Are banks' digital businesses always better than new digital banks?

Starting with the solid Chase, the entire venture capital industry has been disappointed by the rise of non-bank competitors. But these setbacks have also caused the banking sector its ability to recover from a loss if it acts too quickly.

The entry of Neobank and Fintech into the banking sector has spurred innovation in banks and credit institutions, making them more responsive. These competitors are more creative, more diverse and determined, and particularly attractive to the next generation of consumers.

This is a difficult challenge for traditional banking services. According to a Capgemini report, the spread of Covid-19 has spurred the adoption of digitalization around the world, laying the groundwork for fintech companies to "compete with traditional banks". .

Bank executives have already paid big bucks for fintechs and neobanks, and why. Fintech finances have exploded. According to Innovate Financial, UK investors alone raised $5.7 billion in the first half of 2021, hitting record highs of $4.3 billion a year in 2020.

But amid all this frustration with the digital recession, some images show that the banks are still on top. Case in point: According to the Capgemini Profit Study, nearly 7 in 10 (68%) say they will try digital products offered by a large company.

Perhaps the spirit of Neobank is that companies have always wanted to better understand their customers. You will be able to gain strength when you have a perfect base and get used to the skills you need to retain customers.

What the bank always does

John Berry, CEO of the European Financial Management Association (EFMA), which publishes the World Fintech Report in partnership with Capgemini, said that financial firms do not have time to wait for the digital financial transition.

"The impact of COVID-19 has made the company's retail space still in demand," Berry said in a statement. "If key employees are essential, now is the time to commit financially to consumers and adopt a platform-based model. Delaying is not an optional extra."

In response, many digital banking companies have sprung up in the United States. The most recent was announced in mid-July 2021 by Cambridge Savings Bank as Ivy Bank.

Wayne Patenaude, President and CEO of Cambridge Savings Bank, said: "Ivy Bank was born out of our desire to meet the needs of our customers in an ever-changing business environment, and it's our long history of supporting banks.

For financial companies looking for a way out, Capgemini lists three ways to create a digital bank for a traditional bank.

•Greenfield Hom (Greenfield): A new organization (from scratch) with a new name with a new IT infrastructure

•Bluefield Hom :Mix of existing or newly developed equipment with new facilities and brands with specialized functions

•Brownfield:Internal department capacity and self-build using existing infrastructure

Greenfield Hom (Greenfield)

The Greenfield model has become popular with bank executives interested in fintech and legacy technology projects. Banking service providers looking for a digital business using this model will invest in new developments with new names and tags, as well as all new processes available on the identity of the originating bank.

Speaking of Dubai Commercial Bank as an example of an unused model, Capgemini said it launched CBD Now, the UAE's first digital-only bank.

industrial wasteland

Capgemini said this approach interferes with the global supply chain, but is not suitable for well-known companies, even in an environment that is inconvenient and poses a threat to existing assets first. This means banks can build digital banks all in their own homes and "enter the market as a separate entity," the report says. In most cases, banks are taking this approach using their existing process rather than seeking help from fintech companies or third parties.

Bluefield Hom (Bluefield)

The blue world model is a combination of the two above, as banks can still build digital businesses – only companies that combine parent companies with cash in house.

According to a Capgemini report, “digital companies matured with uncertified digital products have taken this route.” Because you can combine what you already know with the resources your customers need.

Anirban Bose, CEO of Capgemini's global financial services division, added that banks cannot make all digital businesses equal.

“The Fintech-inspired digital gateway should be an important means of interbanking, but banks need to be smart and specialized in their practices,” Bose said. "The building that can achieve long-term growth and benefit today will be the final story of tomorrow's fintech era."

Features of Suspicious Bank Digital Branch

Ivy Bank is not the only financial institution in the world. Following the announcement of ING's own neo-bank Yolt in the UK, Ivy Bank also acquired digital companies, including the launch of Marcus and BankMD from Goldman Sachs (digital division of Transpecos Bank, based in Texas) , and KeyBank's Laurel Road for Doctors digital bank. division.. However, not all digital banking institutions, especially Finn, and mobile bank Chase, shut down soon after their inception.

But what are the characteristics of digital distribution that have developed in these banks and are able to compete with the new banks in the market? Take a look at MidFirst Bank, which has now announced its two new banks, Monifi and Vio Bank, according to financial firm Neobank Tracker.

For example, Monifi markets itself as a free money company that helps consumers save money and save money. The high interest rate allows it to compete with many of the biggest players in the industry, including CIBC and AmEx. Monifi users can also set up different budgets to save for different purposes.

Monifi also helps customers understand how much they spend on purchases and can ask in-app questions such as "What does my restaurant like?" or "How much coffee did I use last year?"

On the other hand, Vio Bank focuses on its concept of demand for deposits and short-term financing.

Marcus has many similarities and Marcus has grown well over the past few years. In terms of consumer goods, balances, loans and income, Marcus has achieved some success. Developed with existing capital from Goldman and real estate development (example of the Bluefield model), Marcus allows consumers to open savings, obtain a personal loan of $3,500 to $40,000 and distribute their capital gains.

ING's Yolt slogan, on the other hand, is "Unthink Money". An easier way is to have a prepaid account (requires users to log into one or more bank accounts) and a debit card. Consumers can also use "money saving" devices, such as Monifi, which help people create different types of savings accounts.

What sets the Yolt app apart is its savings account, which lets users quickly know how much they need to save for a dream vacation, wedding, or car.

what they will face

All of these innovations (and many more) show that the banking industry has recognized the problem. However, these companies need the full support of their parent company to win the fintech/neobank competition that has grown over the years.

Most of the new competitors, including Chime, Dave, Revolut and Affirm, have succeeded because they have affiliates that can offer savings, debit cards and sometimes loans. Celtic Bank, Cross River Bank, Bancorp Bank and Green Dot Bank are the pillars.

But keep in mind that global fintechs and neobanks are far from the only competing organizations to worry about.

PayPal (and its Venmo subsidiaries), Square and Square Banking divisions are now functioning, Apple has partnered with Goldman Sachs to develop the Apple Card and Walmart's fundraising through Green Dot and others - all of these are serious issues .