10 ways neobanks set themselves up for success
If you were going to launch a new bank tomorrow, how might you approach it? What can we learn from the successes and failures of global challenger banks. I’ve been studying the rise and growth of neobanks over the past three years, and although there are varying approaches to business model and proposition, I’ve noticed some common keys to success that have helped leading neobanks succeed exponentially.
#1 Articulate a clear mission
Whether it’s banking the unbanked, ethical banking or sticking it to the man, the most successful neobanks communicate a clear message to their customers about their mission or purpose.
Most neobanks are quick to label themselves as an alternative to incumbent or legacy banks, raising to the fore their obsession with customer centricity. Many also articulate other focused missions, intended to improve the lives of their customers.
Stand up and say no. No relics of the past. No overcomplicated BS. No playing with your money.
Bunq
#2 Plan for profitability
Yes, it sounds obvious, but whilst neobanks can’t expect to hit profitability straight away, a plan does need to be in place to ensure revenue drivers and low operating costs are in place.
What this looks like is a plan to monetise beyond the current account, to break out of a net loss-generating phase as quickly as possible, and in the smoothest possible way for the customer.
The pressure to build scale and attract customers faster than their rivals has led many neobanks to sacrifice profitable business models for foot-in-the-door customers. Neobanks that initially attracted customers with market-leading rates, no foreign ATM fees and high interest savings, but then changed their pricing strategy or introduced new fees have felt the wrath of their small but highly engaged customer base. We’ve seen such pricing pivots play out in different ways.
RIP Zuno
Zuno was a digital bank launched in Central Europe in 2010 by Raiffeisen Bank International. The neobank ultimately lost €130 million and was shut down, with customer assets transferred to other banks in the group. Failure was placed purely on Zuno’s inability to monetise its customer base on the credit side (versus a market maturity issue or value proposition misalignment — it actually did well for customer acquisition).
“The only mistake we made was not building our credit product portfolio from the get-go”
Øyvind Oanes
Former CEO, Zuno Bank
#3 Aim for truly transformative
It’s a given that any neobank isn’t just digital-first but mobile-first. Compared to many incumbent banking mobile apps, which feel like paper statements in mobile form, neobanks are 100% designed with the mobile experience in mind.
But going beyond what banking apps should be, the most successful neobanks will offer more than a slicker banking experience and really solve customer problems by approaching them in new ways.
The Starling Marketplace
Open Banking pioneers Starling Bank are delivering on their vision to be their customers’ financial control centre, bringing together multiple financial products and services in one place.
“The Starling Marketplace is all about giving you choice and putting you in control — whether that’s discovering an investment company that suits your needs, finding an insurance quote that fits the bill or choosing cheaper deals on your utilities and other expenses.”
Starling Bank
Compte Nickel tobacco shop sign up
Targeting France’s unbanked, Compte Nickel (now renamed to Nickel) teamed up with tobacco shops to allow hundreds of thousands of people to open the equivalent of a bank account in just a few minutes. This was a game changer for France, challenging the normal bank account opening process involving a branch meeting and days of waiting.
World’s fastest business loan
Another neobank serving the underserved, Tide boasts the ‘world’s fastest business loan’, offering short term credit to its customers built into their business accounts. When they apply in the app, they can be approved for a loan of up to £150,000 in under two minutes with no early repayment fees or impact on credit scores. This aligns with Tide’s mission to give business owners their time back, and is just one of the many transformative business banking features it offers. Tide says it now gets one in 12 new business current accounts opened in the UK. It has passed 35,000 customers and served £1 billion of transactions.
#4 Don’t be a slave to your tech
The sweet spot for full stack neobanks when it comes to technology, is a banking system that is flexible enough to allow for agile technology development at the speed of innovation, provides enough autonomy from third party providers to be able to deliver seamless service, and that gets the seal of approval from regulators. Finding this sweet spot can be a challenge, and decisions need to be made as to whether building the full stack in house or working with a BaaS partner is the right option, whilst managing cost bases at the same time.
