Visiting one’s bank used to be about the personal interaction and human touch. After all, banking is an exercise of trust.
But the rise of digital bank has redefined what is traditionally considered a bank. Today, ‘human touch’ has been replaced by the ‘touchscreen.’
Digital-only banks are creating a new set of differentiated customer experiences that give them a unique edge over traditional banks, leading to explosive growth in customer signups and interaction. Indeed, the rise of digital-only banks, from South America to continental Europe to Asia, which is now estimated to be more than a hundred, is expected to accelerate the integration of banking and non-banking supply chains and ecosystems.
Digital-only banks are creating a new set of differentiated customer experiences that give them a unique edge over traditional banks
There’s Banco Original and Nubank from Brazil. Germany has solarisBank, which is expanding into Asia, and N26 which has launched in the US.
China has MyBank and WeBank, the former backed by e-commerce giant Alibaba Group, while the latter was launched by conglomerate Tencent Holdings. There’s Digibank of India. Vietnam has Timo, Japan has Jibun Bank while South Korea has K Bank and Kakao Bank.
While most don’t offer a full suite of services, these challenger banks and neobanks are agile, with no burdensome legacy systems, unwieldy branches, and mostly unhampered by regulatory requirements. As such, they tend to move faster and grow quicker.
Here’s a look at some of the world’s major players.
Based in Berlin, Germany, this application’s basic current account offers budgeting tools, spending insights and easy payments. Positioned as a traveller-friendly bank, it differentiates itself with insurance offerings, flexible workspace, hotels, and language-learning apps.
Using Mambu’s flagship core system on a software-as-a-service basis, N26’s customer base reached 500,000 in August 2017, quickly expanding into 17 European countries including Austria, France, Portugal, Ireland, Italy, Spain, and the Netherlands, a growth borne from its existing customers’ referrals.
On top of its free basic current account, it offers N26 Black and N26 Metal premium MasterCard. For a monthly fee of $7.30, the N26 Black card customers can avail of fee-free foreign currency automated teller machine (ATM) withdrawals worldwide. Allianz Global Assistance Europe also provides a comprehensive insurance package that covers travel, health, mobile phone or cash theft, as well as extended warranty for electronic devices. Beyond these perks, the N26 Metal card includes dedicated customer service, preferential rates and special partner offers.
It takes an average of 8 minutes to open an account that is concluded via a video chat with its customer support team. The downside comes with IDnow, its identity verification partner, that only supports certain passports and ID cards.
Valentin Stalf, founder and chief executive officer (CEO) of N26, expects to have a 5% to 10% share of the market in the main countries where it operates within three years.
Based in UK, Monzo offers international payments without additional fees or charges, plus, no extra fees for up to GBP 200 withdrawals per month from international ATMs.
One of the fastest growing neobanks, standard features include budgeting, expense tracking, and international payments. Monzo also offers business banking that include SME loans, accounting, and administration add-in, and even insurance such as emergency cash for holidays, and mobile phone insurance.
Another, UK-based neobank, London to be exact, Revolut boasts of the largest customer base and availability in 31 countries, quickly expanding to serve the youngest generation (8–18 years)
with Revolut Youth. It offers standard banking services, a pre-paid debit card, currency exchange, cryptocurrency exchange, and P2P payments.
Backed by robust venture capital funding, these neobanks’ main appeal especially to millennials, lie in their seamless customer experience and full-digital financial services at extremely low fees.
N26 is gaining traction in the strong European economies, now just hitting 3.5 million customers worldwide. Monzo is taking over the forerunning British market. While Revolut aims to break through the ten-million customer ceiling in 2020.
Are Digital Banks Profitable?
If you look at the explosive growth that digital banks are experiencing today, the answer is a resounding yes.
Most digital-only players in Asia have the backing of commercial banks. Vietnam’s Timo is powered by Vietnam Prosperity Bank. Japan’s Jibun Bank is a joint venture between Bank of Tokyo-Mitsubishi UFJ and the mobile network operator, KDDI. Indonesia’s Jenius was set up and funded by commercial banks.
