The Changing Landscape of Banking: The Rise of Neobanks and How They're Disrupting Traditional Banking

The Changing Landscape of Banking: The Rise of Neobanks and How They're Disrupting Traditional Banking

Neobanks represent a new wave of players that are upending decades-old banking models. Neobanks, which are defined as financial organizations that are exclusively digital and mobile-first, are upending the banking industry with their creative approaches to financial services. 

Financial firms that only conduct business online and do not have any physical branches are known as neobanks, challenger banks, or digital banks. Neobanks use technology to provide financial services like checking and savings accounts, loans, and investments. This contrasts traditional banks, which mostly rely on physical premises.

Focusing on offering a smooth and user-friendly banking experience is one of the distinguishing features of neobanks. Neobanks can cut expenses by doing away with physical branches, which they then pass on to their clients through lower fees and greater interest rates.

Neobanks, which provide entirely digital services without physical offices, mark a significant change in the banking industry. Neobanks leverage technology to lower operating costs, simplify procedures, and offer a flawless user experience via online or mobile applications.

These digital-only banks serve a tech-savvy clientele that demands accessibility, ease, and openness from their financial partnerships.

Players Driving the Neobank Industry

Neobanks are the reason behind the boom in the digital banking industry. By providing things that traditional banks don't, these online-only banks are causing a stir and doing it without the inconvenience of physical branches.

1. Revolut

Revolut is a UK-based company that provides services like current accounts, savings accounts, debit and credit cards, insurance, loans, etc. It caters to various financial services from currency exchange to the stock market.

2. N26

N26 is a German-based neobank that provides services including current accounts, savings accounts, credit cards, debit cards, insurance, and more. More than 7 million people use N26. With the potential to take a sizable chunk of the global banking market, these and other neobanks have an extremely bright future for the sector.

3. Chime

Financial technology startup Chime situated in San Francisco, collaborates with local banks to offer several mobile banking services at no cost. The company provides services like early access to paychecks, overdraft-free negative account balances, high-yield savings accounts, peer-to-peer payments, and an interest-free secured credit card. Interchange fees from debit card purchases provide Chime with most of its income.

How Neobanks Are Acting as a Disruptive Force in the Banking Industry?

As per a forecast published by Juniper Research, there will be 1.4 billion neobank users globally by 2024, a 48% compound annual growth rate (CAGR) from the 0.3 billion users in 2019.

Additionally, the report projects a 46% compound annual growth rate (CAGR) in sales for the worldwide neobank market, from $27 billion in 2020 to $394 billion in 2026.

Neobanks are shaking up the banking industry and changing the way we think about money management:

1. Increasing anticipations

Neobanks are redefining the experience that consumers should have when banking. They are pressuring established banks to take the lead and provide quick, individualized, round-the-clock services. 

This development requires all banks to reevaluate how they interact with their customers and to invest heavily in digital services to satisfy the need for a simple, convenient banking experience. 

2. Transformation in banking

Traditional banks are undergoing a digital transformation in response to the neobank challenge. These days, they're not only about branches and paperwork—they're going online and utilizing mobile apps to streamline and improve customer service for anything from account opening to customer support. Reaching out to clients where they are with specialized offerings is key.

3. Global footprint

The neobank revolution is a global phenomenon rather than a regional one. Neobanks are using creative strategies to challenge the established giants in regions like the US and Europe. In the meantime, people who have never had access to banking are being given it in some parts of Asia and Africa.

4. Borderless banking

To provide banking to the unbanked, neobanks are at the forefront. They use digital technology to reach customers who lack access to traditional banking services or live in remote areas.

This entails providing fundamental banking services via mobile apps, easing the process for all users to send, save, and spend money without requiring a physical bank.

For example, neobanks are revolutionary in countries like the Philippines and Indonesia, where a large number of individuals do not utilize regular banks. They provide necessary services like savings accounts and remittances through mobile technology.

Furthermore, by employing alternative data for credit evaluations, lenders in India are even assisting those without credit histories in obtaining loans.

5. The larger view

Neobanks aren't just fresh faces in the banking industry; they are trailblazers in expanding the accessibility and inclusivity of financial services. They are removing the obstacles preventing consumers from fully engaging in the financial system by utilizing technology and creative thinking. 

This is a significant advancement in ensuring that everyone, regardless of location or background, has the chance to pursue financial stability and manage their money sensibly.

How Traditional Banks Should Navigate the Neobank Wave?

Neobanks quickly embrace new trends and technologies, but traditional banks often take a long time to adjust because of outdated procedures. Below are some steps traditional banks could use to match the competition.

1. Enhancing customer journey

With customers gravitating toward digital banking, traditional banks cannot afford to lag. To embrace this "digital first" mentality, one must anticipate customer needs rather than merely follow trends.

Traditional banks face challenges as neobanks provide greater offers and more sophisticated services. However, it's also an opportunity to improve consumer satisfaction, reconsider prices, and up the ante.

2. Partnership

Traditional banks may integrate cutting-edge technology such as automated financial advising, mobile payments, and blockchain developments without starting from scratch by forming partnerships with fintech startups and tech behemoths. It's a strategy for staying competitive that combines the trust, regulatory expertise, and size of well-established banks with the flexibility and innovative ideas of fintechs.

3. Regulatory compliance

Traditional banks are indeed subject to more regulations, which may impede innovation. However, this difficulty can also be an asset because extensive compliance experience can be a selling factor in a society concerned about internet disasters. The challenge is to maintain a balance between the necessity for innovation and following the law.

Conventional banks have a chance to prosper in addition to surviving. It's about putting the client first in all decisions, accepting change, and selecting the appropriate partners.

4. Tech innovation

Partnerships can also hasten the digital transformation strategy by enabling banks to improve their technology and provide seamless, user-friendly services across all platforms. The goal should be to make banking as easy and pleasurable as using your favorite app.


With the rise in popularity of neobanks, traditional banks and fintech firms have discovered new ways to collaborate. Traditional banks are increasingly collaborating with FinTech software development firms to enhance their offerings and maintain competitiveness.

The rise of neobanks has upended the banking sector and opened up fresh avenues for advancement and innovation. Because neobanks take a more customer-centric stance, they offer a threat to traditional banks, which has encouraged them to develop and adapt.

It will be interesting to see how traditional banks and neobanks work together to shape financial services in the future as the fintech sector grows.