“For many banks, it’s not like turning around an aircraft. It’s turning around a floatation of aircraft. Legacy issues are hard. As new players starting from scratch we are able to deliver the best technology.”
Steve Weston
CEO, Volt Bank
The importance of control
Many of the more mature neobankshave gone through a journey with their technology stack. In the early days, some neobanksthat decided to launch as frontend only or that relied heavily on BaaS tech partners to launch to market early, have since migrated to a full stack technology approach. The more a bank relies on third parties for its tech, the less control they have if something goes wrong.
A series of outages from payments processor Global Processing Services caused issues for a number of neobanks that used its service including Monzo, Loot, Curve, Revolut and Starling. Monzo later issues apologised to its customers declaring it would be bringing its payment processing in-house. Of course, control doesn’t guarantee zero incidents, but it does provide the neobanks the ability to understand and fix issues themselves, and effectively communicate what’s happening with customers.
Don’t forget the regulators
Australian neobank Xinja recently hit a barrier with its planned cloud-based banking platform, as regulator APRA expressed concerns. APRA has never approved a cloud-based core banking system for use in Australia, so after guidance Xinja pivoted its platform to a product APRA is more familiar with.
#5 Create a compelling reason to try
Getting banking customers to switch from their main bank is notoriously difficult. Which is why many neobanks offer a low barrier to entry with a very clear value proposition, that wins the minds of new customers on price or convenience alone. Most neobanks have a ‘no-brainer’ hero product to attract new customers, hoping they come for the product, and stay for the full offering once they’ve been convinced by the whole, superior experience. Many of these hero products are strategic loss-leaders to get the customers through the door.
Zero fees for spending abroad
European neobanks have traditionally attracted new customers with zero fee spending abroad, free ATM withdrawals abroad and competitive exchange rates. To win the minds of new customers travelling abroad, neobanks clearly show how much cheaper (often free) it is to get one of their accounts for an upcoming trip than it is to use their incumbent bank account whilst abroad.
Revolut’s crypto exchange
During the bitcoin gold rush of Christmas 2017, Revolut launched Revolut Crypto to allow its users to quickly and simply buy, hold and exchange Bitcoin, Ether and Litecoin. Revolut democratised the crypto trading process so that from a customer’s perspective buying bitcoin is the same as exchanging money in any other currency.
#6 Have a laser focus on onboarding
One of the most important user stories to get right is the new customer onboarding process. Neobanks recognise how crucial it is to create and fine-tune the most elegant account opening or application experience, because customers have already taken such a big step in downloading the app in the first place. Many neobanks also add nice touches with sharable animations and premium unboxing experiences once they know the customer is through the door. Open Banking APIs will soon make switching from incumbent banks as seamless.
Atom’s smooth mortgage application
Solving a very real painpoint, Atom Bank partnered with tech company IRESS to build its consumer and broker-facing mobile mortgage solution using open API architecture which on launch resulted in a full application to mortgage offer timespan of 22 minutes. This has since been beaten by a more recent Atom application to offer record of just 21 seconds.
Monzo’s switching service
Making the most of the UK government’s Current Account Switch Service for the full and final onboarding experience, Monzo allows its customers to perform a full or partial switch of payments and balances from their other bank accounts.
In just a few taps, the user can get their switch set up, and then sit back and let it happen. A full switch even closes the customer’s old account for them.
#7 Design for openness
Neobanks were designed for Open Banking before the regulation was even on the radar of incumbent banks. The philosophy of allowing the customer to use their financial data in the way that best helps them, seamlessly providing a portal to the best and most relevant financial services, is the cornerstone of the marketplace neobank. Designed to integrate easily into the lives of their customers, wherever that may be, neobanks build effective partnerships that are mutually beneficial for the neobank, partner and most importantly the customer.
Starling’s payment integrations
In an effort to make it as easy and accessible to pay with Starling as possible, Starling customers can now connect to Apple Pay, Google Pay, Samsung Pay, Garmin Pay and FitBit Pay.
