There’s a new kid on the block. And no I’m not reminiscing about the 90’s boy band, I’m talking about a new phenomenon sweeping through the banking space. The rise of the “Neobank”.
These banks aren’t typified by bricks-and-mortar stores, free coffees, and the teller network there to give you a subtle-but-not-so-subtle push to review your car insurance, or apply for a personal loan when you drop into the bank branch to deposit the $50 nanna gives you every year for Christmas.
What Is A Neobank?
The defining characteristic of a Neobank is that they don’t have physical branches like regular banks, but instead do business entirely online.
Neobanks tend to focus on providing a great user experience and leveraging technology to deliver a seamless customer journey. So it’s no wonder these banks are getting so much attention.
Today user experience is everything. Younger people, in particular, are voting with their feet (and wallets) by only doing business with companies that are easy to work with.
Traditional banks, however, are dealing with decades worth of legacy computer systems, trying to track thousands of products, have massive physical networks to manage, and have huge numbers of employees to look after.
Neobanks are starting with a blank canvas so have the advantage of being nimble.
Are They Here To Stay?
The banks should be worried.
In recent years we’ve seen a huge shift away from cash and physical banking to customers transacting online. People buying products with physical cash is as low as it’s ever been, and the rise of Apple Pay, Google Pay, Samsung Pay, Afterpay, and other electronic payment services and methods has largely eliminated our dependence on physical bank branches.
There’s also a shift in sentiment which isn’t doing the banks any favours either. With the heat the big banks have copped through the banking royal commission, Aussies are looking for what they see as a more fair solution for their banking needs.
This tells me that Neobanks with a focus on creating a great customer experience and offering a fair deal on banking services might just be here to stay.
Are Neobanks Safe?
A fair question being asked by those looking to keep their hard-earned in one of these ‘upstart’ banks is whether your money is safe.
The good news for customers of Neobanks is that deposits in any government ‘authorised deposit taking institution’ or ‘ADI’ are guaranteed by the Australian government up to $250,000.
So once you build your fat stacks above $250k you might want to look a little more closely, but for now, your cash is as safe in a Neobank (with the ADI stamp) as you are in any other Australian bank.
Because Neobanks don’t have the existing enormous customer base and asset position of the major Aussie banks, they’re at a disadvantage to the majors in terms of their income flows.
This means Neobanks will have to work hard to build their customer base if they want to compete with the major banks over the long term. But lucky for the Neobanks, their focus on digital delivery and low-cost customer acquisition will mean they’re in with a fighting chance.
Looking for more advice on where to hide your stacks of cash? Head to our Money section here.
Image credit: Unsplash