Hello Bank and Compte Nickel. 

Neobanks act as internal laboratories to develop new banking possibilities and stimulate innovation. They also encourage traditional banks to reinvent themselves, including their omnichannel services and user experience. Since COVID-19, the share of online banks and neobanks on the European banking market has grown considerably. In 2017, online banks represented 49% of the European market. They are thus the drivers of competition in the banking sector. 

Moreover, the reduction of management costs is a convincing argument for users: most neobanks are free, or at least very inexpensive. For instance, Oney stands out by offering consumer credit and insurance. A successful example is that of German bank N26, with more than 8 million clients in 24 markets. Its users appreciate the always-on customer service and modern debit card designs. However, neobanks are dependent on fundraising and face the challenge of monetizing customer relationship. 

One of the main drivers of their success is their adaptation to technological evolutions. Neobanks have been able to take advantage of the loss of interest in traditional banking, especially among the younger generation. They are also very present on social media, as shown by Revolut on LinkedIn. Gen-Zers prefer digital communication and wishes to better manage its finances. Free neobanks occupy a small part of the market and other neobanks are inexpensive, which makes them attractive for the digital generation. 

In a world where digitalization prevails, neobanks face a major security and compliance challenge. In France, the ACPR (Prudential Control and Resolution Authority) plays an important role in watching and controlling the new financial players, ensuring that legal and regulatory requirements for consumer protection are respected. However, some believe that neobanks are less secure than traditional banks because of recent cases of fraud and data hacking. Think of Revolut, for instance: numerous users have been hacked, and only a few were refunded. 

Being dependent on technology is another major challenge for neobanks, who entirely rely on digital platforms. “All businesses rely on information. Traditional banks use legacy systems that don’t adapt easily to change. API could be a solution to renew the system, but in the end, technology is more of an asset for neobanks than it is for traditional banks”, explains our expert. 

The impact of neobanks on competition in the banking sector is concerning. Even if most clients see them as additional services only, neobanks intend to become their clients’ main bank. To achieve this goal, they will have to broaden their offers and include key elements such as check deposit and consumer credit and mortgage. Such development requires considerable investment. 

“In a nutshell, neobanks play a key role in driving the evolution of the banking sector, fostering competitiveness and innovation, particularly in terms of customer experience.” 

They provide considerable advantages for clients, retailers and traditional banks, such as ease of use, lower costs and personalized services. However, there are still many challenges to tackle, including security, compliance and profitability.  

In order to succeed, neobanks will have to focus on: 

• securing transactions, 
• data protection, 
• and exploring new ways to make money. 

Their ability to adapt to an ever-changing environment and to new technologies like AI and blockchain will determine their success and impact on the overall banking industry. 

Could neobanks reshape the way we handle our finances and transform our relation to money? Only time will tell.