The Financial Circus: On Neo-banks, Customer Experience, and Modern Banking
Remember the times as kids when the circus was the highlight of our weekends, with new acts filling the air with excitement as we eagerly anticipated the next big performance? But over time, the shows became predictable, and the excitement faded as the once vibrant experience turned slow and repetitive. Then one day, a new circus came to town with unique, modern vibes, reigniting that long-lost sense of wonder and excitement.
Traditional banks, once exciting and beloved, have become like circus performances that, over time, turned predictable and familiar despite their skillful planning. Just when the show seemed to lose its spark, a new star emerged—much like a fresh, vibrant circus act. Neo-banks, with their modern and agile approach, are defying customers’ expectations and refreshing the financial world. In this article, we’ll explore what Neo-banks are, why they exist, how they operate, and who they serve.
The origins of the new town’s amusement are entirely online, through mobile apps and websites that provide similar financial services to banks, but with better accessibility and personalization. This enhances user experience while reducing costs by offering lower fees.
The new show concentrates on specific details for its audience members, from purchasing online tickets to picking their favorite seat for the best viewing angles. Neo-banks focus on designing a user interface that allows consumers to explore different mobile features, offering a range of services for a more satisfying experience when opening and managing bank accounts. The new aesthetic user interface quickly familiarizes users with the various financial services available. This thoughtful design addresses unmet market needs, such as cryptocurrency trading, insurance, and investment opportunities, which build customer loyalty. This creates a seamless experience rooted in familiarity and trust, much like returning to a beloved circus or repeatedly choosing the same bank for your financial needs.
Just as a circus ringmaster provides a backstory to bring the audience closer to the act, let me give you some context on how Neo-banks emerged, based on the academic paper Customer Acceptance of Neobanks: What Role Does National Culture Play?
After the economic crisis in 2008, fintech companies identified market gaps related to trust and new regulations affecting banks’ performance. This shift influenced banks to focus more on strengthening risk management and internal compliance, often at the expense of addressing customer pain points. Neo-banks capitalized on their deep understanding of these pain points during various banking interactions, leading to the emergence of new market players focused on modernizing user experiences and offerings. This shift gradually pushed traditional banks to adopt more technologically advanced services to meet customer expectations.
Additionally, lower interest rates encouraged venture capital investment in startups with promising long-term, sustainable market positions, offering higher returns compared to traditional asset investments. This trend highlighted the potential of new startups to deliver better services, gaining consumers' trust as they continued to grow.
The unique performance of the new star captivated spectators, making the experience more memorable—much like the growth of Neo-banks, driven by progressive technology on the supply side and evolving customer expectations on the demand side. These technological advancements enabled businesses to implement automation and leverage customer data while investing in innovative solutions, creating an efficient and enjoyable experience that helps fintechs and banks reach more customers.
A successful performer reads their audience's emotions and anticipates expectations that could impact their performance. This is a key strength Neo-banks use to compete with the benchmarks set by traditional banks and earlier financial services. By identifying weak spots through detailed data analysis, they tailor their offerings to build customer loyalty and maintain a competitive edge. Neo-banks also prioritize transparency, security, and privacy in every aspect of the experience, addressing the nervousness and confusion many customers experience when making transfers or using online banking platforms.
Much like the seating area at a circus, where different groups attend shows that appeal to their individual experiences, this is reflected in the various demographics targeted by Neo-banks, such as entrepreneurial women, Muslim groups (abiding by Sharia laws), and specific professions like taxi drivers. These groups represent an underserved customer segment with specific pain points that require flexible and thoughtful solutions, which Neo-banks are currently focusing on to win their loyalty and trust.
But if you take a quick look at the market, who do you think would most likely be drawn to Neo-banks?
The first group to consider is freelancers or 'gig economy workers' aged 18-39, who are increasingly reliant on freelancing to generate income. This shift highlights the need for tailored banking services that eliminate the usual hassles of traditional banks. Members of this segment are more familiar with technology, allowing them to benefit extensively from new services that consolidate all their accounts in one place. Their frustrations with traditional banks include adhering to regulations on minimum account balances, money transfers, imposed fees, and making short-term investments with rigid paperwork and legal processes. These challenges have led freelancers to trust Neo-banks to personalize their banking experience, appreciating their commitment to continuously improving financial tools tailored to this segment.
