Agile Banking: Lessons from Neobanks

Neobanks may be best known for their consumer offerings, but they’re rapidly making a move into business banking.

Given the restrictive impact of COVID-19, it is expected that the rate of Neobank growth will continue to accelerate as the digital model plays a critical role in the future of business banking delivery.

The current CAGR of the Neobank sector sits at 46%.

A recent study by Savanta found that 10% of start-ups currently have their main bank account with a Neobank, 1 in 6 businesses are already using digital-only banking solutions, and importantly in terms of future growth, 40% of enterprises say they would seriously consider, or possibly consider a digital-first bank.

What is a Neobank?

Neobanks are 100% digital banks. Typically cloud-based, they incorporate disruptive technologies such as big-data analytics and artificial intelligence to deliver apps and online platforms to support their customers, rather than traditional physical branches.

We’re talking about the likes of Monzo, Starling and Revolut – Neobanks themselves that are evolving from their earliest iterations as e-money offerings just a few years ago, to fully licensed banks today.

Indeed Starling recently achieved approved lender status for two of the UK Government’s Coronavirus lending schemes to support businesses during the pandemic.

With a rapidly-growing customer base and COVID-19 forcing banking transformation at an unprecedented rate, it looks like Neobanks are here to stay and that they’ll increasingly become a formidable sector in the business banking industry.

Traditional banks v Neobanks

So what can incumbents – traditional banks and perhaps even challenger banks – learn from Neobanks?

Some incumbents have started to develop their own digital-only brands, whilst for others the Neobanks’ rapid growth has been a wake-up call to modernise and discover new ways to improve customer experiences and deliver customer value.

Of course, incumbent banks do have some advantages over Neobanks:

  • Strong brand equity
  • Trust
  • Longevity
  • Established customer relationships
  • Massive amount of customer data
  • Existing revenue streams

However, this starting point of competitive advantage will quickly be eroded in a rapidly accelerating digital age, if they fail to modernise and deliver the same customer value and experience that digital-first banks and digital-only banks deliver.

Remove the burden of legacy

As true digital natives, the agility and speed of Neobanks are due to the absence of legacy technology and the burden of complex internal processes and operations.

They’ve invested heavily in big data analytics, AI-powered risk assessment tools and advanced fraud detection systems which enable them to rapidly assess risk and deliver personalised services.

So how can incumbent banks keep pace when legacy technology and antiquated processes make for often frustrating customer experiences?

Legacy is only an issue if you let it be. Digital transformation is not purely about replacing outdated technology or improving the customer journey with a sleek front-end.

It’s about incorporating the use of data to deliver a deeper understanding of the customer ecosystem and importantly, ensure that intelligence and insight flow across the organisation to improve risk management, speed up decision making, capitalise on new opportunities for advanced products and services, and achieve the ultimate goal of personalised banking experiences.

It doesn’t have to be a big bang. It’s about embracing a digital-first strategy and finding the right holistic banking intelligence platform that will integrate seamlessly into your business and technology stack to drive both operational and behavioural agility.

Front to back AI-powered customer intelligence flows, specialist data modelling for advanced prediction of customer needs, risk and compliance data to pre-screen new customers quickly, linking internal CRM data with external structured and unstructured data for a 360° customer view; the list goes on…

Retire siloed decision making and complex onboarding processes

Many Neobanks have capitalised on providing slick digital onboarding processes and user experiences – placing them at an advantage during the pandemic.

Incumbents must therefore reconsider their onboarding models to accommodate rising expectations for a simple and smooth onboarding experience.

Business banking is far more complex than in the consumer sector, but investment in AI-risk analysis, fraud detection and open banking provides the ability to quickly harvest KYC (and KYB) data and means Neobanks are now snapping at the heels of their more experienced counterparts.

Whilst incumbents have also invested heavily in data and technology solutions and built huge teams of compliance analysts to process and interpret the data created, their siloed decision making and analogue processes mean customers can still be subject to an incredibly disjointed process.

Businesses can be actively sold to by one part of the bank, only to then be delayed, have the deal restructured, or maybe even be rejected by another division within the bank.

Now more than ever banks need sophisticated compliance tools and procedures. The importance of harnessing automation, data and intelligence cannot be underplayed.

