The financial landscape has witnessed a transformative shift since the mid-2010s, with neobanks emerging as formidable challengers to traditional banking institutions. Established names like Monzo, Revolut, Starling Bank, N26, and Nubank have disrupted the industry, offering digital-only services that prioritize customer experience through digital innovations.
Neobanks, leveraging technologies such as Data Analytics, Big Data, Cloud Computing, Robotic Process Automation (RPA), and AI & ML, have posed a significant threat to legacy banks. In response, traditional institutions have launched or expanded their digital banking subsidiaries, recognizing the changing preferences of customers who lean towards convenient digital offerings.
While neobanks have grown in prominence, legacy banks have maintained their market presence through brand recognition and customer loyalty. Shuvo G. Roy, VP & Head of Banking Solutions, EMEA for Mphasis, said “We will also see some consolidating defensive moves by traditional banks and their digital avatars.” He added, “The larger neobanks will scale up and push for additional market share, sometimes rebalancing the equation between themselves too, as opposed to against traditional banks alone.”
Phillip O’Neil, Financial Services Director at Kin + Carta Europe, anticipates increased competition in 2024, expecting neobanks like Monzo and Revolut to expand their product sets to compete with legacy banks. Legacy banks, in turn, will invest in product features and innovative offerings, aiming to catch up with fintech advancements.
The focus on customer experience remains paramount, with banks vying to meet customer needs for convenience, efficiency, security, and personalization. Oriana Ascanio, Client Development Manager for the UK & Ireland at Foundever, highlights the importance of banks aligning their policies, processes, and systems with evolving customer expectations.
As banks strive to offer better customer experiences, the use of data for personalization becomes crucial. Legacy banks, through Open Banking, can introduce features pioneered by fintechs, fostering innovation and potentially surpassing their digital counterparts.
Efficiency in back-office processes emerges as a key driver for success in 2024. Neobanks, known for their agility, have an edge in implementing cost-effective back-end processes. For traditional banks, advancing digital strategies to enhance cost reduction processes becomes imperative.
Additionally, Generative AI platforms and Large Language Models (LLMs) are expected to play a pivotal role in keeping operational costs down. Back-office efficiency, seamless integration, and automation are identified as crucial elements, offering benefits such as time savings, higher personalization, and satisfaction for both customers and employees.
In the race for success, neobanks and legacy banks are set to compete fiercely in 2024. The mission for neobanks is to continue offering innovative products and services, aiming to capture a significant share of the market and customers from traditional rivals. As the battle unfolds, the financial industry witnesses an ongoing evolution, driven by digital transformation and the quest for superior customer outcomes.