The Journey of Incumbent Banks in Establishing Neo Banks
In the rapidly evolving landscape of financial services, incumbent banks are increasingly recognizing the need to adapt and innovate in order to stay competitive. One approach gaining traction is the establishment of Neo Banks, also known as digital or fintech banks. These entities operate exclusively online, utilizing advanced technologies to deliver seamless and customer-centric financial solutions. This article delves into the strategies employed by incumbent banks, focusing on global examples and specific instances from the African market. We will explore technology selection, operational models, and discuss successful approaches, while also providing recommendations for banks looking to establish their own fintech or digital banks.
Global Examples of Incumbent Banks Establishing Neo Banks
Banks worldwide have been changing and adapting to meet the needs of their markets. A lot of this change involves a move towards more technology-friendly and digitally advanced banking. Looking at individual banks and how they established Neo Banks, we can learn more about the strategies behind this change. BBVA’s Simple (USA) is a prime example of an incumbent bank successfully establishing a Neo Bank. Simple embraced a customer-centric approach, providing a streamlined, user-friendly banking experience with budgeting tools and real-time insights into spending habits. They formed partnerships with third-party vendors to access the necessary technology infrastructure. DBS Digibank (Singapore) is another noteworthy case, where DBS, a Singaporean bank, launched Digibank as a fully digital bank. Digibank focused on personalization and convenience, integrating artificial intelligence (AI) capabilities to offer tailored financial solutions. Leveraging cloud computing, big data analytics, and mobile technologies, DBS provided a seamless digital banking experience.
African Examples of Incumbent Banks Establishing Neo Banks
There has been a constant increase in new launches of digital banks in Africa since 2012 growing from only 2 digital banks to 21 in 2021. However, so far only a limited number of countries have been able to present themselves as an attractive market to new entrants. Namely, South Africa and Nigeria account for approximately 80% of digital banks in the region with about 27 million customers. Even though it is challenging, there are ways to enter and succeed in this rather complex market environment. Standard Bank’s GoBank (South Africa) is a notable African example. Standard Bank launched GoBank as a Neo Bank targeting the unbanked and underbanked population. GoBank adopted a mobile-first approach, allowing customers to open accounts digitally and access basic banking services. They utilized cloud-based technologies and formed strategic partnerships with local mobile network operators to expand their reach. Ecobank’s Omni (Pan-African) is another successful endeavor, with Ecobank introducing Omni as a digital banking platform catering to retail and corporate customers. Omni focused on cross-border banking services, leveraging digital technologies to facilitate seamless transactions across multiple African countries. APIs (Application Programming Interfaces) were utilized to integrate with various third-party services, enhancing the overall customer experience.
In Egypt on the other hand, there has been a digitization trend more recently in Egypt’s financial sector. This not only encouraged 90% of banks in Egypt to provide their own digital banking services but paved the way for a variety of fintech and digital banks to be launched. For example, Fawry, a leading Egyptian fintech company, launched its digital banking services in 2019. Fawry Banking offers a range of digital banking services, including account opening, fund transfers, bill payments, and mobile wallet services. Also, The Commercial International Bank (CIB), one of Egypt’s largest private sector banks, launched its digital banking platform alongside Banque Misr, one of Egypt’s oldest and largest banks which launched the 1st digital native bank in Egypt. CIB Digital provides a comprehensive suite of digital banking services, including online account management, fund transfers, bill payments, and balance inquiries. While, Banque Misr Digital enables customers to open and manage accounts digitally, perform fund transfers, pay bills, and access a range of banking services. These are all but a few examples. At the moment, Egypt has about 95 fintech and digital banks operating within the country, including Telda, valU, and Khazna.
Strategies, Technologies, and Operational Models
In order for a Neo Bank to be successful, there are various strategies employed to tailor the bank to their goals and to their target markets. In the evolution of digital banking, there has been a trend of key themes and approaches seen being put to work by various Neo Banks. These key themes include:
- Customer-Centricity: Neo Banks prioritize delivering exceptional customer experiences through intuitive interfaces, personalized services, and rapid response times.
- Collaboration and Partnerships: Incumbent banks form partnerships with technology companies, fintech startups, or mobile network operators to leverage their expertise and gain access to innovative technologies.
- Agile Approach: Neo Banks embrace agile methodologies, enabling rapid development and iteration of their digital banking platforms to adapt to customer needs and market demands.
- Regulatory Compliance: Compliance with local banking regulations is crucial for incumbent banks establishing Neo Banks. Data privacy and security are paramount concerns.
Neo Banks prioritize these approaches and because of this, they are seen to be more successful than traditional banks as these strategies all tailor the bank’s services to fit the consumer’s needs perfectly while addressing any limitations or faults of traditional banking.
Recommended Path for Banks Establishing Fintechs or Digital Banks
Establishing a Neo Bank represents a transformative journey for incumbent banks, enabling them to embrace digital disruption and offer innovative financial solutions. Through the examination of global examples and specific African instances, we have witnessed diverse strategies, technology choices, and operational models. In order to establish a successful fintech or digital bank, banks should conduct extensive market research to understand the target customer segment, their needs, and the competitive landscape. This knowledge informs product development and marketing strategies. Incumbent banks should also carefully evaluate available technologies, considering scalability, security, user experience, and integration capabilities. Cloud computing, AI, and mobile technologies should be explored to build robust and scalable digital banking platforms. Adopting an agile development approach for iterative enhancements based on customer feedback also ensures continuous improvement and adaptation to market dynamics. Also, collaborating with fintech startups, technology providers, or established players in adjacent industries can allow banks to access innovative solutions and expand service offerings. Lastly, one of the most important things to consider when establishing a digital bank is to ensure compliance with local banking regulations and data protection laws and to work closely with regulatory authorities to adhere to required standards. Success in digital banking lies in prioritizing customer-centricity, fostering partnerships, adopting an agile approach, and complying with regulatory frameworks. With thorough market research and careful technology selection, banks can pave their way to establishing successful fintechs or digital banks, ready to meet the evolving needs of customers in the digital era.
The digitization of the banking experience has become a norm all over the world. Incumbent banks are adapting to the changing financial services landscape by establishing Neo Banks and employing strategies such as customer-centricity, collaboration, and agility. Technologies such as cloud computing, AI, and mobile technologies also play a key role in this change. Whether through the launch of digital banks and fintech, or through traditional banks launching their own online banking apps, digital migration, and financial inclusion is now becoming a focal point for economic growth.
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