What is a Neobank?
Technology has seeped through every part of our lives, making much of our day to day business smarter and more efficient. Banking is no different. The term ‘neobank’ started being used in around 2017, referring to new banks emerging that aim challenge the way people traditionally bank. A neobank is a (financial technology) based bank that operates solely digitally or via a mobile app, that means accomplishing most things a conventional bank can, minus the physical branches.
The neobank product model tends to be aimed at a tech-savvy customer, who is typically after a simpler and more accessible way to manage money. Many offer free budgeting tools and financial education.
Due to most neobanks having fewer overheads like branches, staff to run these branches and a generally slimmer business model, users commonly can enjoy higher interest rates and fewer fees. Most neobanks do not offer credit, this helps keep their costs down and limits their risks. It is also to be noted that a vast majority of these banks offer a physical debit card too as to not dampen the user experience.
While on the topic of user experience, another key point to be highlighted is the event of opening a bank account. is Founder of Built for Mars, a company built to help businesses identify and solve new problems within UX, he was also a guest on an episode of the . Ramsey experimented , providing fascinating results on conventional and challenger banks (neobanks) alike. Below is a graph of his findings on how many working days it took to open a fully functioning bank account with each provider.
“As you’d expect, the challenger banks were considerably faster than the more traditional banks. And remember; these are working days, not calendar days.” Peter explains, “But when we talk about how easy something is, there’s another metric to consider: the effort required. Typically, products feel more intuitive—and easier—the less input they need. So I also logged every time I had to do something.”
As mentioned, he also recorded the number of clicks to create a bank account with these providers, and discovered that “it took five times as many clicks to open an account with First Direct, than it did with Revolut.” He also found the only traditional bank in the experiment able to open an account from its mobile app was Barclays.
Of course, this new style of banking won’t be attractive to all, and understandably. The drawback of no physical branches to go into is you cannot speak to someone from your bank face to face. Speaking to a member of staff in person builds a level of rapport and trust that would be difficult to achieve otherwise.
Neobanks are less regulated than traditional banks and are not considered actual banks in some legal terms. It is a customer’s responsibility to be sure they choose a bank that offers a form of deposit insurance such as the National Credit Union Share Insurance Fund or the Federal Deposit Insurance Corporation. Big neobank names such as Monzo, Starling Bank and Revolut are well regulated and reliable, hence their loyal customer bases, but always do your research.
Many neobanks have seen their customer numbers rocket over the past few years, according to , many of these banks in key global markets are “prioritising scale versus profitability”. On average, a neobank loses $11 per user, mostly from operating costs and offering accounts for free, although many have subscriptions available for premium accounts with more features.
The next stage for many neobanks will be to pivot from a hyper-growth model to a long term more sustainable and profitable one. Despite the Coronavirus pandemic, many neobanks have seen customer bases soar from the need for more flexible banking. Having an agile workforce and a product and services that can be upheld by staff working from home has been paramount for success through COVID-19. As cash is being discouraged in favour of contactless card payments to limit the virus spread, the concept of a cashless society in the future seems to be more prevalent.
TrueLayer launches new verification API
TrueLayer, the leading, London-based open banking solution fintech, has announced the launch of its new Open Banking API verification solution.
According to reports, the technology combines open banking with machine learning (ML) to make the onboarding process seamless and fast.
Fast processing in Open Banking
Results show its success rate is currently 20% higher than credit bureaus because it generates reports in seconds rather than the traditional manual, bank statement checks that can take days to complete.
TrueLayer also says the technology simplifies the payment setup and transactions by pre-verifying customer’s details.
Another advantage is that existing providers have access to raw data that requires businesses to build and maintain their own logic to verify that the customer’s name matches their name on file at the bank.
The verification logic sits on top of open banking rails and matches the name given via the onboarding, along with the name held at the bank. It, therefore, offers a single feed that provides an immediate and highly accurate response regarding whether their user’s account has been verified.
Open Banking in the UK
Open Banking has seen a surge in popularity since March 2020. Data shows that the technology is being used 12-fold more than it was two years ago. Banks in the UK are now handling more open banking payments volume in a single month than the amounts measured in the whole of 2019.
TrueLayer says many of its clients are using the Verification API, including Authologic, a Y Combinator-backed provider of identity verification solutions.
Ossama Soliman, Chief Product Officer at TrueLayer, said the verification breakthrough makes a huge difference to both businesses and customers because verification is the first step to onboarding a new user and yet it can often take days to verify an account owner using traditional methods.
He explained, “Their security is questionable, they’re prone to errors and they take forever. It doesn’t need to be that way. With the verification API, we’ve built on top of open banking to create a faster, more secure, and more accurate approach to verifying a user’s account. It serves businesses across multiple industries, including financial services, PSPs, wealth management and trading, marketplaces, property, and iGaming.”
Speaking about the new technology, Jarek Sygitowicz, co-founder of Authologic explained, “Whether you are a fintech, a marketplace, or an ecommerce platform you want to deliver the best possible onboarding experience.
He added; “We are aggregating different identity verification methods and we are big supporters of using open banking thanks to its ability to make the entire process more intuitive.”
The TrueLayer verification API delivers:
• A faster onboarding process, cutting time from three days to three clicks.
• The API coverage spans all major banks, resulting in a 22.5% higher success rate compared to other credit check methods.
• Prevents fraud through its embedded strong customer authentication (SCA) within the bank verification process.
• Offers a better user experience for customers using biometric technology to confirm identity and ownership.
• Lowers payment failures through its pre-verified account details.
• Lowers burden on compliance teams through automated verification via a single API call.
• Lowers maintenance issues because engineers can focus on solving core business problems, rather than building and maintaining name-check logic.
Image credit: TrueLayer offices from TrueLayer