How are Neobanks Driving the Future of FinTech?
The market for Financial Technology (FinTech) has transformed majorly since March, with the COVID-19 virus breaking loose at the global level. You might wonder how a pandemic influences FinTech, but since all businesses require finances & banking support, the current financial technology changes are understandable. We have started this new decade where people are ready for the digital transformation that improves their financial lives. Individuals who have maintained decade old relationships with big banks are now open to the idea of ‘Open Bank Movement’.
According to this arrangement, the financial services industry has backed the emergence of fully-digitized banks known as Neobanks. Also called ‘challenger banks,’ these are viewed as new banking options in direct competition with various legacy institutions.
What Is The Present Situation Of FinTech?
To be honest, almost everyone from the digital banking space is aiming to establish themselves firmly in the market. So, looking at the most notable challenges faced by digital banks at present, customer growth does top the list. Moreover, the extended targets do focus on profitability and good digital experience, which can now be achieved via Neobanks. This banking model plans to improvise and outshine traditional banking methods for a better future.
“Fin-Tech and banks need a cultural reconciliation: risk appetite and tolerate trial errors” – Hugues Delcourt
You can very well see that the use of disruptive technologies like artificial intelligence (AI), cloud computing, and big-data analytics are systematically merged with Neobanks all around the globe. This straightaway highlights the transforming nature of FinTech and how Neobanks are functioning as a supportive banking model during the coronavirus pandemic. Furthermore, you can analyze a growing belief in this latest digitized financial structure that can smartly tackle the limitations imposed by traditional banking institutions.
What is Neobank?
Neobanks can be defined as a modern version of banking services. With traditional banks, you get to access online services; however, the dependency is primarily on their physical branches. But the best part about Neobanks is their ‘digital-only’ financial setup that is gaining quick popularity in 2020.
If you wish to access the services offered by a Neobank, there is no need to visit the bank’s headquarters to fulfill documentation or meet any representative. Each process with a Neobank is fully digitalized and can be conveniently managed through the bank’s official website or mobile app. The concept of Neobanks was first introduced in the United Kingdom. Post the financial crisis, banks that were struggling to cope with heavy financial losses could not lend money to each other. This situation pushed the government to amend the regulations, thereby permitting Neobanks to generate capital and put in place an online infrastructure before finally applying for a full banking license.
Neobanks avert the need to spend funds on constructing a physical branch. The main focus is to offer online banking services supported by AI-based risk assessment tools, user-friendly interfaces, fraud detection systems, and chatbots for streamlined customer interactions. Taking the example of Switzerland, which is the world’s most modernized nation for banking, the rising popularity of Neobanks has been carefully demonstrated. Based on the Swiss Payment Monitor (2020), an annual study conducted by the University of St. Gallen and ZHAW (University of Applied Sciences Zurich) School of Management and Law, around one-tenth of 1,200 Swiss residents who were surveyed during the end of 2019 were already associated with new online-banking solutions delivered by Neobanks at least once. One of the prime reasons for choosing Neobanks was the availability of competitive exchange rates preferred by the candidates.
Neobanks & Their Relationship with Gen Z
The younger generation can very well reap the benefits associated with Neobanks. To be precise, the digitally-savvy category of consumers who want to avoid bureaucracy and desire more flexibility from traditional financial institutions can readily opt for this digitalized banking option. You can easily spot that the current generation is dedicated to online loans that can be managed within a few clicks. This is why Neobanks gain an extra edge since they are characterized by high speed, useful services, and customer-friendly support staff.
What makes Neobanks so efficient?
Incorporating the latest technology, such as Big Data, proves helpful in self-assessing risks and not hiring any external security testing service. You can view Neobanks among bespoke financial services that are expanding their customer base by appealing clients with low credit scores or no credit history. Unlike the outdated risk assessment model, the upgraded structure of neo-banks stresses multiple factors to assess risk. It includes examining the applicant’s online activity and spending history.
Neobanks for the Underprivileged
The outburst of virtual banks without any physical presence has initiated new dawn for FinTech. A majority of these banks are equipped with the latest innovation to fulfill the requirements of underserved market sections, including the unbanked and the under-banked. This segment comprises immigrants, small businesses, independent contractors, freelancers, etc. All categorized under one tag: ‘Underprivileged.’ The mentioned user classes had suffered monthly and annual fees due to low account balances and lack of appropriate advice from big banks.
The overall working model of Neobanks is operated over customer data to present an innovative scheme. It includes the launch of new products and partnerships to attract more customers by serving attractive benefits. Since smartphone usage has risen in the past couple of years, the introduction of challenger banks gets a better platform to outsource banking activity to individuals. We can clearly state that Neobanks are leading the mobile banking revolution supported by flawless design and customer-centric features.
How Trustworthy are Neobanks?
You can surely see Neobanks as a reliable financial model viewed as a revolutionizing weapon in the global FinTech arena. If you are worried that the bank doesn’t possess a physical branch and deals in digital-only services, causing trust issues, try to broaden your perspective! Neobanks is undoubtedly a new idea, but its operations are managed in a highly regulated manner where different companies need to abide by strict security & quality standards. Since everything happens online, cybersecurity is a concern that is smartly self-assessed without the involvement of software testing companies for delivering flawless online banking platforms.
Once all such specifications and quality checks are performed, Neobanks are proven fit to receive a license. At present, Neobanks are investing enormously to ensure fraud detection systems and manage protected authentication. With all these measures put in place, the growth of FinTech does appear promising. To smartly manage security checks for Neobank platforms, you can connect with any renowned software testing company like ImpactQA. Our association with FinTech services is a decade old; therefore, we can relate better with modern Neobanks and their different testing requirements.