We have all experienced it. With the pandemic and social distancing measures, people have spent much of their lives thus far on their smartphones and computers. This led to increased adoption of digital banking channels to manage their finances. As a result, Neo-Banking is the next natural step that the financial industry will take, at least according to some industry experts.
Introducing the Concept of Traditional and Neo Banks
Now, you may wonder what neo-banking is and what would be the opposite. Therefore, here we will briefly explain what a traditional bank is.
Traditional banks, as the name implies, are the type of bank we know par excellence and have grown up with. It manages the money customers deposit into their accounts and provides customer service primarily through its physical branches, offering savings accounts, current accounts, loans, money transfers, credit cards, and more.
On the other hand, we have neo-banks, “neos” means “new,” so it literally stands for a “new bank.” They are financial technology companies offering online-only financial services with no physical branches, allowing customers to access their services through an app or website.
Understanding Traditional Banks
Primarily known as old banks, traditional banks are conventional financial organizations that provide banking services through physical locations.
They operate through a network of branches and provide various financial services, such as savings accounts, checking accounts, debit cards, issuing credit cards, wealth management, giving out loans, and insurance.
This kind of bank, with a history and a solid reputation in the pitch, has a sizable clientele, mainly because they have a physical presence, and this not only makes customers feel safe but also allows them to access any services easily.
But despite the confidence and ease these banks may have, one fundamental aspect they need to catch up on is the user experience.
Traditional banks, being regulated, need to be licensed and, therefore, tend to be less affordable for the user because they have a lot of hidden charges that consumers may need help understanding. Also, they are less flexible because if you want to open a new account, sign up for a credit card, or even apply for a loan, in this kind of bank, you will have to pass a range of checks, making the user experience not so good.
Another aspect to consider is that they need updated technology and legacy systems, which may restrict their capacity to adapt and offer a contemporary consumer experience.
Furthermore, because of the higher administrative expenses connected with operating physical branches, older banks may charge higher fees and offer lower interest rates, negatively impacting the customers.
The Rise of Neo Banks
We can see how banking apps are reshaping user expectations. They are innovating and at the same time disrupting digital-only financial institutions.
Let’s see why:
– Delivering services online provides consumers with different benefits like reduced fees, faster loan approvals, and even early access to their paychecks.
– Higher technology: Through machine learning and cutting-edge algorithms and features like spending analysis, budgeting tools, and real-time notifications, make their apps easy to use, more practical, and seamless banking experience, enhancing customer service.
– No physical presence: One of the reasons why people have chosen to use neo banks is because they do not have physical branches, which reduces their overhead expenses, having lower or no fees at all for their services. In addition, you can handle every setting of your account with an app. For example, if you have any problem, companies frequently offer live operators or chatbots for customer service around the clock.
– Financial inclusion: Neo banks drive financial inclusion. People with no history of relationship with banks can open an account for free via cell phone, without bureaucracy, without cost, and quickly.
Key Factors for Enhancing User Experience
What are the critical factors to an enhanced user experience in banking apps?
Let’s see some actionable UI/UX design tips for neo banks to overcome user experience challenges:
– User-friendly interface and design: Make sure your platform is easy to use. When we talk about usability, we refer to creating a user-friendly interface for customers without experience with finance. Try to make it simple, easy to navigate, consistent, and clear, and use visual cues to increase ease of use.
– Seamless onboarding process: This is crucial for UI/UX design because it is the first step that defines how the user experiences the application. Every aspect of the onboarding experience should be designed with the user in mind, and easy to access for people with disabilities. So, we recommend avoiding the traditional way of authentication, like entering passwords and on-time codes, and instead, incorporating technologies like biometric authentication and digital signatures.
– Personalization and customization options: Personalized user experience is the key to boosting engagement and loyalty. We suggest leveraging transaction history, location, and other data analytics to create customized push notifications, dashboards, and promotions for users.
– Security measures and trust-building: To keep your customers engaged, make sure to protect their data. Lack of security is the number one concern users have about financial applications. Make security a key component of your interface design by communicating your security features and policies through elements like visual cues to help customers understand the safety of your platform.
– Accessibility and cross-device compatibility: Users expect payments to be processed quickly and seamlessly. We recommend integrating with third-party payment providers and leveraging cutting-edge payment technologies to improve payment processing times to stay competitive.
Traditional and Neo banks Face Challenges in Providing an Excellent User Experience
As time goes by, it becomes a challenge every day to provide a good user experience.
Let’s see what they are for traditional banks:
– Increasing Competition
Neo banks have taken a large territory, forcing many old banks to seek partnerships and acquisition opportunities as a stop-gap measure. They must provide a simplified and intuitive customer experience to stay caught up.
– A Cultural Shift
The world has become digital, and with the advent of artificial intelligence, financial institutions need to innovate, optimizing existing processes and procedures for maximum efficiency. Realize that change is just around the corner, and companies must accept and incorporate digital transformation to be at the forefront.
– Regulatory Compliance
With the increased regulatory fees relative to earnings and credit losses since the 2008 financial crisis, banks have incurred additional costs and risks to stay up with the latest regulatory changes and controls.
– Costs of maintaining physical branches
It impacts higher fees and offers lower interest rates because this includes the cost of land or lease, staff salaries and training, customer service, maintenance costs, costs per transaction, cash distribution costs, and others.
Now, let’s look at the challenges that are facing neo-banks:
– Physical presence: Fact-to-face contact is sometimes necessary when you have irritated customers who would rather talk to anyone in person when they need help with some transaction or have any questions about your bank’s services. Develop great chatbots or any online assistance to decrease this issue.
– May not be friendly to some people: Many users are not a big fan of the technology, so make sure to develop an app that is user-friendly to any customer.
– Neo banks have fewer regulations: This means that they are more vulnerable during financial crises and that your deposits might not always be protected. Make sure to include deposit insurance to protect customers and their money. In this way, they will feel more secure.
– Few services: Most neo-banks provide the basics like checking and savings accounts, so if you are looking for loans, credit cards, wealth management, retirement funds, and other such services, you may rather go to a traditional bank. Ensure your financial application has enough and more to provide the best service to the user.
As you can see, despite all the challenges that neo-banks may be going through, they are the future of financial banking because they are reinventing how clients and organizations in the financial industry connect worldwide. Now is the time for traditional banks to reconsider and redesign their existing innovation strategies to stay on the market.
Ready to take the leap?
Consider partnering with ThinkUp, an experienced fintech app development company that understands the intricacies of fintech mobile apps. Let us help you transform your business and stay competitive in today’s fast-paced.