Agile Banking: Lessons from Neobanks
Neobanks may be best known for their consumer offerings, but they’re rapidly gaining traction in business banking.
Digital-only neobanks have seen surging growth and adoption, with a big spike since the pandemic. It is expected that the rate of Neobank growth will continue to accelerate as the digital model plays a critical role in the future of business banking delivery in the new normal.
A recent study by Savanta found that 10% of start-ups currently have their main bank account with a Neobank, 1 in 6 businesses are already using digital-only banking solutions, and importantly in terms of future growth, 40% of enterprises say they would seriously consider, or possibly consider a digital-first bank.
What is a Neobank?
Neobanks are 100% digital banks. Typically cloud-based, they incorporate disruptive technologies such as big-data analytics and artificial intelligence to deliver apps and online platforms to support their customers, rather than traditional physical branches.
We’re talking about the likes of Monzo, Moneze, Atom Bank, Starling and Revolut – Neobanks themselves that are evolving from their earliest iterations as e-money offerings just a few years ago, to fully licensed banks today.
Indeed, new neobanks are emerging all the time, such as London-based neobank Kroo which has recently secured a full banking licence from the Bank of England. Or Winden a neobank that offers financial products for digital entrepreneurs which has raised $5.3million in funding in 2022.
With banking and financial services in a race to embrace and lead on new technology, customer-centricity, and streamlined processes, it looks like Neobanks are here to stay and that they’ll increasingly become a formidable sector in the business banking industry.
Traditional banks v Neobanks
So what can incumbents – traditional banks and perhaps even challenger banks – learn from Neobanks?
Some incumbents have started to develop their own digital-only brands, whilst for others, the Neobanks’ rapid growth has been a wake-up call to modernise and discover new ways to improve customer experiences and deliver customer value.
Of course, incumbent banks do have some advantages over Neobanks:
- Strong brand equity
- Established customer relationships
- Massive amount of customer data
- Existing revenue streams
However, this starting point of competitive advantage will quickly be eroded in a rapidly accelerating digital age if they fail to modernise and deliver the same customer value and experience that digital-first banks and digital-only banks deliver.
Remove the burden of legacy
As true digital natives, the agility and speed of Neobanks are due to the absence of legacy technology and the burden of complex internal processes and operations.
They’ve invested heavily in data science and the latest advances in technology, so how can incumbent banks keep pace when legacy technology and antiquated processes make for often frustrating customer experiences?
Legacy is only an issue if you let it be. Digital transformation is not purely about replacing outdated technology or improving the customer journey with a sleek front-end.
It’s about incorporating the use of customer lifecycle intelligence to deliver a deeper understanding of the customer ecosystem and importantly, ensure that intelligence and insight flow across the organisation to improve risk management, speed up decision making, capitalise on new opportunities for advanced products and services, and achieve the ultimate goal of personalised banking experiences.
It doesn’t have to be a big bang. It’s about embracing a digital-first strategy and finding the right customer lifecycle intelligence platform that will integrate seamlessly into your business and technology stack to drive both operational and behavioural agility.
API-driven customer intelligence flows, data ingestion and matching for a 360° customer view, rules-based automation to pre-screen and onboard new customers quickly, continuous monitoring and compliance and high-value in-life support; the list goes on…
Retire siloed decision-making and complex onboarding processes
Many Neobanks have capitalised on providing slick digital onboarding processes and user experiences – placing them at an advantage during the pandemic.
Incumbents must therefore reconsider their onboarding models to accommodate rising expectations for a simple and smooth onboarding experience.
Business banking is far more complex than in the consumer sector, but investment in AI-risk analysis, fraud detection and open banking provides the ability to quickly harvest KYC data which means Neobanks are now snapping at the heels of their more experienced counterparts.
Whilst incumbents have also invested heavily in data and technology solutions and built huge teams of compliance analysts to process and interpret the data created, their siloed decision-making, and analogue processes mean customers can still be subject to an incredibly disjointed process.
Businesses can be actively sold to by one part of the bank, only to then be delayed, have the deal restructured, or maybe even be rejected by another division within the bank.
