Powering the banking revolution

Owen Lewis, head of banking and capital markets at KPMG, says the younger customers are driving the change.

“The neo banks are quickly becoming, or already have become, real competitors to the traditional financial markets. The customer and user experience, and in some cases the emergence of more attractive pricing and rates are predominantly the main attractions. They are particularly of interest to the younger demographics within the banking communities.

“Neo banks like Revolut have been hugely successful in Ireland to date as consumers increasingly look beyond traditional banking products and services. Revolut in Ireland alone already has over two million users,” says Lewis.

The use of neo banks to shop both online and offline and to send and receive money has increased slightly in the last six months, according to KPMG independent consumer research.

“We’re seeing people not only use them more for basic shopping and transferring money, but also for additional features such as deals and discounts on products, ‘vault’ functions for saving money, and ‘buy now, pay later’ features, all of which have increased in use over the past six months.

“Those aged 18 to 34 prefer mobile phone payments and neo banks more than any other demographic, and we expect that this trend will continue as the next generation grows up and enters the workforce. Revolut last year said it will begin offering ‘100 per cent digital’ mortgages, which could be very disruptive in the Irish market if successful,” says Lewis.

In addition to ease of access via mobile apps, members of Generation Z (people born in the late 1990s and early 2010s) appreciate the convenience of accessing their data without having to go into a bank branch. They can check their balances, make payments and generally manage their finances on the fly and at any time of the day and night.

Katharina Lueth is chief client officer and managing director for Raisin, which offers free access to saving products in banks across Europe all from one account.

“We are not a neo bank, we are a fintech,” she stresses from the start of our conversation.

Lueth defines a neo bank as a classic mobile service offering payments from a current account. Over time these platforms, such as Revolut and N26, have grown and increasingly are offering new products, some of which might be considered traditional financial products and others which are new and innovative.

“There is a lot of interest in these neo banks and some people say that they will create a scenario where people can bank with banks or even make banks obsolete.

“Our business model, as a fintech, is quite different. We work with banks. Essentially, we are a marketplace for savings and allow our clients to have one single account from which to access multiples of saving products from across Europe,” she says.

Lueth believes Raisin is the first fintech to offer this service but it’s not new, it was established in Germany more than a decade ago.

Interestingly also its customers are typically not GenZ but people in their 50s who have nearly paid off their mortgages and are looking for better, while still risk-free, ways to earn money on their savings.

Over the last decade Raisin has grown significantly, surpassing one a million customers and with €40 billion in assets under management.

“And that is growing every month by between one to two billion euros.” 

“Our banking clients see us as a great tool to gather deposits as a financing instrument for their loan activities. Banks that partner with us are more interested in growing those deposits rather than cross selling to a new customer.

“Not all banks want the operational hassle of managing customers — we take that away from them. For example, in Ireland there are really only two banks and so if one raises its interest rate to gain new customers, chances are one or both of the other pillar banks will too, resulting in an increased cost per customer without necessarily gaining new ones,” says Lueth.

Lewis also points to traditional banks fighting back with or without the help of fintechs.

“The established players are evolving very quickly to revise their digital strategies in order to mirror some of the customer and user experience that is so heavily welcomed by a number of the neo banks. In many cases, some of the established players are looking to co-market or co-produce financial products with the neo banks in the forms of partnerships or otherwise and the use of smart technologies including AI and easy-to-use apps are becoming increasingly of interest.” 

Lewis sees other strategies, other than just technology, driving innovation with traditional banks, albeit driven by the success of these new digital options. For one example, he sees adherence to sustainability as a growing feature.

“Whilst neo banks have taken the mobile banking industry by storm, increasingly we are seeing traditional banks invest much more in customer experience and placing customer value and ESG at the core of their purpose. Those that can muster the true power of their organisations through agility, customer-obsessed strategy and technology partnerships can and will retain the trust of their customers. Neo bank tie-ups with traditional banks and big tech firms offering full-scale banking capabilities are also likely to be a force to be reckoned with in the future,” concludes Lewis.