The world is living through its first pandemic in a little over a decade and life as we know it has changed forever. Gone are the days of walking into any store, restaurant, or bank without fear of infection, and we’re facing an unprecedented economy where Australia’s old-school banks likely no longer reign supreme. For neobanks (digital, online and internet-only banks) this is a silver lining in the COVID-19 crisis.
While digital banking is a relatively new concept in Australia (2017 onwards), Europe and the UK, along with Africa, South Korea, Vietnam and Brazil, have unequivocally embraced these new banks.
In the current, and most importantly, future climate, these technologically savvy banks are keeping pace with the rapidly changing digital demands of our modern world.
Shifting Needs in Crisis
Data collected in a 2018 report on banks worldwide suggests that 1 in 3 people would transfer their primary banking relationship to a digital-only bank (GlobalData, “Digital-Only Banks: Threat or Motivator?”). The data shows that the customers most at risk of leaving a traditional bank and being attracted to digital-only banks are also the most valuable: Gen X, digitally savvy millennials, and emerging and mass affluent customers.
To add fuel to the fire, Australia’s Financial Services Royal Commission’s 2019 Report pulled back the curtain on the Big Four banks’ malpractice, appalling behaviour and general tendency to take advantage of their customers. Since then, what was a gradual, ongoing move to digital significantly accelerated as the pandemic struck. Lockdown meant the shutting down of socialisation as we knew it, including the doors to bank branches and much of the traditional banks’ customer services. It provoked a wider embrace of technology and many looking outside the outdated, inaccessible banking system.
Mozo’s “Neobank Report 2020” shows that before the 2020 COVID crisis began, 75% of Australians were using a digital platform - either internet banking or an app - to do their everyday banking. At that time, many neobank customers used their digital-only bank accounts for travelling or secondary savings due to the better interest rates offered. With people spending more time at home (and within Australia), it's clear that people really only need core banking services they can access through an app or website.
Payoffs of Going Digital
As discussed in our previous article “What is a Digital Bank”, there are incredible benefits to digital banking. We were starting to see these benefits before the eruption of Coronavirus and as physical banking distribution will be even less relevant moving forward, customers need the digital, customer-focused experience neobanks are offering.
Because neobanks can dedicate more time and resources into their online functions, they’re able to develop great features for their apps such as:
Less use of germ-ridden cash:
It is predicted that few businesses will be offering cash services once the pandemic subsides – no one wants to touch it anymore!
Efficient operating model:
Just as people have discovered the time-saving hacks of ordering groceries online, they’re seeing the convenience in going digital; not having to drive to a branch means less time and money spent to get your banking done.
Great app experience:
Because neobanks can dedicate more time and resources to their online functions, they’re able to develop great features for their apps such as:
o streamlined and simplified interfaces accessible to those less technologically savvy
o instant approval for loan applications
o in-app sign up
o savings tools
o spending trackers
o personal insights into a user’s overall financial position and the latest solutions (i.e. digital wallets and virtual cards)
Whilst this shift triggered by COVID-19 could retreat with some flight-to-safety behaviour once the economy recovers and life returns to normal (whatever that may be now), it’s obvious that old-school banks that are lagging behind digitally and still relying on manual processes and branch networks are going to struggle to compete with continuing changes in consumer’s priorities.
(Credit: Getty Images/iStockphoto)