Will Neo-Banks Completely Destroy Their Traditional Counterparts In The Next Few Years?

Until recently, traditional banks didn’t have too many competitors to be worried about, and the complete lending process was slow, simple, and methodical. However, customers felt that availing a small business loan is an inconvenient and thoroughly time-consuming experience. Moreovers, banks had their own reasons for not being in favor of small business lending. With the applications done on paper and the entire process executed manually, smaller business loans were not considered to be worth the effort. Well, neo-banks have now entered the scene to provide a solution to this. Moven, Seed, Chime, Simple, and Varo Money are some neo-banks that aim to fix up a number of weaknesses that exist in traditional banking.

The Characteristics Of Neo-Banks

Neo-banks give a fast and digital experience to its customers by eliminating the hassles of paying a visit to a branch office completely. The low-cost structure minimizes monthly fees and overdrafts. Consumers can utilize the budgeting and saving tools that are built into the account and automate much-improved financial habits. The younger generation and individuals who fall in the lower-income strata are mostly attracted to neo-banks, and that isn’t surprising at all. For the time being, neo-bank costumers are pretty much satiated with the limited account types, such as checking or savings accounts, that aren’t accompanied by lending or any other bank services. With the economy growing at a fast pace, neo-banks are planning to address small and medium business needs as well.

The End Of Traditional Banks?

Neo-banks might be well on their way to spell doom for traditional banks. But, as per statistics, traditional banks have a major control over banking customers – seniors and young millennials alike. A recent study revealed that around 90% of millennials share an active relationship with a credit union or a bank; less than 4% prefer online banking. Another survey unveils that 48% of the small businesses seek a financing from large banks, whereas, 47% avail a financing from small banks. Moreover, 24% of small businesses prefer online lenders, and that statistic hasn’t changed much over the past few years. Businesses that primarily apply to online lenders are usually tempted by the speed with which credit decisions are made, funding that get better chances, and collateral requirements that are next to none. However, those who applied to online lenders happened to be the least satisfied among all.

New Age Customers Want Speed And Convenience

As more and more new-age customers are well on their way to start a new business of their own, they realize that their banking needs are changing with time. Almost one-third of millennials have already come up with some kind of a business venture, and 49% desire to start their ventures in the coming three years. These budding businessmen and businesswomen are all geared up, but what they lack is guidance. It is believed that nearly 75% of them would have kickstarted a venture of their own if they knew whom to approach for guidance. Small business owners, as well as the consumers, are confused by the current lending options that are on offer and are in search of an expert who is both friendly and trustworthy. A digital lending process in modern times not only fulfills the needs of the consumers, by easing out the entire process and gradually accelerating the timetables, but also manages loan risks in a much more efficient way, reduces paperwork, and increases loan profitability.

Digitization Makes A Big Difference

If lending programs get digitized, bankers will be able to get rid of all the drudgework that they have been doing till now and in turn can help borrowers to grow and accomplish whatever financial goals they have. Modernized lending plays a big role in reducing the time wasted by the loan officers to decline applications. Traditional banks can now invest in their local community and attain a good margin of profit. Consultative banking is gaining ground these days and is considered pretty valuable now.

Neo-banks are slowly and steadily transforming small business lending, as well as consumer banking, in several appreciable ways. They have been able to fix long-ingrained problems and have incorporated speed, convenience, and simplicity. Neo-banks are all set to gift us a future where banking is made simpler and every individual’s banking needs are met without much headache.