Kathryn Lee - 18 Sep, 2019

Neobanks and the digitisation of banks: a crash course

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Imagine a world where bank branches are a thing of the past. Neobanks are trying to make that a reality, operating entirely online. They’re doing more than converting traditional banking services to a digital ‘app’, instead they’re transforming the entire banking experience.

Amidst claims that the venture is only trying to cut down on staff costs, neobanks are throwing a decisively different flavour into the mix.

What is a neobank?

A neobank is a bank that operates 100% digitally and doesn’t use any existing legacy operating systems or infrastructure. This means that it operates via an online or mobile platform, with no branch locations.

Why are they different?

At first glance, neobanks might appear to be nothing new. Traditional banks have been operating digital services for a while now, allowing you to transfer money, pay bills or check your savings while sitting on the couch watching Netflix.

The difference is while traditional banks have digitised conventional services, such as transferring money, neobanks are questioning what more can be done.

When it comes to digital services, traditional banks have spent time developing a front–end that links back to how they have always done things. Neobanks are asking how they can use technology to do more for the consumer.

Why is there a move towards the digitisation of banks?

We are changing how we bank

Technology is changing Australia’s banking habits, leaving space for neobanks to thrive. The results from a recent survey conducted by Roy Morgan shows this changing banking landscape.

Over a 12–month period, Roy Morgan found that just 45.1% of respondents had visited a physical bank branch location. This was down from 48.6% the year before.

Similarly, although the survey found that ATM banking is the most popular form of banking in Australia, it is also declining in popularity.

In contrast, popularity for mobile banking has been increasing. Norman Morris, the Industry Communications Director for Roy Morgan thinks this is indicative of a transition in Australia’s banking habits.

“ATMs are the most used banking channel by Australians, with 83.4% using one in the last 12 months, yet this declined over the same period the year before.”

“Our research continues to show that mobile banking has the potential to be the leading banking method, with an outlook to surpass internet banking, which saw a decline over the last 12 months.”

Neobanks in Australia

Neobanks have only just entered the Australian market. In January this year, the neobank Volt became the first of its kind to receive its ADI license from the Australian Prudential Regulation Authority (APRA).

They claim that there will be no bank fees, offering a competitive interest rate, with interest earnt no matter how much is withdrawn or deposited. According to their website, they are slated to launch to their waitlist in Spring 2019.

What are the advantages and disadvantages?

Neobanks offer clear advantages. In addition to being 100% digital, they do not rely – nor are restricted by – legacy systems, promising greater flexibility and more competitive deals.  Neobanks are not only able to do everything customers expect from a banking service, but they are promise to also offer extra tools and features to help customers understand their spending.

Knowing all this, they also have disadvantages. Although access to physical branch locations are dropping among consumers, there are still those who appreciate face–to–face service which they would not be able to find in a neobank. Additionally, since they are only just starting out in Australia, at this stage they have a low customer base and therefore low–income flow.

Words by Kathryn Lee

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