Digitisation and automation of risk management and KYC can enable incumbents to create real customer value by improving the efficiency and quality of risk decisioning, providing better monitoring and control and reducing the workload on onboarding and compliance teams by ensuring only the right clients are worked on.

Harness data-driven flexibility and adaptation

Incumbent banks have built their product and service offerings over many years, and may not be as adaptable or flexible as a Neobank that curates products and services based on demand and need.

What they’ve done so successfully is determine what customers actually need, spot gaps in the market and pain points within existing offerings, then engineer solutions that differentiate their products in creative ways to attract clients by improving service.

Incumbents can do exactly the same.

But first they must free themselves from a product-centric view, and instead start with a rich understanding of customer needs and how to align them with their bank’s capabilities.

The wealth of information at an incumbent bank’s disposal represents a truly unique advantage, especially when combined with 3rd party and unstructured data from across the internet and social media.

This can offer richer insights into customers, their ambitions, their needs and their strategic priorities.

Importantly, this data can feed the analytics which guides the development of ever-more intelligent products and services, ensuring efforts are always focussed in the right place, at the right time.

Build value-driven experiences and personalisation into customer journeys

By focusing on innovation, speed and differentiation fuelled by open banking, AI and API-enabled architectures, Neobanks have the tools to focus sharply and address in a very agile way the actual needs of customers and their pain points.

The result is that they offer experience-based value which serves to completely differentiate their offering.

Today’s corporate and business banking customers know what they want and how to go about getting it – whether they be a High Net Worth individual expecting an in-depth conversation, a nimble SME seeking out slick digital experiences, or a large corporate looking for a blend of both for the ultimate in personalisation and efficiency.

To keep pace isn’t just about offering great service, but also requires a strategy that puts the customer first and at the heart of the business (from the front line, to back-office operations and compliance/risk management).

Customer propositions can no longer be static and one-size-fits-all—they should be intelligent and tailored.  So for incumbents, successfully integrating personalisation must be a top-line agenda item.

They must harness advances in AI, data analysis and clever rule-based decisioning to build a deeper and more accurate understanding of every customer’s context, behaviour, needs, and preferences.

This understanding, in turn, empowers an ability to craft intelligent, personalised offerings within customer journeys.

The big lesson – Neobanks lead with data and insight

A recent report by McKinsey highlights the importance of adopting a holistic, data-driven approach.

McKinsey suggests three major steps incumbents must take:

1 – Implement a real-time, enterprise-wide data infrastructure: That captures virtually all data points for a given customer’s relationship with the bank’s various divisions, and supports a unified customer view encompassing all channels, journeys, and products

2 – Consolidate data on a central platform: To ensure that these enterprise data sets are utilized effectively and widely across teams, aggregate the data captured from multiple internal and external sources into a central customer data platform.

3 – Automate governance and controls: To ensure business and technology teams have ready access to appropriate data sets, with the necessary controls for security and permission where needed. It is also important to ensure that the appropriate data are available for decisioning, at the right time and in the right form, to the various AI/ ML models used by internal teams (from customer service to product management) to support intelligent, highly personalised interactions with customers.

The Artesian platform provides one seamless solution to all three of McKinsey’s recommendations

Artesian is a leading data intelligence solution that tackles the complexities of client engagement and acquisition, onboarding, regulatory compliance, relationship management and ongoing client servicing.

Combining pragmatic data science with the world’s best business information to help banks and financial service providers solve complex, high-value challenges through cutting-edge technology that enables business rules and decisioning to be easily automated.

Leading financial institutions, utilise Artesian to address three key business imperatives:

  1. Acquiring new customers with good ROI and an optimal risk profile
  2. Transacting efficiently and effectively while delivering a great customer experience
  3. Managing, monitoring and growing relationships.

Artesian rests upon an established set of application components that allow frontline teams to apply business logic, search and risk decisioning rules to firmographic, internal and cloud-sourced company and people data.

Ingesting and interpreting such a broad and deep set of data means it can be transformed into actionable intelligence with proactive recommendations and valuable client insights.

The uniquely configurable software platform is accompanied by extensive professional services that automates your domain know-how, rules and thresholds, achieving ROI many times faster than using conventional methods.

Artesian banking customers are solving a multitude of challenges from prospecting, client research and outreach, to CLM, risk screening and tracking, client onboarding and supplier management.

To find out more get in touch