How neobanks can balance profit and sustainability

 

Written by: Naim Alame, Financial Services Payments Lead, Middle East; Giorgio Flori, Managing Director – UAE Financial Services Portfolio lead; and Masa Al Chalabi, Financial Services Senior Manager – Middle East 

Neobanks are multiplying rapidly and they offer incredible opportunities to disrupt the financial services market. Accenture’s Global Banking Industry Outlook estimates that in 2020, 20% of all players in the banking and payments sectors were less than 15 years old. But not all neobanks will become profitable, or survive past the startup stage. The rush to market often has founders and CEOs hurrying through the detailed business planning that these businesses need to become market leaders. This series of posts will examine all stages of the neobank life cycle, including how to help envision, build and establish a successful neobank. 

We begin by looking at some unique dilemmas that neobanks face. These are matters that should be addressed before a single account is opened. Careful planning and a bold vision that goes beyond customer acquisition are essential for a profitable and sustainable banking business. The three dilemmas discussed here are faced by every new neobank, and striking the right balance can help pave the way to success. 

  1. Growth vs value: Many neobanks focus on growth and succeed in attracting a large number of customers very quickly after they launch. But not all customers are equally valuable.  Attracting new customers through a niche service or convenient app will only get you so far. To be successful, neobanks will need to earn the trust of their customers so that they are comfortable depositing paychecks and using the neobank as their main account. This customer confidence and long-term value should be built into the strategic design of the neobank and is part of the envisioning process.  
  2. Convenience vs loyalty: Neobanks have mastered the art of convenience. Customers can open an account in minutes and have niche banking services at their fingertips. Using multiple neobanks for different services is simple and allows customers to easily access the service they need, right when they need it. By comparison, traditional banks are often seen as more cumbersome and difficult to deal with—yet many customers’ primary accounts remain with those traditional banks. Neobanks need to move from attracting curious new users to building loyalty and trust so that they derive long-term value from their customers. Embedding loyalty incentives at the planning stage and using customer data to keep users engaged and to expand their customer journey will help neobanks grow and maintain valuable customer relationships.
  3. Emulation vs evolution: As a neobank’s business grows and becomes profitable, there is a temptation to consolidate services and become more like a traditional bank. But a neobank’s value comes from its customer-centric focus that goes beyond traditional banking needs. Neobanks can evolve by using inorganic growth strategies where they continue to invest in partners and work with open API ecosystems to unlock value. A culture of innovation and agile decision-making will allow neobanks to learn fast and adapt to a moving target of customer expectations. Moving backwards to emulate traditional banks will erase the advantages of being a neobank. 

Facing these dilemmas and choosing a path that is both profitable and sustainable begins with understanding your purpose—why you want to create a neobank. Then, with that purpose in mind, you can plan for the entire life cycle of the neobank, from envisioning your product, to designing it, building it, running it and eventually either scaling up or executing your exit plan.  

 

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