Previously, bank services were inaccessible without paying one a visit. Account management, money transfers, and various other services, were delivered in-person, oftentimes after standing in a queue. Today, no-one likes waiting, as more and more things have become accessible on smartphones. Enter neobanks – all-digital solutions to the problem of outdated banking.
Needless to say, the worldwide neobanks market is growing and expanding in 2023. It went from $79.1B to 118.51B in just one year with the CAGR of 49.8%. In 4 years’ time, it is expected to reach an impressive $556.66B in value. This only proves that the digitalization of banking services will be enjoying high demand in the foreseeable future.
How does a neobank work – and in what ways does it outclass the old-school banks? Let’s explore this trend and its benefits in more detail.
What is a neobank?
Neobank definition is fairly simple when you compare it to a classic bank. Neobanks and the classic counterparts have one major difference: a neobank is always online-first.
In simpler words, it provides the services solely via an app or online. No banking establishments or branches – neobanks don’t require real-world locations. This turns them into a 21st century alternative to old-school banking that combines mobility and a client-centric approach.
Let’s cover the main differences of neobanks and classic establishments:
- Neobanks are digital-first. Classic banks provide their services either in person or via an online platform. Neobanks are unlike this and operate only via a digital platform. This business model eliminates the need to spend costs on maintaining physical branches.
- Neobanks are client-focused. Yes, traditional banks can offer online solutions that are user-friendly. However, neobanks make user experience their top priority, opting for more intuitive apps and platforms. They also focus on delivering advanced digital features with account management, transactions, and other services.
- Neobanks set lower fees. Without physical locations, neobanks can offer competitive or, in some cases, fee-free services. Classic banks need to sustain their locations; hence the greater fees and charges. However, they can also offer in-person assistance, whereas neobanks presuppose a certain level of digital literacy.
- Neobanks are innovative. Yes, these banks are called “neo” for a good reason. Some offer smart assistance with money-saving depending on the financial habits of their clients. Others provide personalized banking insights, such as recommendations or alerts, by utilizing data analysis and AI tech.
Are neobanks as efficient as the old-school competitors? Let’s check the figures: neobanks are expected to attract as many as 376.90M users by 2027.
Moreover, 53% of the Gen Z population are currently using neobanking services for their needs. One of the top drawing factors is managing funds from anywhere, in a smartphone app. It’s modern, convenient, and can be even faster than the classic banking.
Now, let’s review the core advantages of neobanks that cemented their popularity.
Key benefits of neobanking
The cutting-edge neobanking solutions are attracting more and more users – and here’s why:
Convenience
Not so long ago banking services were unimaginable without physically attending a local branch. But as more services are going digital, banks are keeping up with the pace.
Neobanks utilize mobile platforms for providing their financial services. This means no queues, no visiting hours, and no lunch breaks for the managers. The clients can manage their funds anytime, anywhere.
The mobile-first approach of neobanks is effective and time-saving. Just a few taps, and one can access their profile, make transfers, and manage funds. Unlike some of the banking apps, neobanking services are generally simpler and more accessible.
Customization
What really sets neobanks apart is the potential for customization. They not only provide access to services, but also personalize them. This, in turn, increases client engagement and retention; after all, who wouldn’t like a tailored banking experience?
Here’s how neobanks enhance the customer experience:
- personalized accounts (savings, checking, etc.);
- personalized budgeting (spending limits, tracking expenses, etc.); and
- smart alerts (AI notifications based on user’s spending patterns and setup).
Innovation
Classic banks are offering the online versions of services, but neobanks are doing more than that. Fresh AI technologies, customized insights, and above-standard services are what make these banks stand out. The clients can save up, manage their funds, and enjoy the tailored banking experience.
The top neobanking examples in terms of innovation comprise of the following:
- Expense tracking and built-in budgeting solutions;
- AI and chatbots for instant client support and recommendations;
- Virtual/disposable cards with instant generation;
- Fee-free/low-cost international transactions; and
- Shared/sub accounts for managing group expenses.
Accessibility
Neobanks are generally more affordable than their traditional counterparts. Lower-costing services and smaller fees appeal to a broader scope of clients. The latter accumulate savings, get tailored financial advice, and avoid hefty transaction charges. The lower (or minimum) deposit/balance requirements are also an incentive to install such apps.
Another visible advantage of neobank apps is quick and simple account opening. Classic banks would (most probably) require one to visit an offline branch and do some paperwork.
Neobanks, on the contrary, simplify and streamline this process. An account is set up entirely online and virtually in no time. This effectively removes the entry barriers, granting swift access to services.
