As if the disruption in the global banking sector wasn’t already confusing enough, traditional institutions now have to deal with the rise of neobanks. This new breed of competition is in the form of organizations that are purely digital. They don’t require the licensing or incur the regulatory burden of traditional banks. They exist without brick and mortar - and provide services that are fast, simple to use, highly personalized, and that are delivered strictly to your mobile device.
Their rapid growth and success is a result of their lower cost structure and a regulatory environment aimed at increasing competition and consumer choice. But they don’t try to be everything to everybody. Most offer a limited range of products like checking, savings, and a subset of consumer lending products-but often defer things like credit card and mortgage services to more traditional institutions. This results in a lower regulatory burden and reduced overhead, which they then pass on to the consumer in the form of lower fees.
Their agility and speed are attributed to the fact that they lack the burden of legacy technology. Neobanks are true digital natives, where most banks today offer a digital front end applied to the top of traditional monolithic banking applications.
These banks don’t carry the weight of legacy technology, so they can leapfrog over traditional infrastructure and disrupt the status quo.
– Judd Caplain, Head of Global Banking & Capital Markets, KPMG International
Neobanks target millennials who are more receptive to change. With each passing year, the influence of Gen Y changes the shape of the delivery of banking products and services, and that is the long-term bet neobanks are making today.
The disruption being driven by this demographic shift has not gone unnoticed by traditional banks. It is not only forcing banks to modernize their systems and infrastructure, but also to discover new ways of delivering customer value.
The good news is that traditional banks have several advantages over the neobanks:
- Well-established and recognizable brands
- Long histories and well-established customer relationships
- Massive amounts of content and data about their customers
- Deep insights into customer saving and spending habits
Given these factors, it’s clear that traditional banks are starting from a position of competitive advantage. But to retain and extend that advantage, banks need to learn how to:
- Extend customer value from these digital competitors
- Shift the mindset and the culture from business transactions to providing customer experiences
- Focus on helping people with their financial lives, not simply selling products
To learn how one of the top 15 banks in the world partnered with Nuxeo to extend customer value, download our white paper, Defusing the Ticking TIme Bomb of Legacy Data: A 21st Century Success Story