Neobanking is going to be the next banking sector revolution
A neobank is a digital bank without a physical location - it is fully online. Neobanks are distinguished by their customer-centric focus, which is driven by data-based insights and tailored interactions
Users of banking apps often feel frustrated, mostly due to the poor performance of the app and its services. We can't even make simple banking requests through the apps, such as requesting a new debit card in lieu of a lost debit card. Instead, we have to visit the branch and spend hours waiting in long queues to simply submit this request.
In this digital era, banking should be more digitised and user-friendly. At present, there are 65 banks operating businesses in the country, but only 10–15 of them offer internet banking facilities with apps, and these apps often have below-average user experiences. This sort of user experience makes one wonder whether this is just unique to Bangladesh. The answer is no.
If so, how are other countries managing and enhancing the environment using novel technologies such as big data, AI and machine learning?
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When we started researching the financial industry outside Bangladesh, especially in our neighbouring countries, we found that they have many neobanks that have changed the whole banking landscape.
Neobank is a technological breakthrough that has gained popularity in the digital banking age. They typically have a well-designed and fully digital banking app and partner with conventional banks to provide banking services to under-served customers.
As a prospective customer, you may be curious to know about how a neobank differs from conventional banks. Let's dig deep into the neobanking concept first.
To simplify the concept, a neobank is a digital bank without a physical location - it is fully online. Neobanks are distinguished by their customer-centric focus, which is driven by data-based insights and tailored interactions.
Neobanks meet the specific requirements of each consumer by employing innovative technologies like Big Data, AI, and machine learning. With the help of these apps and websites, customers may easily keep track of their money and have access to a variety of banking services.
Among the many benefits of neobanks is the low or nonexistent cost of using their services, which include expenses related to your account, such as withdrawal fees, account maintenance, and fees incurred while exchanging currency, among other things. Also, they can adapt more swiftly to shifting consumer demands and market situations because of their agile style of operating.
In most cases, a fintech company partners with a conventional bank to offer neobanking services, which helps the conventional bank get more customers without spending a lot, because the fintech company acts as a distribution partner with their own brand name.
When we were searching for similar kinds of services in Bangladesh, we saw a fintech startup named "Happi" which is set to launch a new digital banking experience in Bangladesh as a neobank, by teaming up with Dhaka Bank and Mastercard. They are working as a distribution partner under its brand name. This highlights the untapped market for FinTech companies.
By leveraging their combined expertise and resources, the duo is well-positioned to become a major player in Bangladesh's financial sector.
Happi set out with the goal of providing the underbanked/unbanked demographic of millennials and Gen-Z, which consist mostly of young professionals and entrepreneurs, and university students, with a convenient, trustworthy, and lightning-fast digital banking experience. At present, about 40% of the population falls within the target age range of 18-32, and this group is disproportionately represented among the unbanked and underbanked.
Given the benefits, millennials and Gen-Z are likely to adopt neobanking. It may also attract customer groups that dislike visiting branches. Thus, with the adoption of neobanking, the financial sector will cover underbanked or unbanked young professionals, which is going to increase transactions and payment systems through digital channels.
A neobank will help expand access to banking services and financial inclusion. This will also aid in the mobilisation of deposits and the distribution of loans.
Furthermore, the government is in the process of creating a cashless society and has been promoting activities in that line, in the financial sector. Cashless society is a step towards SDG 17 and will help reduce illegal transactions and increase transparency. In that regard, neobanking will be another contribution of fintech to the cashless society. Increasing neobanking transactions will reduce illegal transactions and money laundering.
The Central Bank of Bangladesh is preparing a guideline for the administration of digital banks and the issuance of licences for "Digital Bank" or "Neobank". As per Bangladesh Bank, the Bank Corporation Act would be the basis of the regulations for a "Digital Bank" or "Neobank" and the minimum capital requirement for a digital bank could be Tk500 crore.
The launching of more neobanks in Bangladesh would be well-served by conducting market research, forming strategic alliances with established financial institutions, creating mobile apps that are both accessible and innovative, and providing services in close proximity to customers. Startups can successfully launch a neobank in Bangladesh by emphasising new features and streamlined processes.
Rubaba Tahasin is an MBA graduate at Brac Business School, Brac University. rubaba.tahasin.tammi@g.bracu.ac.bd
Dr Mohammad Enamul Hoque is an Assistant Professor at Brac Business School, Brac University. enamul.hoque@bracu.ac.bd
