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Creating a winning neobank strategy through differentiation

  • There is a notable opportunity for neobanks to fill gaps that currently exist in traditional financial services, especially since they are free of the restraints of dated technology.
  • However, to be effective, they must identify a primary differentiator or central mission and then build the user experience around that north star.

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Creating a winning neobank strategy through differentiation

Kristiane Mandraki, director of marketing and business development, Praxent.

Neobanks have made quite the splash over the past decade; however, not all, or even most, attempt to disrupt the traditional financial services space have been successful. The past year has been particularly difficult for these entrants, as regulatory scrutiny, a volatile economy, rising fraud and diminished valuations have created challenges. 

Even so, neobanks present a strong option for consumers unsatisfied with traditional financial services. They have several advantages; neobanks aren’t limited by the legacy technology restraints facing most traditional institutions, allowing them to move more quickly and nimbly introduce new innovations. Plus, many consumers are intrigued by their digitally optimized features and operating models. But it takes more than modern technology and consumer curiosity to build a winning neobank strategy. 

There are varying levels of consumer stickiness that neobanks should consider. For a cross-industry example, consider a consumer’s loyalty toward a certain hotel. The most basic step is infusing moments of pleasure, something akin to a chocolate on your pillow in the room. The next level up is an intuitive experience, like an easy online booking experience. The stickiest level is meaning. Perhaps the consumer got married at that hotel or was proposed to there - they will always love it. 

When considering these levels from the lens of banking, level one might look like moments of delight (for example, Monzo makes terms and conditions really easy and surprisingly fun with emojis and other interesting touches). The next level, an intuitive experience, might be Yotta providing card details in the app, making online shopping much easier. And then, of course, there’s meaning. For example, consumers can input their bucket list goals into the Dreams app and then the neobank delivers helpful savings ideas. Think of how loyal a customer would be to a brand that helped them save enough money to visit Paris.  

The neobanks that have made a true impact are those that identify a primary differentiator or central mission and then build the user experience around that north star. Take Yotta, for instance. Its cornerstone is ‘banking for winners.’ The neobank has strategically gamified everyday banking activities, driving strong engagement. For example, for every $10 spent on the Yotta card, users receive a ticket for a weekly lottery-type drawing with a $10 million prize. And, users have a two percent chance that anything they buy will be covered by Yotta for free. Needless to say, users are extremely motivated to use the Yotta card, generating notable interchange revenue. And, the neobank is providing a compelling reason for users to engage with the app daily.  

Another equally powerful way for neobanks to establish a differentiator is to provide a sense of belonging, creating that all important meaning for customers. This requires thinking holistically about a niche community and what’s important to them. Consider the unmet needs or gaps that exist, and how to best fill them. The neobanks that go this route are more than financial institutions, they are extensions of people’s identities.  

For example, soon to be launched Obsidian is a neobank that aims to improve financial wellness for African Americans. The group found that 42% of all African Americans are currently unbanked, with 14% unbanked altogether. To fill this unmet need, Obsidian pledges to bring financial literature to African Americans and deliver automated tools to help them ‘invest like the rich.’ The disruptor is bringing together a community with a specific brand voice, bridging an important gap. 

While identifying this key differentiator or niche community is a strong first step, there’s still more work to be done. It's important to ensure that the differentiator is properly infused into the account opening and onboarding process, the time when abandonment rates are the highest. An effective strategy to minimize abandonment risk and increase conversions is to thread the brand promise throughout the onboarding journey, giving a glimpse of future value and benefits to users. 

And, neobanks must be careful to avoid the trap that many other financial services companies have fallen victim to – trying to be all things to all people, which just leads to exhaustive mediocrity. To truly set the experience apart, they must offer unique features that resonate with the community being targeted but also feel fresh and drive revenue impact back to the bank. Conduct user testing of the flow, from the landing page through to conversion. There is a common misconception that user testing requires countless hours and dozens of users, when in fact, it only requires around 10 users to be effective. 

The neobanks best poised for success are the ones that identify, clearly communicate and then execute on a key mission, all while building a journey that highlights this core differentiator. This can be a cornerstone feature or a niche community with at least one key unmet need. Those that do so effectively are more likely to build loyalty, generate revenue and secure top of wallet status. 

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