Neobanks have disrupted traditional banking from the day they hit the finance world. Now, they are poised to revolutionise the financial services industry with beyond-banking. However, as with any rapidly growing sector, neobanks face their fair share of challenges. 

The stakes have never been higher in today’s banking market as technology keeps souring and competition tightening. The past decade alone has witnessed the emergence of approximately 400 licensed neobanks, collectively catering to nearly one billion customer accounts. 

While traditional banks scramble to embrace digital transformation in the face of the imminent threat of extinction, existing neobanks are pressured to adapt or innovate swiftly to establish their markets and avoid fading into obscurity.

To succeed as a new neobank in such a landscape does not hinge not on luck, timing, or financial resources alone but on avoiding fundamental and strategic errors. These errors range from failing to meet genuine customer needs and adopting the wrong tech stacks to disproportionately over-engineering your product and disregarding customer service. Other errors include failure to embrace open finance and APIfication or, worse, failure to comply with regulations.

This article will discuss key solutions that a new neobank or a traditional player planning a rapid entry can implement to avoid these obstacles and thrive.

#1. Go Digital-first, plus AI Capabilities

Digital-first neobanks have a significant advantage over hybrid challengers or traditional banks — the ability to scale quickly. It gives them an already prominent competitive edge. But when you combine that with data and AI to optimise customer experience and financial performance, customers’ modern tastes will be ultimately satisfied.  

AI can be used to create personalised services that address customers’ unmet needs and improve cross-selling, especially in finance. Customers want to make smarter decisions with their money. AI can assist them in tracking monthly budgets, setting reminders for subscription cancellations, automating bill payments and savings, and recommending investment plans.  

Klarna is a prime example of a neobank effectively utilising AI. The 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.

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. Neobanks must also ensure that their AI capabilities deliver tangible business value, such as increased revenue, decreased costs, or improved customer satisfaction.

#2. Know what your customer wants and do it differently 

The best way to start ensuring the security of your neobank is to understand who your customers are and who has access to your systems. 

Try to get as much data about your customers as possible without killing the experience. While customers might only sometimes know what they want, they know why they want to use your platform.

Knowing what the customer wants is just part of the business case – being able to differentiate your offering from what’s available on the market is more important. Successful neobanks usually have a simple, unique premise right from the start. 

For example, the Dutch fintech and neobank Bunq became the first to offer up to 20 linked accounts, each with its own IBAN, allowing families to have separate accounts for individual members or different activities. They spotted a customer need and provided a banking service to circumvent frustrations surrounding it.

Today, with AI, neobanks can explore intelligent new value propositions and experiences they can introduce to strengthen customer relationships and beat the competition. 

#3. Launch new offerings fast

Neobanks usually rely 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 and regulatory caps.

To become profitable, neobanks must diversify their product offerings to cater to new markets or needs, increasing enough revenue to thrive. 

Take Revolut Business, for example, which, in 2015, offered only its flagship multi-currency travel card and a mobile app. By 2020, Revolut had diversified its offerings to encompass 20 different goods and services, equating to a new product launch approximately every three months. This feat was accomplished through their strategic approach of experimenting with novel products and honing in on the ones that garnered the most user favour. 

The ability to swiftly introduce and refine new products and concepts stands as a key differentiator between prosperous neobanks and their conventional counterparts. Nowadays, profitable neobanks have their footing in Buy Now Pay Later (BNPL), embedded finance, cryptocurrencies, digital lending and digital Investments. These can be tied into one app or offered as different app services.

#4. Building strategic partnerships

To scale quickly, new neobanks must embrace strategic partnerships. No neobank can hope to build out all the systems and processes needed to satisfy customers in the early stages of business. By embedding their services within partner ecosystems, neobanks can quickly build relevant solutions, increase their discoverability, and reach new customers.

A financial technology partner like Finslack comes in handy, helping neobanks build, launch and scale their platforms faster and more cost-effective than it would cost them to build from scratch.

For example, strategic partnerships helped KogoPay, a digital bank out of London and Bangkok, to acquire many users. Launched with the help of Finslack, KogoPay has received numerous awards on the fronts of innovation and speed.

Similarly, Kakaobank, a digital bank in South Korea, scaled to millions of users and turned profitable after only 18 months of operations because they leveraged strategic relationships with other companies. The bank partnered with KakaoTalk, an instant messaging platform owned by the same parent company. This partnership gave Kakaobank access to a vast user base, helping them acquire over 300,000 users within 24 hours of launching. 

Kakaobank also partnered with securities companies to enable users to open stock trading accounts within the Kakao Bank app. This service was a hit among users, helping Kakaobank become the most successful digital bank in Korea.

How Finslack can help neobanks succeed fast

At Finslack, we understand the unique challenges of launching and running a neobank and have an even deeper understanding of the technologies needed to create the exceptional banking experiences modern customers love. 

That’s why we offer tailored services to help neobanks and fintech startups bring their solutions to life — from ideation to market-ready.

Our ecosystem comprises technological, business and compliance partners whose solutions you can plug, play and extend to deliver a bespoke banking experience, complete with UIs and interactions unique to your brand. If you’re looking to cut the chase and create outstanding financial products that will thrive, contact Finslack and let’s work together to deliver it.