Digital-only banks are transforming financial services. Although majority are still registering losses, a lot of them are expected to turn in profits soon.
In Singapore, as soon as the Monetary Authority of Singapore’s (MAS) announcement of issuance of up to five new digital bank licences was made, at least four companies have quickly expressed interest in applying for a digital banking licence – Singtel, Grab, Razer and InstaRem.
Hong Kong’s Monetary Authority (HKMA) has issued eight licences since March 2019 with 33 more pending applications. In South Korea, online only bank licences have been issued to Kakao Bank in 2017, operated by the country’s largest chat app.
A spokesman claims that “the 45 million monthly average users of our messaging app Kakao Talk is a huge plus for us when advertising our bank,” adding that the bank uses Kakao’s artificial intelligence technology for its automated customer support systems.
“Large technology companies are seeing this as a land-grab opportunity where they can build out new sets of financial services that can be cross-sold to their existing users,” McKinsey’s Hong Kong-based partner, Jeff Galvin, says.
James Lloyd, partner and APAC FinTech leader at consultancy EY says “what we are seeing in Asia
is technology companies moving sideways into finance, inspired by or even threatened by the examples of Alibaba and Tencent.”
“Large technology companies are seeing this as a land-grab opportunity where they can build out new sets of financial services that can be cross-sold to their existing users”
Traditional Banks Flexing Digital Muscle
Realising that millennials will become their lucrative clients in the future, traditional banks are launching digital banks of their own. On top of that, they are also adopting global best practices of their digital-only competitors such as provisions for personalised financial content, financial advisory blogs, financial calculators and more.
In fact, one of Singapore’s local banks, UOB, has recognised this early on and plotted a strategy around this whole notion of targeting millennials. UOB’s TMRW (pronounced as “tomorrow”), is the first mobile-only bank designed for ASEAN digital generation who prefer to bank on their mobile phones, anywhere and at any time. TMRW makes banking simpler, more transparent and more engaging for its customers by using data.
It translates transaction data into actionable insights to make the banking experience interesting and fun, while enabling its customers to be smarter at saving and spending. As customers spend more time with TMRW, the mobile-only bank becomes even more familiar with their wants and needs to serve them better.
As customers spend more time with TMRW, the mobile-only bank becomes even more familiar with their wants and needs to serve them better.
On the other hand, Taiwan’s Cathay United Bank (CUB) has fully embraced the digital intelligent era of payment reminding. In the past, CUB’s payment reminders had to rely on personal experience to judge the probability of default risks and sequence of reminding. By implementing digital innovation through the introduction of multiple data sources and machine learning technology, it was able to promote collaborative decision-making. About 30% – 35% of cases handled manually previously were converted into automated processing, thus, maximising reminding benefits and maintaining CUB’s competitive advantage in the market.
The efficiency of payment reminding for consumer financial products has been greatly improved by its digital transformation. As a result, the bank was able to: a) map out intelligent payment reminding strategies with intelligent analysis of customer behaviour; and, b) empower employees with data analysis capability to implement data-driven strategies.
Not to be outdone, Krungsri has launched “Krungsri GIFT”, a revamped loyalty programme derived from customer insights that aims to enrich customer experience, acquire new customer segments, and sustain the growth path of the bank in the digital landscape. Krungsri GIFT raises the bar on customer loyalty by creating omni-channel experiences and leveraging big data to offer instant rewards to customers who complete four types of transaction: deposits, withdrawals, transfers, and payments. Following insights from customer analysis of main bank users’ behaviour, this innovative customer loyalty programme was designed to convert occasional users to main bank customers.
Striking a win-win
As digital banks grow, expect the competition to heat up. For sure, big banks will not take things sitting down. But instead of knocking each other out, possibly one of the best approaches in striking a win-win situation between traditional banks and digital-only banks is by being collaborative and synergistic. In which case, the ultimate winner will be the customers.