Examples of popular neobanks
Not every neobank is top-tier by default, but there are examples of great successes in this field. Let’s look at some of the best neobanks – and what made them so popular.
Chime (USA)
This neobank took on the overdraft charges issue, striving to build a healthy financial service. Its various account types and the branded debit card are online-first and client-centric. The bank offers a reasonable APY with no overdraft fees, helping its customers to save up.
Chime also provides micro credit opportunities to clients who may not be eligible for a credit card. The users gain access to SpotMe with up to $200 fee-free overdraft. This service helps prevent debt and eliminates the necessity for loans with high interest.
Due to its clever neobank business model, Chime now has over 14.5M customers. More than half of them are using it as their primary bank of choice.
Varo (USA)
A neobank for everyone, Varo is fully committed to providing the superior banking experience online. It offers a non-contact debit card and many other digital services (charge-free transfers, insured deposits, cashback, etc.).
Even those who have low (or no) credit scores can benefit from its premium services. Secured cards and cash advances make banking more convenient, boosting the client base.
Another impressive achievement for Varo was receiving the national bank charter back in 2020. It was the first neobank to gain full regulatory approval and receive the “national” status. Varo is predicted to reach #2 in the USA among the top neobanks in terms of account holders in 2023.
Monobank (Ukraine)
This all-virtual bank has been a sweeping success since it started in 2017. It provides a broad scope of services with decreased fees and an up to 20% purchase cashback. The app is decidedly user-centric, and the bank is always seeking customer feedback for improvement.
Monobank has been actively implementing gamification in its app. It added the funny mascot-based achievement system to brighten up routine fund management tasks. As a result, the number of daily users and retention went up, cementing its popularity.
As of June 2023, Monobank reached the #3 spot among the top finance apps in Ukraine.
Core and additional features of neobanks
What are the core functions to implement when building your own neobank? Speaking overall, they need to cover the essentials of online banking and fund management.
The list of such features is provided below:
- accounts (checking, savings);
- cards (credit/debit);
- payments and transfers;
- transaction record;
- safety features (changing PIN, blocking a card, etc.); and
- immediate support.
However, a neobanking app is not a copy-paste solution and should have some additional features. This will allow it to stand out among competitors and bring in more invested clients.
Here are the extra features you should consider for creating a neobank:
Cross-border and crypto payments
In the older days, clients couldn’t skip visiting the branch to make cross-border transactions. Today, neobanks allow clients to initiate such payments online – and nearly in no time.
What’s more, clients can track such transactions in real time, unlike the lengthy manual processing. This allows for faster payments and boosted customer satisfaction.
As for cryptocurrencies, neobanks are already incorporating them into their digital platforms. Buying, selling, and storing cryptocurrencies via a neobanking app unlocks faster, more economical, and more secure transactions. For instance, SEBA, a Swiss neobank, supports cryptocurrency accounts and crypto cash conversion.
Gamification
Transforming routine tasks into exciting challenges will definitely offer unique user experiences. Points, badges, mascots, and contests improve investment and retention. Neobanks and their focus on digital technologies can really level up the engagement with these techniques.
A good example of gamification is Monobank, a Ukrainian neobank app. It gives the clients an opportunity to win the mascot-based achievement badges for completing tasks. The latter include spending funds in specific categories, making cross-border transactions, and splitting bills with friends.
QR code payments
Today’s clients want their financial services to be customized to their lifestyle. QR codes are fast, accessible, and user-centric – in other words, up-to-date. Neobanking apps can easily incorporate the QR code payment functionality, as well as QR code generation. The safety measures may include payment data encryption, biometrics or PINs, and more.
Revolut is a neobank which actively utilizes biometric authentication (fingerprint or facial scans). Thus, the app and QR code payments become even more secure.
6 Things to consider for neobank app development
Developing a neobank from scratch is not a particularly easy task. It requires a lot of planning to make your neobanking solution fully compliant and functional.
Let’s review the main challenges you may face when developing such an app:
1. Adherence to legal requirements
Neobanks are financial institutions and thus must be regulated. A banking license is to be received from the corresponding local authority (OCC in the USA; EBA in EU). This process is not easy, which would involve meeting certain financial requirements.
Upon obtaining the license, neobanks must abide by the standard banking regulations. These embrace the counter-money laundering, counter-financial terrorism, and know-your-customer standards. The prudential regulations that solidify a bank’s stability apply as well.
2. Data protection and safety
With the amount of private client data, neobanks must enforce the highest level of security. Data encryption and proper authentication are a good starting point, and biometrics is a sound reinforcement. The more protected the transactions are, the more the clients are inclined to trust a neobank.