Open Banking ready
Many European neobanks had already released Open APIs before the UK Open Banking deadline of 13 January, despite the regulation not even applying to them (only the big 9 UK banks were mandated to provide APIs). But neobanks were ready, waiting for the opportunity Open Banking and PSD2 regulation would offer them. Those APIs the neobanks have been building are now able to plug into the big 9 incumbent banks (and vice versa) potentially allowing access to a previously hidden customer base. The walls are coming down, and neobanks are ready.
#8 Create a talking point
Neobanks have benefitted hugely from word of mouth, driven in part by their bold branding, delightful experience and sometimes controversial stance against ‘traditional banking’. Most neobanks have something to say, and inspire conversation amongst their users and onlookers alike. Designed to be social, many even prompt their users to share animations and key money moments on social media, so that the world can see what an incredible user experience they’re having.
Get behind a movement
Starling launched their #MakeMoneyEqual campaign in 2018 to raise attention to gender equality in finance. CEO Anne Boden has become a spokesperson for financial gender equality, and takes the conversation beyond the pay gap and into financial education and discourse. Starling found that the way articles talk about money varies greatly between men and women, with men being told to invest, and women being deemed as excessive spenders.
Let the card do the talking
Many neobanks have realisedthe power of their debit/credit cards to do their marketing for them. Monzo’s hot coral card is a cult favourite and even became a chat-up line in London bars. Even more kudos to the early adopters with the old Mondo cards. Vertical, portrait card designs are the new trend, with Tide’s redesigned card reflecting “how people actually use cards today”. Xinja’s beta users have the excitement of using glow in the dark cards.
#9 Don’t just acquire customers; win advocates
The power of brand advocates is unrivalled when it comes to marketing. Advocates are influencers who are active within the community and vocal outside of it. Neobank advocates allow the brand to grow its customer base exponentially and most likely acquire customers who are much more engaged and involved in the direction of the neobank. This leads to customers being much more invested in the neobank’s growth and success.
Community platforms for deeper connections
The majority of neobanks have community forums to create engagement with their customers and insights around key topic areas. This allows the opportunity to create deep and meaningful connections. By having community platforms, neobanks create a sense of belonging therefore generating higher engagement and brand loyalty.
Referral programmes
Referral programmes allow neobank advocates to easily share their brand loyalty with friends and followers. Emerging neobanks create a sense of exclusivity by adding prospective customers to a waitlist. Referrers can bump themselves up the list by inviting more people to join. Monzo’s Golden Ticket programme allowed them to stagger their card production whilst building excitement and advocacy.
“What we’re trying to do is build the first bank with a real network effect, so that you’re encouraged to bring your social circles in, because it makes the product better for you, fundamentally”
Tom Blomfield
CEO, Monzo
#10 Transparency baked in
In a time where trust in institutions and businesses is at an all-time low, consumers demand transparency. Where the inner workings of banks used to be black boxes, neobanks are embracing the opportunity of transparency to become glass boxes. Both developers and consumers appreciate this open approach and have rewarded neobanks with brand loyalty and support. In 2018 consumers are savvy and successful companies have truly integrated transparency into their operating rhythm rather than talk about transparency as a PR move.
Monzo’s Trello roadmap
This transparent product roadmap was created as Monzo fundamentally believes the success of their business is underpinned by transparency with their customers and community. While it may not necessarily involve customers directly in the decision making process, it’s allowing customers to have input and general awareness regarding the direction of the company.
Starling’s developer community
Starling has taken the approach of transparency from the developers’ side, to be able to access Starling’s data securely and allow Open API integration. The community Starling has developed allows radical transparency in terms of the community building a part of the bank while Starling is enabling new customer value propositions through its open approach to development. Starling fosters a strong relationship with its developer community, engaging with its API developers in the following ways:
- Starling Community forum for users and developers, powered by Discourse
- Starling Developer Slack Team is an easy place for developers to ask questions about the API
- Starling Developers roadmap board on Trello
- Github Resources including official SDK
- Documentation and getting started information available from Starling’s Developer website
