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What can traditional banks learn from neobanks?

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In a recent virtual event hosted by Huawei, Craig Bond, industry leader and president of the AI-powered driverless bank Envel, was interviewed by innovator and industry leader Colin Iles on the current banking landscape and what traditional banks can take from the industry-wide pivot taking place in the form of neobanks. 

The term was coined in 2017; neobanks are a fairly new development in the fintech space but are growing quickly in popularity as the global community finds itself moving over to a more digital world across all industries. At their simplest, neobanks are digital banks with no physical branches whatsoever — their offerings and interactions occur entirely online through mobile applications or websites. 

This service, while being an obvious choice for millennials (who make up 41% of Australian neobank customers), is fast becoming the popular choice — the top 10 neobanks boast a customer base of 100 million customers. A large reason for this incredible surge in demand is that the pandemic has shifted people’s perceptions and expectations of financial institutions, with 70% of customers reporting that Covid-19 has raised their expectations of companies’ digital capabilities. 

Bond, as a former CEO of two of Africa’s largest retail and business banks (Barclays Africa Group and Standard Bank Africa) in addition to driving the development of AI-powered neobank Evel, is uniquely qualified to provide insights from both sides of the track and truly understands both the threats incumbents now face and the complexities that they need to overcome to thrive.

Bond is a transformational and turnaround leader with over 30 years of banking, payments, travel and tourism experience, with a reputation for product innovation and business development across Africa, Asia and the Americas. His experience within the financial industry and outside of it has afforded him a rare viewpoint from which to comment on this critical juncture within the banking sector.

In the virtual talk Bond and Iles discussed the merits of neobanks and why they are drawing customers away from traditional banks. Bond explained that as there are no physical branches or extensive legacy IT systems to maintain — in addition to their ability to automate many traditional functions instead of requiring an expensive labour force — the costs of starting and running a neobank are substantially lower. This in turn gives neobanks the ability to charge lower fees and provide higher than average interest rates on savings accounts and the like. Aside from being one of the most powerful driving factors to join neobanks, lower costs and increased interest rates are also the one area that traditional banks will not be able to fairly compete with, due to their significant running costs. 

Bond went on to say that there are still many ways that traditional banks can learn from neobanks and adapt their services to the digital era. 

Make use of cloud storage     

By forgoing expensive internal data centres and on-premises systems in favour of migrating to the cloud, banks can cut operational costs by up to 20% and improve time to market and provisioning speed by up to 50%. Bond explained that this will also allow greater agility and a better customer experience through united and more secure data sources. 

Invest in Fintech and AI

AI can assist in automating simple and time-consuming back-office processes to enable the financial workforce to focus on the elements of the service that provide the human touch. This can also extend to front-office services in the form of robo-advisers, where recurrent queries can be attended to without delay, leaving the more complex requests to be dealt with by financial advisors. Along with technology such as biometrics or cross-platform cryptocurrency support, technology in the financial space is paramount to the running of neobanks and thus needs to have a high importance for traditional banks should they wish to have a hope of competing. Currently traditional banks spend around 70% of their IT budget on maintaining their legacy systems and only 30% on digital transformation solutions.

Transforming client engagement and holistic user-centric experience

Supporting new channels to engage with clients has already been a priority of traditional banks within the new era of the pandemic, Bond and Iles explained. However, taking the lead from neobanks would require that client engagement is optimised to reflect the unique preferences of each client and deliver personalised engagement in that moment. This requires a fast, seamless and intelligent engagement platform that makes use of feedback and historical data across multiple channels. This user-centric experience also extends to features that clients are looking for in their banking experience such as budgeting tools, transaction alerts, real-time balances and personal finance solutions. Using this client-centred way of thinking, neobanks’ satisfaction ratings (averaging 76%) exceed that of the top 50 global banks in the UK, US and Germany.   

Following these impressive insights from Bond and Iles, Head of Huawei Enterprise Marketing Leandra Chinniah and Huawei Expert Chen Kun Te spoke on digital transformation in South Africa and their findings on the challenges and opportunities in the financial sector. 

Chen has been in charge of strategic positioning, business process transformation, brand strategy, operations, and risk control of retail banking, credit card, consumer finance, wealth management and private banking services for many years.

His work at China Merchants Bank (CMB) as the director and CIO of wealth management gave him some deep insights into the current state of the financial sector as it exists between the physical and digital landscapes. 

All speakers of the event were met with great enthusiasm and excitement by the virtual attendees, and some encouraging interactions occurred during the Q&A part of the event. 

To anyone attending, it was clear that these insights will be invaluable to major role players within the financial industry, and that future events in this series will likely be of similar great worth.  

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