Few changes in the financial services industry have occurred as quickly as the development of neobanks. Less than ten years after the launch of the first next-generation mobile banks, these digital disruptors have grown into a distinct industry sector on a global scale.
According to Business Wire, there are now about 400 neobanks serving close to one billion customers worldwide. Investors are obviously taking notice of this growth. The findings reveal that the industry is worth about $300 billion US after an unprecedented rise in valuations in 2021.
Every year, there are more and more challenger banks. All of them are attempting to divert customers from traditional banks and onto their respective apps. The downtown bank's siren call is to have no fees and no lines.
However, what confuses people is, “How profitable are neobanks?” What does their business model exactly entail? Is open neobank profitable? Are neobanks successful?
US neobank account holders from 2019 to 2022 with forecasts until 2026
Neobank, also known as a challenger bank, is a fintech business, frequently a start-up, that provides unconventional banking services. This typically offers checking and savings accounts via a website or mobile app and does not have physical locations. Locating a neobank with resources to assist customers with budgeting and saving objectives is typical. Customers of Neobank frequently benefit from lower fees and higher interest rates than traditional banks.
If what we hear is accurate, the traditional banking system may face challenges in the future because neo-banking maintains a healthy level of interest among consumers and financial service providers.
Neo banking is a brand-new digital system that emerged about five years ago. The fact that neo-banking has no branches fuels the excitement. As it is entirely online, it differs from the conventional banking system in a reviving way.
Neobank is viewed as an effective system by start-up companies and independent business professionals to meet their financial needs. The fact that a neo-banking system is well-equipped with particular accounting features, such as VAT and invoicing, which are necessities for the self-employed, has a significant positive impact.
Neobanks are viewed by many as the banking industry's future for the following reasons:
Neobanks provide a complete online banking environment that enables customers to manage their money from any location with Internet access. Younger generations, accustomed to doing most of their business online, find this particularly appealing.
Because neobanks have lower overhead expenses, they are frequently more affordable for customers. This makes it possible for them to provide competitive rates and lower fees, increasing the accessibility of banking services for a wider range of customers.
Neobanks frequently offer customers a seamless banking experience using cutting-edge technology and user-friendly interfaces. Additionally, they provide cutting-edge features like real-time alerts and budgeting tools that make it simpler for users to manage their finances.
Neobanks are more adaptable than conventional banks, allowing them to quickly change to meet their customers' changing needs and preferences. With their agility, they can also offer novel new products and services more quickly than traditional banks.
Neobanks can function globally without needing physical branches or infrastructure because they are entirely digital. As a result, they can provide banking services to clients in nations where traditional banking options might be scarce or inaccessible.
Still, the question remains, “how do neobanks make money?” So, let’s explain the revenue models further.
So how do neo banks make money? Research And Markets estimate that the global neobanking market will reach $333.4 billion by 2026, growing at 47.1% annually. The projected growth is impressive because they are relatively new, lack a clear physical structure, and haven't established a strong confidence level. The crucial query is then, "How do neobanks make money?"
Many people are curious about how neobanks make money. Everyone was intrigued by the new digital banking service's business model, which was based entirely on digital platforms and offered many free features when it first entered the market. Freebies are excellent for quickly increasing a customer base but don't increase sales.
Profits weren't a big deal to investors in the early days of neobanking. Most neobanks adopted a startup strategy: expand quickly at all costs, locate, and identify a sizable customer base. Five prominent neobank business models have been proven successful:
Every time a customer uses the Neobank's card as a form of payment, the neobank is paid. This is how some neobanks generate revenue. The most well-known US neobank, Chime, currently used by about 12 million people, is the best illustration of this monetization strategy.
The USA can be proud of this neobank in this regard. Chime undoubtedly benefited from this monetization strategy: in 2020, the US neobank announced it reached the 8 million account milestone, whereas only 1 million users used Chime in 2018.
The neobanks use a credit-first strategy, starting with a credit card or similar product before introducing a bank account. This is yet another revenue stream for neobanks.
Due to the growth of APIs (Application Programming Interfaces), neobanks can create an ecosystem of marginal services around their core banking proposition much more quickly than traditional banks. Challenger banks are paving the way to profit by integrating all services in one location as they develop into a one-stop shop for customers' financial needs.
