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Neobanking: Factors To Consider While Comparing Neobanks With Traditional Banks

Introduction

Online banking has improved customer convenience and ease of using banking services. There was a significant behavioural change in how people access most of the services today, including online food ordering services, delivery of goods, and even medical assistance, soon after the pandemic started in 2020. 

This resulted in a significant impact on the banking industry. Considering these changes, the banks also started offering flexibility to their customers, such as no longer needing to visit the bank physically to resolve their issues as debit and credit cards are now delivered by courier, and there is an option for online customer service. It is essential to stay up-to-date with this trend. This article will cover how to create a neobank.

Neobanks VS Traditional Banks

This bank operates without having any physical branches and is working exclusively online. The banking services offered by them are more convenient and easily accessible as compared to the services provided by a traditional bank.

The best part of these banks is their convenience. Customers can efficiently operate their accounts, make online payments and perform other transactions through websites and mobile apps at their convenience.

Moreover, these banks generally do not require the customers to maintain any minimum balance or charge account maintenance fees. This makes them the perfect banking option for people who prefer a more flexible and accessible financial approach.

However, Neobanks also have a few drawbacks like any other new technology.

Most importantly, Neobanks don’t have any ATM networks compared to traditional banks.

So, customers may need the help of a conventional bank to access cash in some regions.

Moreover, these banks may be less reliable when compared with conventional banks, as they often have different levels of regulation and deposit protection.

The government models vary between traditional banks and these banks.

Central Bank or Fed governs a conventional bank. The Neobank is not subjected to strict banking regulations. Thus they offer more flexible business models.

This leads to a difference in their services compared to a traditional bank.

Neobanks offer more accessible and convenient services when compared with traditional banks.

However, the main disadvantage of such banks is that they need more access to cash and more reliable deposit protection. As Neobanks operate online, this helps save a lot of operational costs, thus allowing them to allocate a larger budget toward their growth and development.

Advantages and Disadvantages of Neobanks

Let’s examine the overall picture and consider all the pros and cons before creating a neobank app. We will outline the main benefits and drawbacks of Neobanks that will impact both you as a business owner and a customer. Here are the most prominent ones:

Advantages of Neobanks:

  • Convenient and user-friendly mobile apps that offer a range of digital banking services.
  • Lower fees and better rates compared to traditional banks.
  • Faster and simpler account opening and loan application processes.
  • Innovative and customizable financial products, such as budgeting tools and investment options.
  • 24/7 customer support.

Disadvantages of Neobanks:

  • Limited physical presence and in-person services.
  • Less established and likely less secure compared to traditional banks.
  • Limited FDIC insurance coverage.
  • Dependence on technology can lead to outages or security breaches.
  • Limited product offerings compared to conventional banks, such as no physical check deposit or wire transfers.

Not all Neobanks share the same advantages and disadvantages, and researching and comparing is essential before choosing a financial institution. By leveraging the shortcomings of all Neobanks, you can gain a competitive edge in the market. Additionally, by understanding the main drawbacks and weaknesses of Neobanks, you can turn them into your advantage and create a neobank that will stand out from competitors. For instance, you can easily address security concerns by hiring a team of cybersecurity professionals. By leveraging the shortcomings of all Neobanks, you can gain a competitive edge in the market.

Chime: A Leading Example of Neobank Success

The popularity of financial service apps is driving global competition, as consumers seek convenience, fast transactions, easy problem-solving, and exclusive offers. To distinguish themselves, Neobanks are introducing innovative features like overdraft protection and sign-up bonuses. 

Let’s examine Chime, the leading neobank in the U.S. Chime is a FinTech firm that offers digital banking services and debit cards, in partnership with The Bancorp Bank and Central National Bank. Two key features have contributed to Chime’s popularity: a $200 overdraft allowance and free access to over 60,000 ATMs. With over 13 million customers, more than half of whom use Chime as their primary banking app, this neobank has established a niche in the US market. It’s worth noting that Chime is currently available only in the US, and there is no information on its plans to expand to other countries.

To create a neobank that will be in demand on the market, it is recommended to study competitors thoroughly, with a particular focus on Chime and other popular digital banks.

