Empowering Neobanks: 5 Game-Changing Approaches to Overcome Challenges and Drive Fintech Innovation

This blog is volume 3 in my series of blogs around the financial revolution that is taking place in our times. You can find the previous two volumes here:

1. The Financial Revolution
2. Navigating the Neobank Landscape

In recent years, Neobanks have disrupted traditional banking and are poised to revolutionise the financial services industry. However, as with any rapidly growing sector, Neobanks face their fair share of challenges. In my previous article, I talked about some of the main challenges, including the freemium business model, lack of profitability and customers’ mindset.?

In this article, we will discuss five key solutions that Neobanks can implement to overcome these obstacles and propel their business to new heights. Additionally, I have included notable examples of Neobanks that have integrated these solutions successfully. The future is bright for Neobanks, and with the right strategies in place, I believe that there is no limit to their potential.

1. Embracing Digital-first Strategy and AI Capabilities

To maintain a competitive edge, Neobanks must fully embrace a digital-first strategy. This involves harnessing the power of data and AI to optimise customer experience and financial performance. By adopting an AI-first mindset, Neobanks can significantly improve their operations and better serve their customers.

At Techbulls, we believe that AI can be used to create personalised services that address customers' unmet needs and improve cross-selling. Let’s take the example of a company I was personally impressed with - Finin (Acquired by Open Financial Technologies) , India’s first, full-fledged consumer neobank. Through its features like monthly budgeting, personalised recommendations, and reminders for subscription cancellations and bill payments, the Finin app guides users towards smart financial choices.?

Their app also includes a goal-setting feature that allows users to allocate a specific amount of money towards a savings goal, and an additional Round off transactions feature that saves any leftover change towards the goal. AI and ML enables the app to provide personalised solutions, reminders, and notifications that encourage goal-driven savings and financial independence.

Additionally, Neobanks can also use AI to optimise their financial performance by maximising the value of each customer, reducing costs through automation, and adopting better risk management practices. Having an "AI-first mindset," means that Neobanks are able to prioritise the use of AI in their operations, to take advantage of these benefits. It goes without saying that it's not enough to simply use AI; Neobanks also need to ensure that their AI capabilities are delivering tangible business value, such as increased revenue, decreased costs, or improved customer satisfaction

1. Launching and reworking products faster?

We have observed that the Neobank industry currently relies heavily on two core products: accounts and card-based payment services. While these products are important entry points, they generate relatively low revenue due to intense competition, regulatory caps, and reduced transactional revenue resulting from the pandemic.?

In order to become profitable, Neobanks need to diversify their product offerings. In 2015, for instance, Revolut Business offered only its flagship multi-currency travel card and a mobile app. By 2020, Revolut had expanded its offerings to include 20 different goods and services, which means they were launching a new product approximately every three months. This was achieved through their strategy of experimenting with new products and focusing on the ones that gained the most popularity. This ability to rapidly launch and rework new products and propositions is one of the differentiating factors between successful neobanks and their traditional counterparts.?

To boost profitability, Neobanks should consider having any of these 4 must-have products:

• Buy Now Pay Later (BNPL)
• Embedded Finance, Digital Investments
• Crypto Currencies
• Digital Mortgages/Digital Lending.

Lastly, it is important for neobanks to understand that full-stack teams and flexible tech platforms play a significant role in accelerating product development. Hence, neobanks should invest in these areas to ensure they can quickly pivot and adapt to changing market conditions and customer demands.

1. Enhancing Customer Engagement and Personalisation

We have also seen that the most successful Neobanks prioritise customer engagement and view it as a key driver of revenue growth. They go beyond just offering basic banking services and focus on creating a seamless, enjoyable experience for customers. This includes providing not just core financial products, but also complementary services that offer new forms of utility, as well as entertainment and education.

To achieve this, Neobanks are curating and designing products and services based on user interest patterns, as well as alignment with the bank's overall brand and purpose. This includes leveraging AI and machine learning to recommend appropriate shopping and financing offers to customers. For instance, Klarna , a Swedish Neobank, uses an intelligent system to analyse customers' buying habits and suggests relevant shopping recommendations and financing options while enabling easy payment and credit products at the point of sale.

Neobanks that are powered by AI also closely track their engagement performance, analysing metrics such as the average time spent on the app and the number of daily and monthly active users. By doing so, they can ensure that their engagement efforts are effective and are driving meaningful business outcomes, such as increased revenue and profitability.

1. Adopt Conversational Design to Transform Customer Experience?

Implementing conversational design elements, such as chatbots and voice assistants, can help neobanks provide superior customer service while reducing costs. Unlike traditional banks that use chatbots to address customer queries, AI-focused neobanks are replacing forms and questionnaires with conversational design elements. By doing so, they can use natural language processing to engage customers better, combine customer context and intent, and address customer queries more effectively.

For instance, China's 微众银行WeBank uses AI chatbots to address almost all customer queries, which has helped them to scale their operations efficiently while serving millions of customers daily. Besides providing superior customer service, using chatbots and conversational design elements also drives cost efficiency, with operational cost savings estimated to reach $7.3 billion globally by 2023. This means roughly 862 million hours were saved.

Additionally, integrating seamless open-banking features can lead to increased user engagement and improved customer satisfaction.?

1. The Power of Collaboration: Achieving Customer Lifetime Value

Building strategic partnerships is crucial for Neobanks looking to scale quickly and efficiently. By embedding their services within partner ecosystems, Neobanks can increase their discoverability, reach new customers, and provide contextually relevant offers.

For instance, ????? Kakaobank is a digital bank in South Korea that has been successful in acquiring a large number of users through strategic partnerships with other companies. It is also one of the only banks that turned profitable after only 18 months of operations. One of their most significant partnerships was with KakaoTalk, an instant messaging platform owned by the same parent company. This partnership gave Kakao Bank access to a vast user base, which helped them acquire over 300,000 users within 24 hours of launching. They were also able to reduce customer acquisition costs and gain the visibility that most companies would strive for.?

Kakao Bank's partnership strategy also included forming alliances with securities companies to enable users to open stock trading accounts within the Kakao Bank app. This service was a hit among users, and Kakao Bank has opened over 2.18 million such accounts. Additionally, the bank launched four credit card programs in partnership with other companies, which increased their revenue streams. By leveraging partnerships, Kakao Bank has been able to diversify its revenue streams, scale its products quickly and become a successful digital bank in Korea.

How Can Techbulls Help Neobanks Overcome Challenges?

At Techbulls, we have a deep understanding of the fintech space and the unique challenges that neobanks face. Our team of experts can help neobanks implement the solutions discussed in this article and support their journey towards success.

We offer tailored services for neobanks and fintech startups, ranging from engineering capacity building to application modernization and idea to MVP. Our expertise has helped numerous clients overcome challenges and achieve remarkable growth in the fintech sector. We are confident that our experience and skills can be an invaluable asset to any neobank looking to navigate the challenges ahead.

Conclusion

In conclusion, the Neobanking sector holds immense potential for growth and success. By implementing the five game-changing solutions discussed in this article, Neobanks can overcome their challenges and propel their businesses to new heights.?

If you are looking to develop great products, navigate market challenges, and achieve significant growth in the fintech industry, we invite you to reach out to us at Techbulls. Together, we can unlock the full potential of your Neobank and drive fintech innovation to create a brighter future.