News Article

How can neobanks differentiate themselves?

From incumbents to challengers to neobanks, fintech as we know it is constantly evolving. And as more and more players flood the market, the question is often asked: ‘How can new fintechs differentiate themselves?’

This was the topic of a recent Fintech Finance interview that Joanne Dewar, our CEO, took part in with Mark Hipperson, CEO of Ziglu, and it is certainly a complex question. As the global fintech industry continues to grow, and with so many businesses jostling for attention, what does it take to stand out?

What makes a successful challenger, and how do they compare to traditional banks?
For a bank to succeed, it needs to provide value to its target market. Successful challengers have adjusted their offerings to the consumer rather than have the consumer work around them. Take Starling Bank’s account freeze feature, a notable instance of recognising a customer need and effectively implementing a solution. The incumbents see this and realise they’re missing a trick, but instead of listening to the consumer directly, they’re taking after the challengers. For a neobank to stand out, it needs to address something new and truly consider what problem it’s solving – especially if there’s already a comparable solution on the market.

Culture is also key to making a successful fintech. Neobanks are born from technology and innovation, with teams possessing not just technological know-how but the flexibility to shift and adapt as necessary. Conversely, incumbents often have more process-related hoops to jump through and can be held up by legacy systems. This lack of agility is a crucial factor that could stop them from maintaining their stronghold.

Are neobanks edging ahead of the traditional banks?
Some incumbents are appearing to rest on their laurels, perhaps complacent that account primacy is enough to keep them ahead of their rivals. And while providing the account into which customers receive their wages and from which they pay bills or mortgages is the key to profitability, it’s not an unassailable position.

What’s crucial for getting ahead is knowing the consumer and catering directly to them. The reams of data that challengers can access through non-primary accounts regarding what, where and how customers are shopping is highly valuable, and forms the basis of more direct, personable relationships. For example, challenger banks have recognised the desire of the 25-40 demographic for an account that puts them first and helps them manage their money. Without the personal relationship nurturing loyalty between bank and consumer, incumbents are at risk of becoming an easily replaceable commodity.

And let’s not forget good UI/UX as a key ingredient. Neobanks are racing ahead with attractive interfaces and great customer experiences which give consumers all the more reason to turn away from clunky, outdated traditional offerings.

What place do ‘Bank in a Box’ services have in the race?
‘Bank in a Box’ and Banking-as-a-Service (BaaS) platforms have gained popularity as a simple way for companies to set up and go to market with a banking offering. And while there’s nothing strictly wrong with them, they can often lead to the same problems that incumbents suffer from. Building a business on someone else’s IT is akin to building on a legacy system – it’s more expensive, slower, and less agile.

Rather than building from a base such as this, it’s worth considering technology that can support your project while integrating into your own systems. This is something GPS helps many of our clients with - eliminating the pain points of building a processing service from scratch, speeding up proceedings rather than delaying them.

What makes a place a fintech hotbed?
Alongside the question of how new entrants can differentiate often comes the question of what makes a certain place a particular industry hotbed. For example, in the UK, a hugely successful environment for fintech, there are three main identifiable reasons for this. Firstly, there is an overwhelming amount of talent. With many world class universities and a wealth of technology courses promoted across the nation, there is no shortage of great talent and ideas. Secondly, the whole environment is set up for it. The UK is fortunate to benefit from supportive regulatory and advisory bodies promoting growth and innovation. Finally, competition breeds competition – with such a range of best-in-class offerings, customers don’t have to compromise and emergent fintechs have to be on top of their game to be competitive.

And that’s the crux of it. Challengers, incumbents and neobanks aren’t really enemies; the real enemy is mediocrity. For neobanks – or any bank for that matter – to differentiate, they must stay on top of consumer needs and solve their problems in an outstanding way – before someone else comes along and does it better.

To tune into the full interview, click here.