In a bustling neighbourhood in Dhaka, a young entrepreneur, Masum, steps into Crimson Cup to grab his morning caffeine fix. As he waits for his order, he opens his smartphone to pay for the coffee with Bangla QR. While he has the phone out, he pays a few bills, transfers money to her friend for an upcoming trip, and pays dues to his suppliers. All these transactions are done with just a few taps on his phone using a banking app.
But that’s not enough to build a cashless digital Bangladesh. He still needs to make a stop in his local branch to request a new chequebook, which he recently ran out of. He also made a trip there last week to update his photo on the current account.
If tomorrow, he loses his credit or debit card; he will need to visit the physical branch to sign an application form to replace the lost one. If he needs a statement of his account spanning more than a year, he will need to collect it from a branch.
It’s astonishing how much someone needs to rely on the physical branches, even in today’s FinTech climate. To eliminate this dependency, the wasteful hours travelling to and from the bank branches and the cost associated with operating the branches — came the concept of NeoBanks.
Neobanks, or digital-only banks, are financial institutions that operate entirely online without any physical branches. They provide all sorts of banking services, including savings and current accounts, loans, and credit cards, etc.
Neobanks have been gaining traction worldwide due to their ability to offer lower fees, better interest rates, and a more user-friendly digital experience compared to traditional banks. The rise of neobanks is significantly impacting the financial landscape, and Bangladesh is no exception.
As the global neobanking market continues to grow, it is estimated to reach $333.4 billion by 2026 at a compound annual growth rate of 47.1%. This growth is fueled by changing customer expectations, especially among younger generations like millennials and Gen Z, who are more comfortable with digital technologies and demand seamless, user-friendly experiences in banking.
Advantages of Neobanks
In Bangladesh, where cost-effectiveness is a significant factor for the majority of the population, neobanks offer a competitive edge over traditional banks with their lower fees and higher interest rates. The absence of physical branches and infrastructure allows neobanks to operate with reduced overhead expenses. This streamlined operational model enables them to pass on the savings to their customers in the form of lower fees and better interest rates on their accounts.
Besides, people these days demand convenience and ease in their banking experience. Neobanks cater to this demand by providing round-the-clock digital services that can be accessed at any time and from anywhere. Their mobile-first approach and user-friendly interfaces make it easy for customers to navigate and manage their finances on the go.
Neobanks also leverage cutting-edge technologies such as artificial intelligence (AI) and automation to offer personalised services tailored to individual customers’ needs. This can include customised financial advice, smart budgeting tools, and real-time spending insights, which contribute to a superior customer experience compared to traditional banks.
But neobanks’ biggest claim to fame is hassle-free minimal banking.
Bank customers in Bangladesh have to suffer through the lengthy and often cumbersome application and approval process for account opening, credit cards, and especially loans. Neobanks in Europe and America have addressed this issue by simplifying and streamlining the entire process through their digital platforms. They offer online applications with minimal paperwork and swift verification, which can save customers both time and effort.
This level of efficiency in application processing is a welcome change for many Bangladeshis, who have long been accustomed to the slow and bureaucratic procedures of traditional banks.
Changing customer expectations facilitating the emergence of neobanks
The rise of neobanks has created a shift in customer expectations across the globe. The introduction of MFS and digital payment solutions has also intrigued the younger generations in Bangladesh. Millennials and Gen Z, who have grown up with digital technology, have a preference for convenient, user-friendly, and efficient banking experiences. They are increasingly turning to digital payment solutions, indicating similar acceptance for neobanks, which cater to these demands and provide seamless financial services through their digital platforms.
In response to these changing expectations, traditional banks in Bangladesh are gradually adapting their business models to incorporate digital technologies. They are investing in mobile apps, online banking platforms, and other digital tools to stay relevant and attract tech-savvy customers.
Disrupting the traditional banking model
Neobanks are disrupting the conventional banking model by offering online-only service delivery. This approach enables them to operate with lower overhead costs compared to traditional banks, which must maintain physical branches and infrastructure. As a result, neobanks can offer more competitive rates and services, putting pressure on traditional banks to innovate and improve their offerings to retain customers.
In Bangladesh, this competitive pressure is driving traditional banks to explore new ways to optimise their operations, reduce costs, and enhance their digital services. This competition ultimately benefits customers, who now have access to more efficient and cost-effective banking options.
Collaborative partnerships between neobanks and traditional banks
While neobanks are indeed challenging traditional banks, they are also exploring collaborative partnerships to offer better services to their customers. By combining the strengths of both institutions, these partnerships can provide innovative financial products and services that cater to the needs of today’s digitally-savvy consumers.
In countries like Bangladesh, where regulatory requirements may limit the operation of fully digital banks, such partnerships can be particularly beneficial. Neobanks can partner with established traditional banks to provide services that comply with regulatory guidelines while still leveraging the innovative capabilities of neobanks. These collaborations not only enable neobanks to expand their offerings but also help traditional banks to modernise their services and attract a broader customer base.
Challenges and Future of Neobanks in Bangladesh
Even though Bangladesh Bank is gearing up to form regulatory guidelines on how the neobanks will operate under the Bank Company Act, we are still miles away from a fully digital bank, and the challengers are too real.
One of the main challenges for neobanks in Bangladesh is building trust among potential customers. To overcome this, some neobanks have to offer freemium subscriptions and memberships, allowing users to experience their services without incurring costs like in the West. This will enable customers to evaluate the quality and convenience of the neobanks’ offerings before committing to them financially.
Additionally, neobanks in Bangladesh will have to focus on regulatory compliance and forging partnerships with traditional banks. These collaborations will not only provide neobanks with the necessary credibility but also ensure that their operations adhere to existing banking standards and regulations.
As for its future, the growing smartphone penetration in Bangladesh and the need for financial inclusion created significant market opportunities for neobanks. By offering user-friendly, accessible, and affordable banking services, neobanks can tap into a vast market of unbanked and underbanked individuals, as well as cater to the digitally-savvy younger generations.
Moreover, neobanks in Bangladesh have the potential to serve underserved segments like small and medium businesses, which often struggle to secure loans and credit from traditional banks. As a result, investor interest in neobanks is growing, with many local and international investors recognizing the potential for significant returns.
With zero legacy baggage and technological advancements at their disposal, neobanks in Bangladesh have the potential to revolutionise the banking industry. Their digital-first approach allows them to streamline complex banking processes and offer innovative products and services that cater to the evolving needs of consumers.
Furthermore, neobanks can leverage their technological prowess to provide seamless, personalised banking experiences, setting a new standard for customer service in the financial sector. As these institutions continue to mature and gain traction, the future of neobanks in Bangladesh appears promising, with the potential to reshape the country’s banking landscape and promote financial inclusion for all.
The potential impact of neobanks on traditional banks and the overall financial landscape is vast. They have the power to disrupt the traditional banking model and create a more inclusive, accessible, and user-centric financial ecosystem. As they continue to gain momentum, neobanks may serve as a catalyst for change, driving the banking industry in Bangladesh to new heights of efficiency, security, and customer satisfaction.
Author-Rifat Ahmed
