Am I kidding? Nope. Is it possible for a bank to run only on mobile apps without even opening single branch? Yes and they have a name for themselves – Neobanks. BankMobile, Number26, Moven and Atom bank are some of the app-only banks that operate in different regions(mostly in Europe and U.S). The products they offer also differ from each other’s but all of them wants to bring your finances close to you. Financial sector, dominated by very big players, is witnessing the never seen disruptions in the name of fintech. Thousands of fintech startups are coming in and disrupting the sector. Israel is just a sample.
There are two important things I attribute as the major factors in this disruption. 1. The decline in the average customer visits to a branch. It has been more than two years I opened a bank account and I haven’t visited any of my bank’s branches yet. If this is the case in a country where almost 50% of the population don’t have a bank account, then imagine about West. A Business Insider survey revealed that 75% of millennials either never visit branches or do so once a month or less. 2. Increased adoption of smartphones. According to GSMA’s Mobile economy report, By 2020, around three-fifths of the global population will have a mobile subscription, with close to one
billion new subscribers added over the period.
At the same time, we can’t neglect the high failure rate among the fintech startups. ING’s head of fintech Benoit Legrand says, “Those guys [neobanks] are competing not only with the big banks but also with the Amazons, the Googles, who have an immense power. We look at Alipay for instance. It’s a tricky game.”(Source: Business Insider). Of course, app-only banks need deeper pockets if they’re going against Goliaths. Nevertheless, I see three main reasons that will help Neobanks conquer the future.
Innovation is at the heart of this fintech disruption. The credit score calculation is one such example that shows how innovation is changing the game. Gone are those days when there were no proper methods to calculate the credit score for the customers with no credit history. Predictive and social media analytics are being used these days. P2P lending, home and education loans are also following the suit.
- Near zero CAPEX
This is one of my most favorite terms that I use to describe cloud-only enterprises. For app-only banks, there is no need to set up branches, scale the infrastructure and buy assets. All they have to do is to develop a brilliant app and scale-up the resources in cloud as per the demand. This almost-zero-capex helps neobanks cut huge costs and pass on these benefits to customers in terms of very less or no fees for transactions.
- Customer Experience
The world around us has changed a lot. We are well aware what Amazon and Uber did to our lives. Whereas we are still banking the same way our parents did. Neobanks are doing a remarkable job in completely changing the banking experience of a customer. Though the products neobanks offer are same as traditional banks, they impress customers with features like real-time analytics and cash flow forecasts. These banks are basically technology companies with banking license and they’re digital first. The speed at which one can open a savings account using their apps is amazing.
Though neobanks has their own challenges like attracting the customers, long-term cash flows, security concerns and so, I could see a lot of potential for them especially in the developing countries. In a country like India, where half a billion population is financially excluded, I see more opportunities than problems. Hence, I do agree with Bill gates that “Banking is essential, Banks are not“.