Australia’s banking oligopoly might finally be getting the shake up that it needs.
We’ve spoken a fair bit about how the big four are struggling to satisfy their customers, however what we haven’t touched on yet is the increasing number of customers looking towards digital and neobanks as a result.
Customers are continuing to gain more and more control over their finance management, and this is where the prospect of neobanks enters the ring. Once open banking comes into effect on 1 July 2019, Australians will have the ability to own their financial data and transfer this data to other financial institutions. Players like Volt, 86 400 and Xinja have already marked their name on the board, assuring future customers that they will be the better alternative when the time comes to change institutions.
After Volt Bank received the green light from APRA this month, it has now become the first of the Australian challengers to be granted a full Authorised Deposit-Taking Institution (ADI) Licence in Australia.
It’s only a matter of time before more neobanks get the go-ahead and banking as we know it will significantly change for customers.
What is a Neobank anyway?
First, it’s important to distinguish the difference between neobanks and digital banks. Digital banks, such as ME Bank or ING, transact online with no bank branches however are still owned by major financial institutions and therefore rely on existing banking infrastructure.
Neobanks however, as explained by Nielsen, “are 100% independently-owned, with no physical bricks-and-mortar branches or service centres”. In some cases, this means no desktop banking option either – strictly mobile only.
Pros for Customer Experience
What’s so good about neobanks anyway?
1. Power to the Customer:
Neobanks put customers in the driving seat, giving them the power to own their data and choose exactly what they want to do with it. Neobanks openly put financial ownership in the hands of the customer, which as a result gives customers the opportunity to enjoy a hyper-personal banking experience.
One of the main reasons why neobanks are appealing to customers is because of the lack of transparency many customers currently receive from traditional banking institutions. Many neobanks will only let you spend what you can actually afford, meaning no surprise charges or nasty penalty rates. In other words, it’s a lot easier to know what’s going on when the backseat driver finally gets to take the wheel.
3. Lower cost:
Neobanks have no physical locations and therefore fewer employees to pay, making the process a lot cheaper for the customer. Put simply by CEO of Xinja, Eric Wilson; “we have no branches to run, no crappy legacy systems, and no staff serving those branch networks”. In the end, it means that the savings can get passed on as lower fees for customers.
4. Ease of Experience:
Neobanks provide customers with all their banking services at the touch of a button, 24 hours a day, without needing to find a branch that is open before or after work. This means that customers can manage their finances and apply for loans all from the one device, which in turn shortens the banking process. While the big four have functions like internet banking and other digital services, digital is what people already expect. Customers are looking for more than just ‘digital’ – they want to be at the centre of a frictionless experience, and unfortunately digital capabilities aren’t always enough.
1. Early Days: It’s important to note here that many neobanks are still in development. This means that each varies quite considerably from the other at this point, whereby some neobanks are still waiting on savings account options and others have specific card limits. Many are waiting on their banking licences from industry regulators, which is a critical process in determining whether a neobank is a legitimate banking option for customers.
2. Data Security: Although these neobanks pride themselves on their security, there is some concern over whether hacking can become a problem, particularly when customers are in control of their own data.
3. Customer Support: Customer support is another grey area when it comes to neobanks. While information and support can be made readily available online for customers to access, what happens if a problem escalates? Customers need to ensure that they know how this system works before joining a neobank to avoid problems down the track. As there are no physical locations, this would need to be in the form of real-time messaging or calling an employee.
There’s no denying that neobanks have some impressive customer experience offerings. As more innovative banking options like neobanks become available to Australian customers, the question will be how the big banks plan to attract new and existing customers.
Customers are eager to see what else is out there, and although the big four banks have acknowledged their faults and are looking for ways to improve, neobanks have a clear competitive edge over them right now.
The banking sector is on a fast track to disruption, and customers are already taking charge.