According to this model, neobanks make money by providing savings accounts and obtaining deposits at favorable rates. Although this online bank has no physical locations, a mobile banking app can be downloaded from the App Store and Google Play. The demand for investment apps is currently on the rise due to the recent increase in user engagement in investments across the globe.
A different kind of neobank business plan is focused on product extensions that break down boundaries between financial industries. According to some predictions, the main forces behind this market will be product extensions from more established tech firms.
A good illustration of such a tactic is Robinhood, an online discount brokerage providing a commission-free trading and investing platform. In the first quarter of fiscal year 2021, revenue from Robinhood Gold increased by 396.5% to $39.2 million, or about 8% of total revenue.
Before opening a single account, some issues need to be resolved. A successful and long-lasting banking business requires careful planning and a vision beyond customer acquisition. The three challenges covered here are ones that every new neobank must contend with, and finding the right balance can help open the door to success.
Many neobanks strongly emphasize growth and quickly gain a large following after opening. However, not every customer is equally valuable. Getting new clients by offering a specialized service or practical app will only get you so far. Neobanks must gain their clients' confidence to feel secure depositing paychecks and using the neobank as their primary account.
Neobanks have perfected the art of convenience. Customers can open an account in a matter of minutes and have access to specialized banking services. Customers can easily access the services they require at the precise moment they require them by using multiple neobanks for various services.
Even though traditional banks are frequently perceived as more complicated and challenging to work with, many customers still have their primary accounts.
To gain long-term value from their customers, neobanks must transition from luring inquisitive new users to cultivating loyalty and trust. Neobanks will be able to develop and maintain profitable customer relationships by incorporating loyalty incentives into the planning process. It utilizes customer data to keep users engaged and extend their customer journey.
There is a temptation to combine services and resemble a traditional bank as a neobank's operations expand and become profitable. However, a neobank's value stems from its customer-centric approach, which goes beyond conventional banking requirements.
Neobanks can develop by employing inorganic growth strategies that involve ongoing partner investments and collaboration with open API ecosystems to create value. Neobanks can learn quickly and adjust to a moving target of customer expectations if they have an innovative and agile decision-making culture.
Neobanks don't have physical branch networks or all the staff to operate more cheaply. The lower rates and absence of monthly fee payments that come with their no-branch business model are typically passed on to their customers.
Neobanks have revolutionized banking by eschewing the traditional method of visiting a bank branch and waiting in line for hours before making a transaction in favor of a system of digitally adapted self-service concepts. With neobanks, you only need a mobile app to carry out basic financial operations from any location.
Neobanks also brag about how quickly they provide services. You could open an account, deposit money, transfer funds, and make online purchases more quickly with a neobank than you could find a conventional bank branch.
Neobanks use AI-driven technology to offer their customers improved services. Additionally, they employ AI-powered technology to comprehend how users interact with their services and offer high-quality services specifically catered to their needs.
One advantage of using the Neobank solution to make an international payment is that you only need to open a card account with them to make international payments. Traditional banks typically require you to upgrade your account in some way before allowing you to conduct international transactions.
A white label solution is a custom ready-made software. Everything you require to run your business has already been created. The product can now be modified to meet your specific needs.
A white label neobank solution includes these layers:
UX/UI Design. Screens, layouts, and templates already created comprise the layer. The design should be altered to reflect your company's branding.
Backend Core. Authentication and registration functionality, money transfers and withdrawals, currency exchange, card issuance, user management, automated business processes, and reporting should all be available in this layer.
Integrations. An integration layer should be present in the white label solution to carry out crucial integrations for neobanks, such as KYC/AML services, partners who provide card issuing, banking, and payment services, platforms for brokers and stock traders, notifications, analytics, and others.
RisingMax Inc. offers the best white-label neo banking platform solution.
So, now you might be clear with your query, “Are neobanks successful?” Do you want to work with a reputable industry and earn a respectable income? The ideal option will be neobank development. Create a business plan first, then market research and research the legal needs. Find experts you can rely on to ensure the success of your project, which is the crucial next step.
Leverage neo bank implementation assistance and other FinTech solution from RisingMax Inc., a leading banking & financial software development company.