Challenger banks and neobanks: 5 trends to watch in 2022


Challenger banks and neobanks are well positioned to meet the challenges and reap the benefits of the new digital economy. As market disruptors, they are shaking up traditional branch-based banking systems and forcing the industry to become more competitive and agile. 

The resulting changes are a big win for consumers who need banking services and not just banks. In fact, the impact of this banking evolution has been compared to the digital disruption in other sectors like Uber and Lyft’s transformation of transportation where similarly, consumers emerge as the primary winners. 

So, what is in store for the innovators of the industry in 2022? Here are the trends to watch:

Five trends influencing challenger banks and neobanks in 2022

1. Rise of the banking super-apps

Looking at the takeaways from EY’s consumer banking survey, today’s consumers do not expect a single financial service provider to meet all their requirements. What they do expect is a highly integrated experience among several providers and even across sectors. 

By taking on an aggregator role, neobanks will likely load core services onto the baseline integration, creating a super-app. 

Super-apps collate various services, including, but not limited to banking, insurance, mobile payments, and real estate on one platform. The app models are designed to offer a variety of services in a single integrated platform focused on simplifying customers’ lives. 

Compared to traditional banking systems, super-apps have a high degree of customer-centricity, great user-experience design and integration to meet consumer needs.

2. Hyper-personalization and customer-centricity take center stage

Hyper-personalization has become a buzzword in the financial services industry. This entails using data analytics to deliver a service experience that is targeted to an audience of one – hyper-personalized – to deliver value to customers.

Challenger banks and neobanks can harness this through digital access and collaboration within apps and product offerings. By using AI and digital banking offers, they can cultivate the available data and utilize it to offer clients services unique to them. 

This allows the neobanks and challenger banks to create product offerings and services that add value to their customers’ everyday lives. . 

An example of out-of-the-box banking is Mitto, which offers CO2 measuring services to track customers’ potential CO2 impact. Climate change is on everyone’s minds at the moment, and Mitto leans in on this to increase their relevance. 

Although not something typically related to banking, this is an innovative way to incorporate social needs with financial services.

3. Better customer journeys with data-driven predictive banking

With data at their fingertips, challenger banks and neobanks are perfectly positioned to add new age value to their customer base. Banking of the future requires these institutions to leave standardized customer journeys behind and instead turn to offer adaptive experiences.

A great customer experience is a journey and not a place. Forward-thinking banks should consider their data requirements for the future. They need to take steps now to secure this information with the idea of utilizing it to foster personalization tomorrow.

As more institutions tap into customer data platforms to garner practical insights around personalization, they will be able to create adaptive experiences to suit each customer’s needs. This will result in integrated services that appeal on an individual level, not just to a customer persona. 

4. Advanced analytics and AI deliver value to customers

McKinsey research estimates that advanced AI analytics has a potential annual incremental value for banks of $361.5 million. As a whole, combined traditional and advanced AI and analytics could be worth over $1 trillion annually. It comes as no surprise then that many realize the value in becoming AI-first. Analytics are set to be the backbone of customer experience.

Advanced analytics have provided customers with insightful data around their transactions, spending, and investments. Neobanks are packaging dashboard solutions with advanced interfaces and actionable insights into banking transactions on an individual basis.

Banks that are implementing the technology and tools can further enhance the customer experience by analyzing predictive reports. Analytics produce insights around customer behavior, purchasing preferences, transaction management, fraud detection, and more to ensure a personalized and secure customer experience. 

Flybits is an example of an embedded service that unifies and contextualizes an app experience. Based on customer data, card spending, and partnership data, the AI-powered solution can provide tailored experiences to build customer awareness of benefits, services, and loyalty programs.

5. Growing appeal to niche markets

Challenger banks will continue to find the most success in niche markets. This means that they are targeting specific client bases and addressing their banking needs. These niches can be based on almost anything, from generation to business type. 

By catering to these specific client bases and offering unique services, challenger banks build market share rapidly. They fill the service gaps that traditional banks are not set up to deliver on.

A great example is SMEs in MEA. Research shows that 32% of SMEs in the region cite credit-provisioning as a major constraint. As a result, banks here are focusing on this as an important use- case in their journey to open finance to increase accessibility to this market. 

Neobanks also have a big influence in this space as they can offer digital solutions that enhance life for a specific customer segment. 

A prominent trend here is neobanks driving a shift with regard to youth and banking. As the world’s youth population grows, the future of banking is with the younger generation, particularly in the emerging markets of MEA where youth make up the majority of the population. 

One example to look at is Liv Bank, a neobank in the UAE with its Liv Young offering that targets teens and their financial health. The main focus of Liv is financial education. The mobile app functions as a digital wallet and allows young people to track their spending and set savings goals. These features enable younger generations to develop a sound understanding of their finances and gain financial autonomy, setting them up for healthier financial lives as adults.

Financial well-being is pivotal to banks surviving shifting economic tides. As we see a shift towards healthier banking trends, we see these smaller and more agile types of banks gaining significant market share. All of this is attractive to today’s younger, digital-native generation

Final thoughts

In an ever-changing landscape, challenger banks and neobanks are thinking outside the box. Taking note of market trends and adapting business strategies is key to competition.

Through the adoption of AI and personalized banking, financial institutions can create services that are hard to compete with. This is the challenge and opportunity presented by challenger banks and neobanks in the coming year.

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