Next are Small & Medium-sized Enterprises (SMEs), frustrated with traditional banks' focus on larger enterprises and the lack of tailored financial tools suited to their unique needs. SMEs also face high transaction fees and lengthy loan approval processes. Neo-banks address these pain points by adapting their models to support SMEs' agility in fast-changing markets, offering digitized financial tools, improved forecasting, and more suitable loan regulations.
Teenagers and young adults represent a promising customer base for Neo-banks, with 47% of Gen-Z members already holding accounts with banks, Neo-banks, or other financial institutions. This demographic is particularly relevant because they are digital natives who expect seamless, technology-driven experiences. By offering tailored services that address consumer pain points and market trends—such as controlled spending limits, investment options, and parental supervision—Neo-banks build loyalty and promote positive financial habits, empowering tech-savvy users to manage their finances effectively in a familiar environment.
The following infographic showcases the Neo-banks dedicated to the Young Adults segment in several regions:
Obtained From: Buallay, O. (2023, September 26). How Neobanks Are Redefining Niche Market Engagement. Codebase Technologies. https://www.codebtech.com/the-new-age-of-banking-how-neobanks-are-redefining-niche-market-engagement/
The final segment, which we refer to as the 'Wholesome Bunch,' encompasses a diverse age range and represents the Unbanked population, particularly prevalent in the MENA and African regions, totaling approximately 1.7 billion individuals. This segment has been largely underserved by traditional financial institutions. Neobanks, however, are effectively catering to their needs by offering efficient, cost-effective services with enhanced international accessibility. By providing quicker access to essential financial services, Neo-banks are not only meeting the immediate needs of this vast market but also paving the way for greater financial inclusion and long-term customer loyalty in these regions.
I've always wanted to go backstage to see how performers prepare, feeling like part of the family behind the scenes. This is much like understanding how Neo-banks operate behind the interfaces of their B2B and B2C modules, as highlighted in PwC’s recent article titled Neobanks and the Next Banking Revolution.
This backstage view is akin to the foundational layers of a Neo-bank, where the backend and broader ecosystem work together to monitor transactions, ensuring compliance with legal requirements. This includes integrating payment gateways for global fund access, simplifying currency exchanges, and offering seamless, tailored financial tools such as adaptable accounts, currency management, and cohesive payment channels. These integrated financial channels provide comprehensive solutions for both B2B and B2C modules, including investment opportunities, tailored insurance packages, and credit protection with flexible policies. The final layer, like the applause after a show, represents the stakeholders—SMEs, multinational companies, e-commerce participants, NGOs, and individual customers—who benefit from Neobank’s innovative services.
Neobanks may be disruptive market players, but they operate within models that sustain their lower-pricing strategy while targeting unmet needs. The article The Rise of Neobanks: Disrupting Traditional Banking with Digital Innovation outlines several successful models. The interchange model, for instance, focuses on revenue from debit and credit card transactions, including ATM usage—already adopted by several financial institutions. Another model involves issuing credit cards as a primary offering, utilizing the Buy Now Pay Later (BNPL) approach to generate income through interest rates, credit card debt repayment, and interchange fees. A third popular model centers on a specific product, presented through a user-friendly interface, driven by high customer demand and promising revenue streams that support rapid iterations and expansion.
The circus is synonymous with joy and excitement, yet it also evokes a sense of controlled chaos. Similarly, Neo-banks introduce a level of disruption that turns traditional banking on its head, offering an exciting, ever-evolving, and sometimes hard-to-grasp experience. Despite resistance to change, curiosity drives consumers to embrace these new, vibrant financial experiences, taking them on a memorable ride into the future of banking.
References
Buallay, O. (2023, September 26). How Neobanks Are Redefining Niche Market Engagement. Codebase Technologies. Available at: https://www.codebtech.com/the-new-age-of-banking-how-neobanks-are-redefining-niche-market-engagement/
Customer Acceptance of Neobanks: What Role Does National Culture Play? University of Twente. Available at: http://essay.utwente.nl/87910/#:~=Our%20findings%20indicate%20that%20the,the%20customer%20acceptance%20of%20neobanks
The Rise of Neobanks: Disrupting Traditional Banking with Digital Innovation. LinkedIn Pulse. Available at: https://www.linkedin.com/pulse/rise-neobanks-disrupting-traditional-banking-digital-innovation/
Neobanks and the Next Banking Revolution. PwC India. Available at: https://www.pwc.in/industries/financial-services/fintech/fintech-insights/neobanks-and-the-next-banking-revolution.html
World Bank. (2022, September 13). Financial Inclusion. World Bank. Available at: https://www.worldbank.org/en/topic/financialinclusion/overview
Comments