Cyber attacks are another risk factor for digital banks. To prevent them, every neobank must employ cyber security experts and implement constant monitoring. A good contingency plan for a possible safety violation is also necessary.
3. Fast payments
Ensuring high transaction speeds is vital for neobank development. Yes, being an online app solves part of the problem with streamlined processes and quick transaction initiation. However, neobank developers must also think of real-time payment processing, swift P2P transfers, and instant payment schemes.
By utilizing these solutions, neobank owners will be able to create more efficient financial ecosystems. As the demand for real-time payments grows, offering such technologies is a pathway to success.
4. Correct business model
Neobanks bring profit in different ways, with charging fees being the most widespread one. These fees may include transactions, cross-border payments, maintenance, and more. Membership charges, interest income, value-added and B2B services are also among the money-makers.
It is crucial to think about the best neobank business model for you in advance. The success of neobanking apps depends on choosing the correct strategy from the take-off.
5. Intuitive UX
Neobank apps are generally more user-focused than traditional digital banking. Delivering a top-tier user experience is a cornerstone in neobanking solutions’ development. A neobanking app must be simple and smart to be attractive.
Practically speaking, a neobanking solution should have a clear and user-centric interface, push alerts, and customization options. The textual content must be concise and to-the-point for more engagement.
6. Easy onboarding and go-to-market strategy
New clients should enjoy their online banking experience from the get-go. Consequently, neobanks should provide a smooth and fast account setup with fast verification. Gamifying the onboarding process is a viable idea to make it less routine.
The go-to-market planning serves the purpose of placing and introducing the solution at the market. Neobank owners can draw in and retain more clients by conducting a thorough marketing survey. Pinpointing the target groups and tailoring the marketing tactics to their needs is essential for neobanking startups.
Neobank marketing tactics
Neobanking apps won’t fly without the right marketing. The good news is that these tactics are often the same for neobanks and FinTech.
Let’s cover some of the best ways to market a neobanking app – and make bank:
Reliability and transparency
Potential clients may be on the fence about neobanks for reasons of trust and safety. It is important to win their trust by offering maximum transparency in financial operations. As the old banks are catching up with new technologies, neobanks could start losing their competitive edge. Providing more transparency for clients is a viable tactic to overcome this obstacle.
A good idea for a neobanking app is adding a quote calculator or exchange rate breakdown. This way, the clients won’t be put off by sudden (and possibly ambiguous) fees.
Influencer marketing
Everyone has heard about affiliate marketing, but social media influencers shouldn’t be ignored as well. They can put a neobanking solution in the spotlight – and create lots of leads. A sponsorship or commission would be a typical reward for bringing in new clients.
Influencers win the day with building trust in the brand. Just like the classic celebrity commercials, they can “validate” a product, service, or offer. Gen Z clients, who favor neobanks, will definitely pay attention.
Brand community
From in-app contests to social media groups, neobanks can build brand loyalty by creating a strong community. These days, a lot of clients expect their communication with the brand to be more personal. Banking is not an exception, and a good provider must come up with a community building strategy.
One of the applicable techniques involves creating a system of ranks or badges for the customers. The more successful a client is in banking challenges or contests, the higher the rank.
Gamification (again)
Prizes, rewards, and interactive elements are always a nice incentive. Gamified solutions do well in attracting new customers and keeping them on board. A clever gamification tactic can do more than dozens of retention emails – so why not use it?
Looking to develop a banking app?
Take a look at our portfolio of fintech software projects and contact us to build your own custom solution for the banking and finance industry!
In conclusion
Neobanks are all-digital solutions that boast a number of benefits over the classic banks. User-centric and advanced, they establish lower fees owing to the absence of maintenance costs for real-world locations.
Neobanking apps can be accessed at any time and provide personalized accounts and budgeting. Modern technologies – AI assistants, virtual cards, and fund management tools – make them more accessible and versatile.
How to create a neobank? Its development is an intricate process with a few factors to account for:
- legal compliance;
- data security;
- intuitive UX;
- correct business model; and
- easy onboarding and go-to-market strategy.
Would you like to entrust the neobanking app development to the professionals? Contact us – and enjoy the perks of our vast experience and tailored approach to every project.
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About the author:
Alexey Shalimov, CEO at Eastern Peak
As CEO at Eastern Peak, a professional software consulting and development company, Alexey ensures top quality and cost-effective services to clients from all over the world. Alexey is also a founder and technology evangelist at several technology companies. Previously, as a CEO of the Gett (GetTaxi) technology company, Alexey was in charge of developing the revolutionary Gett service from ground up and deploying the operation across the globe from New York to London and Tel Aviv.