Now more than ever banks need sophisticated compliance tools and procedures. The importance of harnessing automation, data and customer lifecycle intelligence cannot be underplayed.
Digitisation and automation of risk management and KYC can enable incumbents to create real customer value by improving the efficiency and quality of risk decisioning, providing better monitoring and control and reducing the workload on onboarding and compliance teams by ensuring only the right clients are worked on.
Harness data-driven flexibility and adaptation
Incumbent banks have built their product and service offerings over many years and may not be as adaptable or flexible as a Neobank that curates products and services based on demand and need.
What they’ve done so successfully is determine what customers actually need, spot gaps in the market and pain points within existing offerings, and then engineer solutions that differentiate their products in creative ways to attract clients by improving service.
Incumbents can do exactly the same.
But first, they must free themselves from a product-centric view, and instead start with a rich understanding of customer needs and how to align them with their bank’s capabilities.
The wealth of information at an incumbent bank’s disposal represents a truly unique advantage, especially when combined with 3rd party and unstructured data from across the internet and social media. This can offer richer insights into customers, their ambitions, their needs and their strategic priorities.
Importantly, this data can feed the analytics which guides the development of ever-more intelligent products and services, ensuring efforts are always focussed on the right place, at the right time.
Build value-driven experiences and personalisation into customer journeys
By focusing on innovation, speed, and differentiation fuelled by open banking, AI and API-enabled architectures, neobanks have the tools to focus sharply and address in a very agile way the actual needs of customers and their pain points.
The result is that they offer experience-based value which serves to completely differentiate their offering.
Today’s corporate and business banking customers know what they want and how to go about getting it – whether they be a high-net-worth individual expecting an in-depth conversation, a nimble SME seeking out slick digital experiences, or a large corporate looking for a blend of both for the ultimate in personalisation and efficiency.
Keeping pace isn’t just about offering great service, but also requires a strategy that puts customer lifecycle intelligence at the heart of the business – from the frontline, to back-office operations and compliance/risk management.
Customer propositions can no longer be static and one-size-fits-all—they should be intelligent and tailored. So, for incumbents, successfully integrating personalisation must be a top-line agenda item.
They must harness advances in data science and clever rule-based decisioning to build a deeper and more accurate understanding of every customer’s context, behaviour, needs, and preferences.
This understanding, in turn, empowers an ability to craft intelligent, personalised offerings within customer journeys.
The big lesson – Neobanks lead with customer intelligence
McKinsey have on many occasions reinforced the importance of adopting a holistic, data-driven approach. They suggest suggests three major steps incumbents must take:
Implement a real-time, enterprise-wide data infrastructure: that captures virtually all data points for a given customer’s relationship with the bank’s various divisions, and supports a unified customer view encompassing all channels, journeys, and products.
Consolidate data on a central platform: to ensure that these enterprise data sets are utilised effectively and widely across teams, aggregate the data captured from multiple internal and external sources into a central customer data platform.
Automate governance and controls: to ensure business and technology teams have ready access to appropriate data sets, with the necessary controls for security and permission where needed. It is also important to ensure that the appropriate data are available for decisioning, at the right time and in the right form, to the various AI/ ML models used by internal teams (from customer service to product management) to support intelligent, highly personalised interactions with customers.
FullCircl provides one seamless solution to all three of McKinsey’s recommendations
FullCircl is the leading customer lifecycle intelligence (CLI) solution that tackles banking’s most complex and high-value challenges:
Win the right customers - find, engage, and win the right customers for your business, products, and risk appetite.
Accelerate onboarding - fast, frictionless onboarding with automated AML, KYC and Credit checks that surpass both customer and compliance expectations.
Keep customers for life - Deliver proactive in-life customer care as new risks and opportunities emerge.
We bring together…
Super-connected enriched data and insights on companies and the officers inside them – FullCircl Business Information Graph and API
A configurable, low-code decision engine to screen and onboard in seconds based on your specific risk profiles – FullCircl Connect Rules Based Decision-Engine
Continuous monitoring and timely intelligence for proactive first engagement and remediation – FullCircl Engage Monitoring and Business Development Applications
…to help you compete on a level playing field with neobanks.
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