Neobanking tactics traditional banks should consider
Although not initially perceived as a true disruptor, challenger banks have more recently lived up to their name, amassing billions in venture capital funding and drawing millions of customers to their digitally-based banking model. It's clearly making traditional banks take a look at what can be done to compete.
London-based Starling Bank raised over $900 million in April of this year, while Chime, the most popular American neobank, raised over $485 million in Series F funding in late 2020. This massive bet on the success of challenger banks stems from a general increase in digital dependency, with the fintech sector rapidly growing during the Covid era.
Although traditional banks are also benefitting from increased deposits over the past two years, neobanks have undoubtedly touched a nerve that could serve more established financial institutions well if properly understood. By offering the unique features of a challenger bank, older banks looking to attract digital natives can combine the more modern advantages of neobanking with the benefits of working with a physically present bank.
Values-based banking, and mission-based interactions overall, are an integral piece of the neobank approach. In an age of online activism and increased individual expression, customers are looking for more than a reliable financial institution to deposit their hard-earned cash. Rather than competing with larger banks at the generic level by casting a wide net, neobanks aim to offer specific perks that align with their target audience.
Daylight, a challenger bank that aims to serve the LGBTQIA+ community, lets customers know how LGBTQIA+-friendly their spending is, in addition to receiving up to 10% cashback on LGBTQIA+-owned bars and allied businesses.
Built-in spending trackers already exist within most banking applications; however, they aren't necessarily values-focused, which is neither the case for cash-back deals. This self-reflective approach may not stand on its own for Daylight, which has yet to officially launch. However, the idea could easily work for an existing institution whose success doesn't solely hinge on valuesbased banking.
Beyond addressing personal values, neobanks differentiate themselves as drivers of industry, reaching out to small-business owners and gig workers who may have a more difficult time obtaining loans or opening a business account due to poor financial history or a failure to meet a minimum income threshold. The gig economy saw a healthy increase in 2020, growing by 33% as the global economy sustained a severe hit, creating a significant niche for neobanks to take notice of.
E-commerce challenger bank Juni quickly caught on to this phenomenon, crafting a digital banking model with built-in invoice fetching and customizable financial reports while claiming to accelerate cashflow via its own credit product backed by multiple partnerships.
The bank is still in the beta phase; however, these innovative, demographic-focused financial planning offerings are essentially more sophisticated extensions of features that currently exist within a traditional bank's infrastructure.
Leveraging the proper tech to make the banking experience simpler for entrepreneurs could be an extension of an already existing business account.
The financial planning technology is ripe for the taking, yet traditional banks have allowed challenger banks to craft it for their business model rather than utilize it for their hungry customer base.