I Want More From My Neobank!
Digital banks are under a bit of pressure right now - down rounds in private funding markets, rain checks on IPOs, questions around liquidity, and traditional banks trying to get in on the action. But it’s not all bad. The same thing causing a lot of it (COVID-19) may become an accelerator for growing the industry.
Since April there has been some pretty compelling data around increased applications for, and usage of, online banking platforms. Not too surprising really – no amount of free hand sanitizer is going to make people flock to bank branches in the current environment.
So how will digital banks capitalise on unprecedented levels of interest from potential customers?
Some background - digital banks have been busy raising large amounts of capital for growth and regulatory requirements (tricky!). They are building new platforms that aren’t old and expensive to run like our traditional banks have. The idea is they pass those savings onto us in the form of superior products (better interest on savings, lower rates on borrowings) and a front end that has endless new features to make banking more efficient and powerful.
That’s a lot to achieve. And a lot of pressure to achieve it fast given how many people have their eyes on that prize. It’s evident once you sign up for most of what’s currently in market – the interfaces are clean and modern, but the ‘wow’ factor just isn’t quite there yet. And fair enough, it’s the technology sector way – build fast, test, iterate, reiterate, pivot… and so on.
So, what will it take for a digital bank to really nail it? For those of you who have a Revolut account, you cannot help but admire the experience from the second it starts. That beautiful blue box! Then you log in to find a jam-packed experience with cheaper FX rates and a stunning, feature-rich app that truly delivers on the digital banking promise. But even with that ‘wow’ factor there - isn’t part of the ideal outcome a simplification of your banking arrangements using tech as a facilitator?
As digital banks have come online, my banking footprint has skyrocketed. They are all targeting different product types (and fair enough at this stage), but it means I need ten sets of login credentials to cover off all of my financial requirements. I recently consolidated my ‘traditional’ banking arrangements using Macquarie Bank, which I have to say, was a very smooth process delivering 90% of what I need to manage my finances. This is what I want out of a digital bank, and exactly where I think the opportunity and the ultimate prize is.
Imagine if a digital bank could cover off most of your core requirements, and then bring the technology-driven promise of a more efficient and powerful experience. Some examples - I want to be able to vend in and out any type of acceptable security collateral and then loan against it real-time with any sort of debt products out there. It’s time for AI and machine learning to pull its weight and figure this stuff out. And why is it I can generally only offset if I have a home loan? Everything I have on the cash side of the ledger should offset interest on anything I have on the debt side. Finally, back to Revolut and FX - low transaction costs and the best possible rates should be something that’s embedded across the entire ecosystem, not a product in its own right.
They are some very simple examples and there is a lot more possible – but when a digital bank can cater to most of my needs – that’s when my relationship with Macquarie is up for grabs.
Last thought – do the digital banks need to build all of this? Can mergers in this space not only deliver scale but bring together all of the best of breed digital banking products to deliver the full experience?
Christin Burns - Partner - North Ridge Partners
Sydney, July 2020