01.02.2022, 13:42 78

Neobanks In Digital Transformation

Neobanks, also known as digital banks, are financial technology initiatives that provide services to their customers only over the internet via mobile or web applications without needing a physical branch, unlike traditional banks. These new generation banks, which are gradually increasing, are the digital, agile and innovative competitors of classical banks. It can be said that these banks, which are motivated to reach more customers by providing an excellent customer experience, have taken a very serious share by enlarging the cake that exists especially in the axis of payments and money transfers.

Even though some of the digital banks around the world were first established as payment institutions, some of them were established as a sub-service of classical banks, it was observed that they gradually evolved into a more characteristic structure according to the legal regulations that change from country to country, and they were more prominently effective in the transformation of classical banking. We can predict that payment institutions may evolve into neobanks over time or that they will continue to exist as institutions that perform a subset of functions.

Although the term "neobank" was first coined in 2017, we can say that Simple Bank, founded in 2009 by software developer and hedge fund analyst John Reich against the complex banking system of America, is the first neobank. Currently, the UK is the most prominent digital banking market.

The fact that the UK's regulatory authority pursues a proactive strategy in developing this field has a significant impact on this. In addition, digital banking is actively and rapidly developing in Europe, America, Brazil, China and South Korea. As of 2022, digital banking licenses in our country will start to be issued by the BRSA.

Digital banking has been one of the most popular and rapidly developing areas during the COVID-19 pandemic. The global neobank market size is expected to reach $330 billion by 2026, with a compound growth rate of 47%. On a country-by-country basis, it is estimated that China will be the fastest-growing country in this field. Despite all these positive developments, neobanks also have pros and cons. Traditional banks still have many advantages over neobanks, especially in financing and customer trust. However, they have more cumbersome systems than neobanks to keep up with the dizzying course of technology. In this sense, they have difficulty meeting the increasing expectations of customers.

Neobanks offer faster service and superior customer experience to retail customers and small and medium- sized businesses that traditional banks have difficulty providing. In a more structural expression, we can explain the advantages and disadvantages of neobanks as follows:

•    Lower costs: Less regulated and no physical branches allow neobanks to keep costs low. Products offered to customers are often cheaper.

•    Convenience and accessibility: Neobanks allow you to meet most of your banking needs, usually via a smartphone application. It allows you to complete banking requests with faster and user-friendly interfaces from anywhere with the internet without encountering physical difficulties such as going to a branch or waiting in a queue to become a customer, as in traditional banks. Likewise, more modern service quality is offered for digitally literate customers with interfaces to easily manage financial situations with functional panels showing your transaction history and future applications' forecasts.

•    Quick process time: Neobanks, which are more potent in technology competence than traditional banks, can respond to customers' demands more quickly.
In addition to remote digital authentication techniques in customer acquisition, they can create a customer's account and calculate
customer creditworthiness faster than 

laws are developing, we cannot say that neobanks on a global scale have as mature regulations as traditional banks. As a result, less mature procedures or possible fraud and error resolution issues have not yet reached a point as reassuring as traditional banks. For this reason, depending on the importance given to this issue based on neobanking, customers' choice of banks becomes even more important.

•    Lack of physical bank branches: Even if neobanks, which provide all their services through online platforms, integrate with the ATM networks of traditional banks, some customers may find it more reliable to do their transactions face-to-face through a physical branch. Even though neobanks offer call centre services, especially for relatively complex processes, some people may prefer to make direct physical calls. As a result, it is evident that a banking transformation is continuing, in which neobanks will gradually get a larger share of the pie, despite the fact that there are still some disadvantages. And classical banking will recede into the background, especially with the development of open banking.


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