Neobank App Must-have Features

1. Account Management: Users should be able to open, close, and manage their bank accounts directly from the app. This includes transferring money between accounts, viewing account balances and transaction history, and setting up automatic savings plans.

2. Card Management: Users should be able to manage their debit or credit card from the app. This includes ordering a new card, activating or deactivating a card, and setting up card alerts for transactions.

3. Payments and Transfers: Users should be able to pay bills, send and receive money from other users and make international transfers from within the app. The app should also support payment methods like bank transfers, mobile payments, and peer-to-peer payments.

4. Security Features: The app should have robust security features like two-factor authentication, biometric login options, and transaction monitoring to prevent fraud and unauthorized access.

5. Savings and Investment Tools: The app should offer savings and investment options, such as high-yield savings accounts, automated savings plans, and investment portfolios.

6. Budgeting and Expense Tracking: The app should have tools to help users track their spending and create budgets. This includes spending categorization, bill reminders, and notifications for upcoming payments.

7. Customer Support: The app should offer customer support through various channels, including chat, email, and phone. Users should be able to get help with any issues they encounter while using the app or their account.

8. Q.R. code Payments: Q.R. code payments are becoming increasingly popular as a fast and convenient payment method, with many companies adopting this technology to enhance user experience. In the current era, Q.R. code payments can be processed directly within the banking app by scanning the code, eliminating the need for physical cards or cash. All the buyer needs to do is tap the Q.R. code button in the app interface.

A neobank app should provide a seamless and user-friendly experience for managing finances, offering innovative features and services that traditional banks may not have. Keep those features in mind before you start to create a neobank.

Building a Neobank App: 5 Essential Steps to Follow

Step 1: Defining the Neobank Project Idea. Select a niche and identify your target audience to determine who would benefit from your services. Consider partnering with a traditional bank to help establish your neobank, and consult with experts to conduct market analysis and cost estimates for your ideas and concepts.

Step 2: Designing the Neobank App. Design your neobank application with user experience in mind, taking inspiration from competitors’ apps and user feedback to create a unique, practical interface. Streamline the design process by using a mind map and collaborating with UI/UX professionals.

Step 3: Developing the Neobank App. Build your neobank application using appropriate tools such as Electron.js for desktop apps, React.js and Node.js for web apps, and React Native for mobile apps. Ensure your app complies with industry regulations.

Step 4: Testing the Neobank App. Conduct QA testing in parallel with development to catch errors early and avoid costly revisions. Eliminate all bugs to ensure optimal app performance.

Step 5: Releasing and Gathering Feedback on the Neobank App. Make your application available to users and encourage feedback. Use their comments and suggestions to identify areas for improvement and continue refining your neobank app.

These steps should be noticed when creating a neobank app, as they are crucial in setting you apart from your competitors.

The Business Model Behind Neobanks: How They Make Money

Now that you understand Neobanks, their distinctions from traditional banks, and the essential features of a neobank application, let’s explore the topic of monetization. Here are some of the primary revenue streams utilized by modern online banks.

Neobanks generate revenue through various means, including transaction fees, interest on loans, and subscription fees for premium services. They offer the customers competitive rates and lower prices as they generally have lower overhead costs than traditional banks.

Transaction fees are one of the primary sources of income for Neobanks. They charge customers for ATM withdrawals, foreign currency transactions, and other transactions involving money transfers. Neobanks also earn revenue from merchant fees, which are set to businesses that accept payments through the neobank’s payment network.

Interest on loans is another way that Neobanks generate revenue. They typically offer customers personal loans, business loans, and mortgages at competitive rates. Neobanks may also provide other financial products, such as insurance and investment, to diversify their revenue streams.

Subscription fees for premium services are another way that Neobanks make money. They may offer premium features such as higher transaction limits, personalized financial advice, and exclusive perks and rewards for a monthly or annual fee.

Neobanks use various methods to earn money. For example, Chime provides free banking services and generates revenue from overdraft and interchange fees. Revolut offers multiple financial services, such as cryptocurrency trading and foreign currency exchange, and earns money through transaction fees and subscription fees. N26 provides mobile banking services and makes money from transaction fees and premium subscriptions.

Conclusion

With the study of your competitors, we are confident you can determine your target audience and business model. We wish you the best in developing your neobank, and may this article serve as a helpful guide and help you to create a neobank.

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