Why are digital banks increasingly popular?

There are several fundamental differences between the new digital banks and the traditional banks:Technology: The new digital banks are built with modern technology and focused on the user experience, which allows them to offer more agile, fast and personalized banking services compared to traditional banks.No physical branches: The new digital banks do not have physical subsidiaries, which allows them to save costs and offer lower and competitive rates compared to traditional banks.Simplified account opening processes: New digital banks often have simpler and faster account opening processes compared to traditional banks, as most processes are conducted online.Greater accessibility: New digital banks are generally more accessible as they are designed to be used at any time and place, through a mobile application or an online platform.Approach to the user experience: The new digital banks focus on the user experience, which means they offer personalized services tailored to the needs and preferences of each user.

Who are adopting digital banks?

In general, new digital banks offer a more agile, efficient and personalized banking experience compared to traditional banks, which makes them attractive to a new generation of digital consumers.Digital banks were adopted mainly by younger generations, including Millennials (born between 1981 and 1996) and Generation Z (born between 1997 and 2012).These generations have grown up with technology and use it on day-to-day, becoming more used to conduct financial transactions online and through mobile devices. In addition, the lowest rates and personalized experiences offered by digital banks are also attractive for these generations.However, more and more people of all ages are adopting digital banks as they have become a more convenient and affordable alternative compared to traditional banks.Thus, Generation X (born between 1965 and 1980) also uses the new digital banks. Although this generation has grown before the digital age and is more familiar with traditional banks, many X Generation members have adopted technology and are willing to test new digital products and services, including digital banks.In addition, digital banks often offer lower rates and personalized experiences, which can be appealing to Generation X, which tends to be more value-conscious and to seek more efficient and convenient financial solutions. Some digital banks also offer especially relevant features for this generation, such as financial planning and long-term savings for reform.

Multi-banking and competition in the financial market

According to a Bloomberg article, neobanks in Latin America already have a share in the banking market near half in two countries of the region, while in the rest are accelerating their growth with a share of more than 20%. This is largely due to the adult domestic banking population (ABI), who increasingly needs remote financial services and centralized and decentralized finance for their daily operations.The article also refers to multi-banking, an effect that is added with the presence of fintech, digital banks and decentralized finances due to competition in the supply and elimination of friction in the process of opening accounts, portfolios and financial products. In the past, we used to ask customers to operate with a single bank and the number of total entities, with an average result of 2.5 banks per client. According to Bloomberg's analysis, between 50 and seventy percent of people already operates with 2 or more entities. In addition, many neobanks and fintech seek to capture the market by offering rates and costs reaching zero and sometimes offering cash-back or refunds for purchases, which led financial customers to operate with a multiplicity of wallets and means of payment according to their daily convenience.

The challenges and opportunities for digital banks

The then challenge of the neobanks does not seem to be the capture of users. Like every Fintech does one thing and does it well. They usually focus on basic products such as savings accounts, prepaid cards, electronic wallets, QR payments, current accounts and credit cards, and in some cases offer loans and insurance. On the other hand, traditional banks offer a wider range of products and services such as investments, mortgages, insurance, and other specialized financial products, and that's what banks have been working long before fintechs.Banks have a solid experience in risk management and are focused on maximizing their customers' profitability through cross-selling and deepening their financial relations. To achieve this, banks work closely with their customers to understand their financial needs and objectives, and offer a wide range of products and services designed to meet these needs. In addition, banks leverage their extensive branch networks and their online presence to offer customers access to a wide range of financial tools and resources. In short, banks aim to offer their customers a complete and personalized financial experience to help them achieve their long-term financial goals.Large financial institutions tend to add complexity to the user experience, and that is precisely where fintechs have found an opportunity. By focusing on the essentials, as a mobile-optimized payment and transfer product and available 24 hours a day, 7 days a week, fintech managed to offer a simple and efficient experience to new generations. In short, one thing, but well done.In summary, in order to meet the needs of the new financial client that is part of the internal population, it is necessary to offer basic services such as payments, transfers, receptions and instant and economic exchanges. In addition, it is important to be able to acquire all available digital assets and participate in groups, societies and decentralized clubs through various channels, including the metaverse.Source Bloomberg: https://www. bloomberglinea.com/2022/10/17/la-multibancarizacion-ya-no-es-ajena-en-latam-y-los-neobancos-ganan-mas-terreno/

2/23/2023 - economy-and-finance

What difference does the neobancos of the traditional?

Why are digital banks increasingly popular?

Who are adopting digital banks?

Multi-banking and competition in the financial market

The challenges and opportunities for digital banks

Do you want to validate this article?

rodrigo coronel

Comments